VZCZCXYZ0010
PP RUEHWEB

DE RUEHKU #0314/01 0901326
ZNR UUUUU ZZH
P 311326Z MAR 09
FM AMEMBASSY KUWAIT
TO SECSTATE WASHDC PRIORITY 3104

UNCLAS KUWAIT 000314 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, EB 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EFIN
SUBJECT: KUWAIT'S EMERGING AVIATION SECTOR 
 
REF: A. 07 KUWAIT 881 
     ¶B. 07 KUWAIT 1510 
     ¶C. 09 KUWAIT 109 
 
 ¶1.  (SBU)  Key Points: 
 
--  Civil Aviation President Fawaz Al-Farah discusses growth 
in air and passenger traffic, KCIA expansion project and 
views on privatization of Kuwait Airways. 
 
-- Despite the economic slowdown, Kuwait's two new 
independent airlines appear to be thriving. 
 
-- Wataniya Airways and Jazeera Airways have both placed 
large orders for new aircraft. 
 
-- Kuwait Airways' rivals appear to benefit from the 
airline's faltering reputation.  The Chairman is hopeful that 
the first step toward privatization (becoming a company 
rather than a corporation) would take place shortly. 
 
-- GoK airport expansion plans include new terminal and new 
runway, increasing annual capacity from seven million 
passengers to 20 million by 2025. 
 
 
 
¶2.  (SBU)  In a March 11 meeting, Kuwait's President of Civil 
Aviation, Mr. Fawaz Al-Farah told Econcouns and Econoff that 
KCIA's air and passenger traffic had grown continuously since 
the 1990s and, despite the economic downturn, was continuing 
to grow.  Total aircraft movements had increased by five 
percent from 2007 to 2008 and passenger movements had 
increased by five percent to just over seven million 
passengers.  In addition, there have been a number of new 
airlines that have signed contracts to operate out of KCIA 
and many of the existing airlines have added additional 
aircraft and/or routes to accommodate the growing number of 
passengers.   The expansion of the airport's runways and the 
addition of a third runway, would grow capacity to 20 million 
passangers by 2025.  Kuwait would also upgrade the Air 
Traffic Management Center and build a new air navigation 
center and advance training courses for air traffic control 
personnel to meet the projected increased traffic. 
 
 
------------------------------------------- 
JAZEERA AIRLINES: KUWAIT'S LOW-COST CARRIER 
------------------------------------------- 
 
¶3.  (U)  Kuwait's first private airline, Jazeera Airways 
(owned by the Boodai Corporation) launched operations in 
October 2005, less than a year after the Council of Ministers 
approved licenses for three private carries, Jazeera, 
Wataniya and Load Air (a cargo carrier).   Jazeera currently 
serves 22 destinations in countries in the Middle East and 
South Asia: Bahrain, Egypt, India, Iran, Jordan, Kuwait, 
Lebanon, Oman, Qatar, Syria, Sudan, Turkey, Yemen.  The 
airline opened its second hub in Dubai in 2007 and plans 
further hubs in 2010. 
 
¶4.  (SBU)  Mr. Suhail Homsi, Senior Director of Support and 
Development at the Boodai Corporation,  said that the 
financial crisis and economic slowdown have not adversely 
affected Jazeera's bottom line and that the company plans 
additional aircraft purchases.  He said that Boodai has also 
invested in an aircraft leasing company.  The company is 
expecting the delivery of two additional Airbus jets in June, 
bringing total inventory to ten.  The airline also plans to 
increase its operations in the Middle East and South Asia. 
 
¶5. (SBU)  Homsi was not concerned with the planned 
privatization of Kuwait Airways.  He said that even if KAC 
were to privatize, the company has numerous issues to iron 
out before being considered serious competition.  He said 
that Jazeera's core competition comes from the low-cost 
carriers operating out of Dubai and Bahrain. 
 
 
--------------------------------------------- --- 
WATANIYA BEGINS OPERATIONS WITH FLIGHTS TO DUBAI 
--------------------------------------------- --- 
 
¶6.  (U)   Kuwait's third airline, Wataniya Airways, began 
flights to Dubai on January 24 and recently launched service 
to Bahrain and Cairo.  The airline operates as a premium 
service airline and is the first regularly scheduled airline 
to fly exclusively from the Sheikh Saad civil aviation 
terminal.  The airline was founded by major Kuwaiti 
investment companies, including KIPCO (Chaired by Sheikh 
Hamad Sabah Al-Ahmed Al-Sabah, one of the Amir's two sons) 
and Global Investment House.  Following an initial public 
offering, it is now 70 percent owned by Kuwaiti citizens. 
Its fleet currently consists of two Airbus A320s. 
 
¶7.  (SBU)  Wataniya CEO George Cooper told Econoff that the 
airline is not overly affected by the current economic 
situation and has recently purchased five additional Airbus 
320s and intends to launch service to Geneva, Milan and 
Munich in the near future.  Cooper stressed Wataniya's 
success in gaining landing slots in Cairo, traditionally a 
highly competitive route.  (Note: Cairo's airport operates a 
"closed skies" policy and operates under stringent aviation 
regulations that limit access for international carriers. End 
Note).  In addition, Wataniya has invested in many 
build-operate-transfer (BOT) opportunities at KCIA, including 
a car-park building, shopping center and projects within the 
new Shaykh Saad terminal. 
 
