Kuwait Airways Corporation History

Company Perspectives:

Kuwait Airways aims to re-establish its network to reach more than 46 countries around the globe with a firm commitment to providing the finest service and comfort to passengers while continuing to rank safety as one of its highest priorities.

Key Dates:

1954:

Kuwait National Airway Company (KNAC) is formed.

1955:

The company is renamed Kuwait Airways Corporation (KAC) as the government acquires a half interest.

1962:

The Kuwaiti government buys the remainder of KAC's shares; the first jets enter the fleet.

1978:

KAC receives its first Boeing 747 jumbo jet.

1983:

Airbus jets replace Boeings in the short- and medium-range fleet.

1990:

Most of KAC's assets are lost in the Iraqi invasion; operations continue from the Cairo base.

1995:

The Oasis frequent flyer club is introduced.

2004:

KAC is being restructured in preparation for privatization.

Company History:

Kuwait Airways Corporation (KAC) is the flag carrier of Kuwait. The airline had a fleet of 17 aircraft, all but two of them Airbuses, when it celebrated its 50th anniversary in 2004. KAC also has catering and aircraft maintenance organizations that serve airlines passing through Kuwait. These were to be spun off. The carrier itself has been under consideration for privatization since 1996. The country's Persian Gulf location has been both a liability--as during the Iraq invasion--and advantage for the airline. The Indian subcontinent, the source of much of Kuwait's guest work population, is KAC's busiest market.

Origins

Kuwait Airways dates its founding back to 1954, when two local businessmen launched the Kuwait National Airways Company. Start-up capital was KWD 150,000, the equivalent of $500,000 in 2004, reports Airliner World. The fleet consisted of three Douglas DC-3s. Flight operations began on March 16, 1954, connecting Kuwait City with Abadan, Iran; Beirut, Lebanon; Damascus, Syria; and Jerusalem.

The company was renamed Kuwait Airways Corporation the next year as the government acquired a half interest. The route network was expanded throughout the Gulf region with the addition of leased, four-engined Vickers Viscount aircraft in 1958.

The government of Kuwait, which became independent from Great Britain in 1961, bought the remainder of KAC's shares in May 1962 after the launch of rival Trans Arabian Airways made the competitive situation difficult. The government acquired a controlling interest in Trans Arabian in April 1964 and folded its Douglas DC-6 aircraft into the KAC fleet.

In the meantime, KAC had begun operating its first jet aircraft, de Havilland Comets, in 1962. This allowed the company to venture into Europe with a six-hour nonstop to London. The Comets were soon supplemented with a handful of newer planes, Hawker Siddeley Tridents and BAC One-Elevens. The One-Elevens were leased off within a couple of years, but the Tridents were very successful plying routes in the Middle East.

KAC bought its first Boeing aircraft when it acquired three 707 airliners in November 1968 at a cost of about $25 million. By 1976, the airline had retired its earlier jets and turboprops and was flying a fleet of eight 707s. These were supplemented with midsize Boeing 737s and widebody 727s, one of which was operated exclusively for the government. KAC received its first of four Boeing 747 jumbo jets in August 1978. These long-range giants allowed the airline to begin extending the London service to New York City as well as start service to Manila in the Philippines.

Mixing It Up in the 1980s

Although the 747 service proved popular, KAC elected to replace its short- and medium-range fleet with A300 and A310 aircraft from the European consortium Airbus. The first of these were added to the fleet in September 1983. The 11 A300s were valued at about $1 billion.

The Iran-Iraq war and political instability in the Middle East were blamed for a 10 percent fall in annual revenues in the mid-1980s. The airline stepped up its marketing efforts to compensate for a drop in traffic. KAC also had to contend with hijackings in 1984 and 1988.

Boeing was able to win back some of KAC's business when it sold the airline three Boeing 767s, which were delivered in 1986. KAC ended the 1980s with about two dozen aircraft in all. It was ferrying about 1.5 million passengers a year among 42 destinations in 35 countries. The airline had been profitable since the mid-1980s and posted income of KWD 11.62 million ($40 million) in 1989-90. It had about 5,500 employees.

1990 Iraqi Invasion and Aftermath

Kuwait was invaded by Iraq on August 2, 1990. In the seven months that followed, notes Airliner World, more than 85 percent of KAC's assets were destroyed or stolen. Company director-general Ahmad al-Zabin told the Financial Times the airline suffered $1.6 billion in losses due to damage to its fleet, computer reservations system, and lost revenues.

A dozen of the airline's 20 planes, and another three owned by the Kuwaiti government, were seized by Iraq. Several of these planes were destroyed in the war. The Iraqis also absconded with KAC's entire $150 million spare parts inventory, reported the Financial Times. Six of its Airbuses were flown to Iran during the occupation. KAC filed an insurance claim for $694 million for loss of the planes; however, Lloyd's of London limited its payout to $300 million, its maximum for a single event. Litigation against Iraq's national airline, which had repainted seized planes in its own colors, stretched on for years.

