Kuwait reaches $500m deal with Iraq over airline

Iraq's deal with Kuwait follows a long-running dispute stemming from the first Iraq war that has held back Iraqi Airways, according to reports.

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Iraq has reached a US$500 million (Dh1.83 billion) deal with Kuwait following a long-running dispute stemming from the first Iraq war that has held back Iraqi Airways, according to reports.

Iraq is to pay $300m in cash and invest a further $200m in a joint airline venture between Iraq and Kuwait, the Iraqi prime minister Nouri Al Maliki's media adviser, Ali Al Moussawi, told Reuters yesterday.

Under the agreement, Kuwait will halt legal action against Iraqi Airways.

"[The] joint Iraqi-Kuwaiti operation, however it will be fraught with risk as neither country has an prominent or successful flag carrier," said Saj Ahmad, the chief analyst at StrategicAero Research.

The history of the aviation dispute can be traced back to Iraq's invasion of Kuwait in 1990, when Saddam Hussein ordered that the Kuwait Airways fleet be placed under the control of Iraqi Airways. When the UN military forces invaded Iraq, four of Kuwait's aircraft that had been moved to Mosul in the north of Iraq for safety were destroyed, while six were flown to Iran.

After the war, Kuwait sued the Iraqi carrier in Britain. It chose that jurisdiction because Iraqi Airways had an office in the UK. In a 20-year case in the UK courts, Kuwait Airways sought compensation for what it said was the theft of 10 aircraft and spare parts as a result of Iraq's invasion of Kuwait. Kuwait Airways won a UK court order in 2010 freezing US$1.2 billion of Iraqi Airways' assets.

The Kuwaiti airline also pursued the case in Canada, where court decisions cleared the way for the seizure of buildings owned by Iraq there as well as regional jets Iraq ordered from Bombardier. Last year, the Iraqi Airways office in Amman was seized and US$1.5m of its assets frozen by a Jordanian court.

Iraq and Kuwait have attempted to improve cooled relations that persisted even after the fall of Saddam in 2003. Despite a number of diplomatic overtures, however, the countries have struggled to resolve their differences.

In 2010, the Iraq government announced it would dissolve Iraqi Airways to side-step its legal obligations, but the Iraqi carrier continued to operate.

Meanwhile, Kuwait's airline sector has struggled.

Kuwait Airways has been loss-making for two decades and competes in the Middle East against Emirates Airline, Etihad Airways and Qatar Airways.

The Kuwaiti national flag carrier made a net loss of $556m on revenues of $771m in 2010, according to documents seen by The National.

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