Just over a month after Kuwait Airways’ fiscal year began, when the airline was expected to be privatized, however Kuwait’s National Assembly is once again stumbling to finalize moving Kuwait Airways into the private sector.
Back on the 9th of January 2008 Kuwait’s National Assembly approved the privatization of Kuwait Airways. Originally the airline was to be privatized by 2010, however various issues have arisen with the airline’s assets being transferred to the Kuwait Investment Authority for privatization. With the airline’s privatization clearly off schedule, the Kuwaiti Government sought out Seabury, Ernst & Young and Citigroup to handle the privatization in August of 2010, however the firms brought into assist with the transition could not tackle the major issues at hand, that were out of their control, and the privatization was pushed back to March 2011.
The biggest obstacle the airline faces is the transition of the company’s nearly 6,000 employees, many of whom do not want remain with the company once it is transformed from a government owned entity to a private company, as the transition from a government owned airline to a private airline impacts employee “financial privileges” and health insurance.
Presently, Kuwait’s National Assembly has announced that despite three years of planning for the transition of government employees to become private sector employees, neither the airline nor the Kuwait Investment Authority has conduced a study of private insurance providers that provides necessary information to invite bids to provide health insurance.
As the Kuwaiti Government negotiates with the airline’s employees on health insurance and financial benefits, the government itself is interjecting its own complications into spinning the airline off into its own independent company. The plans to privatize Kuwait Airways call for the company to be split up into three types of owners, 40% to be sold to the public, 35% sold to a small numb of long term investors and the government will retain the remaining 25% through the Kuwait Investment Authority.
Now as the government seems to be pressed to sell off the airline to distance itself from the airline’s significant losses, the National Assembly’s Financial Affairs Committee has set up a special session, to be held next week, to discuss legislation that addresses 75% of the airline being sold off while allowing the Kuwaiti Government to retain rights to the airline to protect its image and national symbol integrity.
Given that Kuwait Airways’ estimated revenue from March 31 2010 to March 31 2011 was US$853-million and the airline’s expenses totaled US$1.033-billion, in addition to the other internal issues the airline is facing as it moves towards privatization … can the airline expect to find a long term investor for the 35% stake in the company? Can the Kuwait Investment Authority expect private investors to purchase 40% of the airline?
It will be interesting to see how the Kuwaiti Government moves forward in privatizing the airline and attracting investors given the current state of the airline.