As the New York Times reported, KAC carried on operations from a temporary base in Cairo even while its homeland was occupied. Half of its employees, including Chairman Ahmad Hamad al-Mishari, had been out of the country during the invasion.

The aftermath of the Persian Gulf War produced a global recession that affected airlines around the world. No other carrier had to endure what KAC did, however. The airline posted a loss of KWD 38.67 million ($133 million) in the 1990-91 fiscal year.

KAC was operating a fleet of nine aircraft immediately after the war; all but one of these planes, reported the Financial Times, had been out of the country during the invasion. Reservations and maintenance operations were shifted to outside facilities. The airline ordered 17 new aircraft worth $1.44 billion to be delivered by 1996. These included two new Boeing 747s to replace the old ones.

KAC lost buildings as well as aircraft during the occupation. Construction of a new, $37 million, two-story headquarters began in 1993 (the airline moved into it in 1998). New hangars also were erected. The cost of rebuilding the ground infrastructure was reported at up to $250 million by Airline Business.

The Mideast air travel market became more competitive in the mid-1990s as capacity growth exceeded demand (which was nevertheless increasing faster than in other markets). To cope, KAC developed limited alliances with other carriers in the region such as Syrian Airlines, Middle East Airlines, Cyprus Airways, and Thai International. It helped bankroll two new start-ups, India's Jet Airways and Shorouk Airways of Egypt. Shorouk ("sunrise") was a charter joint venture with Egyptair. While Shorouk consistently lost KAC money, Jet Airways, also backed by the Gulf Air, became India's leading independent domestic carrier and an important source of feeder traffic for KAC. Both KAC and Gulf withdrew from Jet in 1997, however, in order to meet an Indian government mandate barring foreign ownership of domestic airlines.

In 1994, KAC began implementing a five-year plan to man technical positions with Kuwaitis. At the time, the airline employed about 160 Kuwaiti pilots and 60 foreign ones. The Kuwaitization policy also was extended to nonflight crew positions. By this time, the company was completing about 60 percent of its own aircraft maintenance.

The route network was expanded as the fleet was rebuilt. New destinations in the mid-1990s included Kuala Lumpur, Malaysia. This was cut after six months due to losses, however. Frequencies were increased on routes within the Middle East region.

The Kuwaiti government instituted an open skies policy in 1996, opening KAC up to increased competition at home and eroding its market share from 60 percent to 52 percent, noted Airline Business. The government also was considering privatizing KAC.

KAC joined Trans World Airlines (TWA) of the United States in a code-sharing agreement in late 1999. The allowed KAC to list TWA's flights to St. Louis, Los Angeles, and San Francisco under its own reservation code.

Revenues were KWD 168.30 million ($570.83 million) in 2000. The Indian subcontinent was the source of most of its business, reported the Hindu Business Line. There were about 375,000 Indians living in Kuwait, attracting competition from Air-India and Indian Airlines (the latter eventually joined KAC in operating a cargo route). KAC had about 5,000 employees.

The airline maintained a reputation for excellent in-flight service. As the flag carrier of a Muslim country, KAC did not offer alcoholic drinks, and meals were prepared according to halal dietary principles. The airline removed one more vice from its cabins in 2001, when it banned smoking on all flights.

50th Anniversary in 2004

KAC began 2004 with a fleet of 17 aircraft. The Kuwaiti government was restructuring the airline as a shareholding company to allow for its eventual privatization. The airline had considered spinning off its cargo operations and creating a separate regional carrier.

Kuwait Aviation Services Co. (KASCO), a catering subsidiary formed in 1981, was expected to be spun off on the Kuwait Stock Exchange. The operation had grown to operate airport restaurants as well as Kuwait's Costa Coffee shops, licensed from a British company. KASCO also had formed an overseas joint venture with Al-Bateel Trading Company of Qatar. KASCO provided ground handling services at Kuwait International Airport as well.

KAC lost KWD 28.96 million ($98.3 million) on revenues of KWD 215.96 million ($732.8 million) in the 2003-04 fiscal year. Losses due to the recent war in Iraq were less than expected, although in both conflicts the need to fly around controlled airspace added considerable expense. Fuel prices, a major expense for any airline, skyrocketed as well. According to Airline Business, KAC, which flew the first relief flight to Baghdad after the fall of Saddam Hussein, was poised to benefit from business traffic related to the rebuilding of Iraq. The carrier had accrued losses of KWD 530 million since 1990.

