State-owned Kuwait Airways faces the prospect of competition from the country's private sector following a government decision to deregulate and allow local airlines to be set up.

Cabinet ministers have approved the creation of two air taxi companies, and have asked civil aviation authorities to draft rules and regulations to enable the establishment of privately operated passenger and cargo carriers. The idea, says the government, is to "implement the principles of free competition and end practices of monopoly in this vital sector".

Privatisation of Kuwait Airways has been included in the government's list of planned economic reforms for some time, but the process is still at an early stage.

The national carrier has faced severe financial difficulties ever since its operations were severely disrupted by the Iraqi invasion of Kuwait in 1990 and by the Gulf war the following year. Much of the airline's annual revenue goes on paying back a loan taken out after the war to meet the cost of replacing aircraft and property damaged in the conflict. So far, the airline has repaid around $1.2 billion (including interest charges), with $486 million still outstanding.

Demand for flights in and out of Kuwait was well below pre-1990 levels in the immediate post-war years, and the airline's cash flow since then has been affected by periods of tension between the emirate and Iraq.

In the nine months up to April 2001, the airline lost $100 million, and is expected to announce a similar deficit at the end of the fiscal year.

Parliament recently blocked the Kuwait Airways budget, with several deputies criticising the airline's financial performance.

Source: Flight International