The Gulf blog

On Kuwait Airways privatisation 6, September 2011

There’s a jolly interesting article written about Kuwait Airways and its privatisation, which begins with the line

After 18 years of political wrangling, the Kuwaiti parliament passed a privatisation law in May 2010 which proponents said would reinvigorate the country’s bureaucratic, public-sector dominated economy.

Now, I’ve written this line more or less exactly myself (including in here) and said it at various conferences and other talks on numerous occasions, but it bears a moment’s reflection. Nearly two decades for one law on privatization. We’re not talking about droit du seigneur or something here, but privatisation…it boggles the mind…but I digress (and must not harp on…).

Despite those maintaining that such privatisation will lead to

the robbery of the wealth of Kuwait and a plan to destroy the country

Kuwait Airways is raring to be sold. A horrible airline by regional standards (or even those of BA), it has been atrociously ran for decades.

The flag carrier posted losses in 20 of the last 21 years, hemorrhaging more than $3 billion including $556 million last year alone – a time when most airlines were rebounding from the global recession…the airline is bogged down by maintenance costs for its fleet, which has an average aircraft age of 18 years. A $3 billion order for 19 replacement jets had been touted as a landmark solution, but the deal was axed in 2007 after ministers voiced growing unease about pouring yet more money into the failing carrier.

…

Demographics in Kuwait could hardly be more favourable, with almost half the population under 30 years of age and disposable income among the highest anywhere in the world (GDP per capita is around $38,000, according to the International Monetary Fund). While tourism is virtually non-existent, the country’s large expatriate presence, coupled with its geographical location spells clear potential for establishing Kuwait City as an intercontinental hub.

Only last month…drum roll please…Kuwait began to move to become the first privatised flag carrier in the Gulf.

Given that their staffing costs are astronomically high, according to the article, staff were given a wonderfully Gulfy option.

Its 2,600 employees were recently asked to choose between joining the new operating company, transferring to another government entity, or taking retirement if eligible. Though the survey’s results have yet to be published, it is believed that most staff opted to retire or switch to another public body. “It cannot be implemented until the privatisation has occurred, but in terms of the cost element you’ll see a dramatic reduction from day one,” the source predicted. “They’ve rationalised the staff.”

Oh how BA and Virgin look on with undisguised contempt and envy.

This excellent article continues:

Perhaps the biggest worry for investors, though, is the sign that Kuwait Airways may not have learned the lessons of its troubled past. Buried in the teaser document for prospective bidders are several indications that the airline will continue to rely on state support, rather than free-market competitiveness.

On top of the ten per cent fuel discount afforded to all airlines at Kuwait International Airport, the flag carrier will benefit from an additional ten per cent markdown. It will also retain exclusive rights to transport government personnel, as well as enjoying subsidies on airport space rental and exemption from custom duty on aircraft parts used within the Gulf Cooperation Council. Critics say these privileges will do little to foster a culture of efficiency.

Oh how BA and Virgin are spluttering into their Cornflakes at reading this.

Hat tip: Kristian Coates Ulrichesn