Kuwait aims for Dh1bn flag carrier stock listing

Kuwait Airways is to list 40 per cent of its business in an IPO

Kuwait is planning to privatise the state-owned flag carrier.

The Kuwaiti government is set to privatise its national airline by launching a Dh1.1 billion (US$299.4 million) initial public offering as part of a plan to diversify the economy and boost the country's private sector.

In a landmark privatisation, Kuwait Airways plans to list 40 per cent of its business on the Kuwait Stock Exchange and sell a minority stake of 35 per cent to a strategic investor.

"The philosophy in the Gulf is privatisation will provide more efficiencies and bring better governance and transparency to a country," said Dr Karim El Solh, the chief executive of Gulf Capital, an alternative investment company.

Kuwait Airways' initial public offering (IPO) is a rare move in a region dominated by government-owned airlines and analysts are sceptical about both the appetite for an IPO and interest from a strategic investor.

The airline has reportedly been loss-making for two decades and competes in an already saturated Middle East market that includes Emirates Airline, Etihad Airways and Qatar Airways.

"I'm scratching my head to know who would be interested, it is not exactly a high-growth story," said Anais Faraj, the managing director of investment banking at The National Investor. "I doubt it will stack up as a profitable business."

Kuwait Airways is the country's oldest airline, founded in 1954, and national flag carrier, with a local market share of 31 per cent by passengers transported.

Kuwait Airways made a net loss of $556m on revenues of $771m last year, according to documents seen by The National.

As a carrot to entice investors, Kuwait Airways will receive a 10 per cent discount on fuel provided by the Kuwaiti government on top of the 10 per cent provided to all other carriers operating out of Kuwait International Airport, the documents said.

Mr Faraj said the only reason an international carrier would buy the 35 per cent stake and help turn the business around would be if a "sweetener" - such as fuel subsidies - were also added to the deal.

"Another airline would only buy it if you could get an agreement to sell fuel to, for example, 50 per cent of the international airline's fleet," he said.

The new airline will receive tenders for the 35 per cent stake until August 25 when the committee will begin considering bids.

Once a deal has been agreed, the committee and the new investor will begin listing the airline on the Kuwait Stock Exchange.

"It's a question of routes," said one banker in Abu Dhabi, who asked not to be identified. "Emirates, Etihad and Qatar Airways have taken care of all the lucrative routes. How much market can there be to support another airline in the Gulf?"

Kuwait Investment Authority, the country's sovereign wealth fund, will own 20 per cent of the new airline company, with 5 per cent of the new entity to be offered to employees. In total, the privatisation is expected to be worth 220m Kuwaiti dinars (Dh2.96bn).