KUWAIT CITY, 18 November 2003 — A decision by the Kuwaiti government Sunday to open up the domestic aviation sector to private investors is expected to lure billions of dollars in investments, a senior economist said yesterday.
The Kuwaiti Cabinet in its weekly session agreed to allow the private sector to establish low-fare passenger, freight and cargo airlines to compete with the state-owned loss-making Kuwait Airways Corp. (KAC).
The decision was based on a recommendation by the Commerce and Industry Minister Abdullah Al-Taweel with the aim of offering air transportation without the “luxury” services. Founders of such companies will be allowed to own up to 30 percent of the shares while the remaining stocks must be sold in a public offering.
“This is a major step in the right direction. It opens up a vital economic activity to the private sector,” Abdulmuhsin Taqi Muzaffar, board member of Kuwait Economic Society said. “It will definitely lure billions of dollars in local and foreign investments ... There is a huge potential in the Kuwaiti market for more airlines,” he told AFP.
Muzaffar said the decision will open up the aviation sector to healthy competition and will break the monopoly enjoyed by KAC for the last several decades. “It will have a major positive impact on the national economy,” as it will attract hundreds of small investors into this lucrative business, he said.
The Kuwaiti decision comes after the Gulf Arab emirates of Sharjah and Abu Dhabi began last month operating low-fare airlines. KAC has incurred losses almost every year in the past decade and its total accumulated deficits have reached hundreds of millions of dollars.
This has forced the emirate’s outspoken parliament to refuse to pass its final accounts for the last several years, making the government unable to pay the deficits from the state coffers.
The national carrier has suffered from cashflow problems and debts, which peaked at $1.4 billion after the Iraqi occupation of August 1990-February 1991, when it lost 86 percent of its capital.
The carrier operates a fleet of 15 Airbus and two Boeing 777 aircraft, while total net assets stood at close to $2 billion.
Kuwait, which depends on oil for more than 90 percent of its income, has increased the pace of its economic reforms after the fall of the former Iraqi regime in April. Last month, the emirate decided to implement the Foreign Direct Investment Law which opens up most of domestic economy sectors to foreign investors and allow 100 percent ownership by foreign businessmen.