 
------------------------------------- 
KUWAIT AIRWAYS' PATH TO PRIVATIZATION 
------------------------------------- 
 
¶8.  (U)  In January 2008, the National Assembly passed 
legislation authorizing the privatization of state-owned 
Kuwait Airways.  KAC has been in business since 1954 and was 
a pioneer of long-haul services for the region.   KAC has 
operated at a loss since suffering a devastating set-back 
during the Iraqi occupation, losing most of its' fleet.  In 
2006, having accumulated over USD 700 million in losses, the 
Ministry of Planning agreed that the company should prepare a 
seven-year investment and operational plan, including a major 
overhaul of the aging fleet.  Some parliamentarians, however, 
voiced concerned with such a costly overhaul of the airline 
and the GoK came up with a revised plan for privatization, 
which Parliament approved in January 2008.  Under the plan, a 
single strategic investor would purchase 35 percent of the 
airline.  An additional 40 percent would be sold to Kuwaiti 
investors,  and 5 percent would be allocated to the airline's 
workforce.  The GoK would own the remaining 20 percent.  The 
airline would have until February 2010 to complete the 
privatization process. 
 
 
¶9.  (SBU)  The airline is facing a number of challenges, 
including slipping service standards and dealing with its 
government work force to become competitive.  The Chairman/MD 
of KAC, Hamad Al-Falah and Kuwait Civil Aviation Authority 
President Farah each agreed strongly that Kuwait Airways 
needed to be privatized.  Both noted the difficulties 
inherent in being a state-owned enterprise in Kuwait, 
including using Kuwait's Central Tender Committee (which 
awards to the lowest bidder) and obtaining prior approval for 
certain expenditures from the State Audit Bureau.  Both 
highlighted the difficulties KAC had in upgrading its aging 
fleet, noting by way of example the five year saga of trying 
-- ultimately unsuccessfully -- to update business class 
seats.  With the GOK as a minority owner, they argued, KAC 
could be a more agile operation and would be better able to 
manage its workforce (public sector Kuwaitis can only be 
fired if they don't show up to work for a month).  The first 
step according to Falah would be to convert Kuwait Airways 
from a state owned corporation to a state owned company.  The 
major advantage to this switch would be that KAC would no 
longer need State Audit Bureau prior approval for 
expenditures, although the Audit Bureau would still have the 
right to audit the expenditures, post-facto.  (Note: KAC has 
an outstanding $1.3 billion judgment against Iraq Airways and 
the GoI for damages incurred during the Iraqi Invasion of 
Kuwait.  End Note.) 
 
 
--------------------------------------------- --------- 
AIRPORT EXPANSIONS EXPECTED TO ACCOMMODATE 20 MILLION 
PASSENGERS ANNUALLY 
--------------------------------------------- --------- 
 
¶10. (SBU)  KCIA will soon begin overseeing work on the first 
phase of a four-phase expansion project for Kuwait City 
International Airport (KCIA).  The airport expansion project 
is part of the Government of Kuwait's overall Five Year Plan. 
 The project includes the upgrade of KCIA's two runways and 
the construction of a third runway, in order to accommodate 
its growing number of airline companies and passengers. 
According to officials at MOCI, the completion of a third 
runway would help develop Kuwait's three airline companies 
and accommodate the growing number of passengers traveling in 
and out of KCIA.  According to Kuwait's Civil Aviation 
Director of Projects Engineer Mahdy Al-Dakheel, the first 
phase of the project will begin in summer 2009.  During this 
phase of the project, one of the two runways at KCIA would be 
shut down for approximately one year.  Post has raised 
questions as to what impact the closure of the runway would 
be on airport operations, but KCIA's President of Civil 
Aviation assures Embassy officials that the impact would be 
minimal. 
 
¶11. (SBU)  The airport expansion project, which has been 
budgeted at 211 million Kuwaiti Dinars (USD 790 million) is 
expected to accommodate an increase in passenger volume from 
the current seven million persons annually to 20 million 
passengers in 2025.  Engineer Mahdy said the first three 
phases of the project are expected to be completed in one and 
half years and the final project would take an additional two 
years for completion.  The first phase includes the upgrade 
and expansion of the west runway from 3.4 km to 4.7 km and 
the construction of a third runway capable of accommodating 
the Airbus-A380.  Phase II consists of construction of a new 
DGCA headquarters and new fire stations which will be 
completed concurrently with Phase I.  Phase III includes the 
extension of the East runway from 3.5 km to 4.5 km and will 
commence following the completion of Phase I.  The last phase 
is a two year project and will be carried out separately by 
Ministry of Public Works (MPW).  It will include the 
construction of a new terminal with a capacity to accommodate 
an additional 20 million passengers. 
 
 
********************************************* ********* 
For more reporting from Embassy Kuwait, visit: 
visit Kuwait's Classified Website at: 
 
http://www.intelink.sgov.gov/wiki/Portal:Kuwa it 
********************************************* ********* 
JONES