The airline was shopping for new planes to replace its Airbus A300, A310, and A320 airliners. KAC was planning to have a total fleet of about 25 aircraft to meet anticipated growth, reported Flight International. A new airport was being constructed in Kuwait City for KAC's exclusive use. It was to be completed by 2015.

Principal Subsidiaries: Kuwait Aviation Services Co. (KASCO); Alafco; Shorouk Airways (49%).

Principal Competitors: Air-India; Emirates Airlines; Indian Airlines Ltd.; Saudi Arabian Airlines (Saudia).

Further Reading:

• Abrahams, Paul, "Rebuilding an Airline," Airline Business, October 1991, pp. 46ff.
• ------, "Rebuilding Kuwait; Phoenix Rises from the Ashes of Iraqi Destruction," Financial Times (London), July 8, 1991.
• "AI, IA Operating Scheduled Flights to Kuwait," The Hindu (Madras, India), March 27, 2003.
• "Anatomy of a Hijacking," Reader's Digest, October 1985, pp. 71ff.
• "Assembly Panel Opens Talks on national Airline KAC Privatisation Taking Off," Kuwait Times, December 14, 2003.
• Bray, Roger, "Kuwait Airways to Ban Smoking," Financial Times, March 20, 2001, p. 18.
• Cameron, Doug, "Struggle from the Rubble," Airline Business, January 1997, pp. 36ff.
• Colodny, Mark M., "Kuwait's Planeless Airline Chief," Fortune, April 8, 1991, p. 91.
• Feazel, Michael, "Kuwait Maintenance Plant Designed to Cut Losses," Aviation Week & Space Technology, April 18, 1993, pp. 44ff.
• Fernandes, Frankie, "Kuwait Airline Plans Major Expansion with New Planes," Moneyclips, April 1, 1995.
• Greenwald, J., "Nightmare on Flight 422," Time, April 25, 1988, pp. 46ff.
• "Homeless, But Still Flying," Time, November 26, 1990, p. 71.
• "KAC Financial Situation Sound, Strong--Al-Zubin," Kuwait Times, May 1, 2000.
• "KAC Is Still Recovering from the Last Iraqi Conflict," Middle East Economic Digest, February 28, 2003, p. 6.
• "KASCO Shares May Go Public; KAC Plans Flights to Trivandrum," Moneyclips, April 19, 1994.
• "Kuwait Airways Corporation (KAC) Is Facing a 6-10% Decline in Revenue in Its 1985/86 Budget," Textline Multiple Source Collection (1980-1994), April 22, 1986.
• "Kuwait Airways Corp Reports $98.3 Mln Loss FY 2003," Kuwaiti News Digest, June 15, 2004.
• "Kuwait: Construction of $37 Million Airline Headquarters," ESP--Report on Engineering Construct & Operations in the Developing World/The Export Sales Prospector (ESP), December 1, 1992.
• Lenorovitz, J.M., "Egyptair, Kuwait Form Joint Carrier for Chart Passenger, Cargo Flights," Aviation Week & Space Technology, April 20, 1992, pp. 40ff.
• Maslen, Richard, "'Baghdad This Is Kuwait 104'; Flying in Iraqi Airspace with Kuwait Airways," Airliner World, October 2004, pp. 79-81.
• ------, "Kuwait Airways," Airliner World, September 2004, pp. 53-58.
• ------, "Rebuilding an Airline," Airliner World, October 2004, pp. 76-78.
• "MEED Special Report on Kuwait--KAC--New Carrier Rises from the Ashes," Middle East Economic Digest, February 20, 1995.
• Murali, Janaki, "Kuwait Airways Plans Divestment," Business Line (The Hindu), September 13, 2001.
• "No Decision Yet on Privatisation--KAC Plans to Reduce Number of Employees," Kuwait Times, September 7, 2000.
• "Passenger Safety, Security Top KAC Agenda," Kuwait Times, June 25, 2001.
• Pinkham, Richard, "Time to Take Control," Airline Business, August 1, 2003, p. 54.
• "Plan to Privatise Airline Grounded; 'KAC Making Profit,'" Moneyclips, August 10, 1994.
• Rahman, Saifur, "Kuwait to Construct New Airport," Asia Africa Intelligence Wire, March 4, 2003.
• Shadi, Hisham Abu, "KAC Launches 5-Year Kuwaitisation Plan; 'Pilots Being Trained at Own Expense,'" Moneyclips, May 2, 1994.
• Vandyk, Anthony, "Bold, New Spirit," Air Transport World, June 1995, pp. 196ff.
• Wagland, Maria, "Kuwait Airways Set to Renew Fleet," Flight International, August 19, 2003, p. 9.
• Weiner, Eric, "With Few Planes, Kuwaitis Try to Revive an Airline Without a Country," New York Times, October 15, 1990, p. A13.

Source: International Directory of Company Histories, Vol.68. St. James Press, 2005.