US embassy cable - 05KUWAIT1807

UNCLAS SECTION 01 OF 02 KUWAIT 001807 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: BEXP, EAIR, KU 
SUBJECT: AVIATION UPDATE: JAZEERA READY TO LAUNCH AND 
KUWAIT AIRWAYS MOVES TOWARDS PRIVATIZATION 
 
REF: KUWAIT 00324 
 
1. (U) SUMMARY: Econoff met with the CEO and Chairman of 
Jazeera Airways Mr. Marwan Boodai on April 30, 2005, to 
discuss the new proposed launch date of Kuwait's first 
privately owned airline.  On May 1 Kuwait Airways (KA) 
announced that the draft bill transforming KA into a 
commercial body is expected to be approved, taking KA one 
step closer to privatization.  END SUMMARY. 
 
Jazeera Airways Schedules October Launch Date 
--------------------------------------------- 
 
2. (U) During an April 30 meeting with Mr. Marwan Boodai, CEO 
and Chairman of Jazeera Airways (JA), and Mr. Suhail Homsi, 
Director of JA, Econoff learned that the privately owned 
airline is expected to start flying in October 2005.  Ticket 
sales to the initial destinations of Dubai, Bahrain, Jordan, 
Syria, Lebanon and Egypt will begin on August 29. 
 
3. (U) Originally scheduled to begin service in February 2005 
(Ref A), Boodai explained that the delay was caused by the 
company's decision to purchase its own aircraft rather than 
lease the planes.  The decision to buy rather than lease, he 
continued, was based on two factors: the unexpected amount of 
investment capital available to the company and the desire to 
offer a better product to the customer.  JA is traded on the 
Kuwait Stock Exchange and has over 3,600 investors.  Boodai 
said, therefore, that the company has enough start-up capital 
to justify the more expensive option of purchasing the 
aircraft.  Boodai added that several local and international 
banks offered favorable terms to finance the purchase of the 
planes. 
 
4. (U) Jazeera Airways is expected to take delivery of its 
first two Airbus A320s in October, about a week before the 
first scheduled flight, Boodai said.  JA has contracted with 
Airbus for four A320s with an options for four additional 
aircraft. He added that it is expected that JA will exercise 
the option and take possession of all eight aircraft by 2008. 
 
5. (U) When asked if Jazeera had considered purchasing Boeing 
aircraft, Boodai expressed some dissatisfaction and 
frustration with the Boeing sales department.  According to 
Boodai, Airbus was timely in contacting JA once it was 
publicly known that the new airline would be purchasing 
aircraft.  However, Boodai continued, Jazeera had to call 
Boeing to find out if they were interested in submitting a 
bid for the aircraft sales.  In Boodai's opinion, Boeing 
seemed "indifferent" to working with Jazeera and Boeing 
seemed to "take it for granted" that they would win the 
contract because of the close relationship between Kuwait and 
the United States.  Boodai added that Boeing only became 
engaged in the sales process when JA indicated that they were 
leaning towards Airbus.  Boodai claimed that he would have 
preferred to purchase Boeing airplanes but that Boeing was 
unwilling to negotiate on the terms of the purchase contract. 
 
6. (U) Boodai went on to say that other U.S. companies are 
being used to provide some products and services to the new 
airline.  Jazeera is out-sourcing many of its services, 
including reservations, ground-handling, and the customer 
service call center, in an effort to keep down costs and 
provide a solid investment to shareholders, according to 
Boodai.  He added that Jazeera Airways has only 40 employees, 
excluding pilots and crew, compared to the 5000 employees 
that Kuwait Airways employs. 
 
Kuwait Airways Moves Toward Privatization 
----------------------------------------- 
 
7. (U) On May 1, 2005, the Arab Times reported that Kuwait 
Airways Chairman Shaykh Talal Al-Sabah had announced that the 
draft bill transferring KA into a commercial entity is 
expected to be approved soon.  Al-Sabah said that indications 
point to the government approving a 240 million KD budget for 
restructuring, updating KA's aircraft fleet  and implementing 
mechanisms to change KA into a for-profit government-owned 
company.  According to an earlier meeting with the chairman 
(Ref A), this is the first step towards privatizing Kuwait 
Airways. 
 
8. (U) In a bit of irony, the article reports that Al-Sabah 
said that the hike in oil prices has become a burden for KA 
and that a reduction in airfares is not possible so long as 
oil prices remain high.  However, early retirement for some 
employees is being considered as a way to help KA cut costs, 
he said. 
 
******************************************** 
Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
******************************************** 
LEBARON