Iraq settles legal claim with Kuwait and plans new joint venture airline

The legal case – which was brought in the British courts with additional hearings in countries such as Canada – is the longest civil case in legal history.

But ahead of this month’s Arab Summit meeting in Baghdad, Iraqi Foreign Minister Hoshyar Zebari said that a settlement of $500 million had been agreed.

Iraq Airways has been prevented from many international routes for fear that aircraft would be impounded against the debt.

Reuters reported that , Iraq will pay Kuwait US$300 million in cash and will invest another US$200 million in a joint Iraqi-Kuwaiti airline venture. The news agency quoted Maliki's media adviser Ali al-Moussawi twho spoke to Reuters by telephone from Kuwait where Prime Minister Nuri al-Maliki was on a visit.

Industry analyst Saj Ahmad who has been monitoring the ongoing dispute between the two sides said: "Its quite telling that the deal between Kuwait and Iraq also sparks a new Kuwaiti-Iraqi airline partnership so quickly, particularly when both sides have, in the past, been highly dubious of the others motives. Clearly, the bigger winner here is Iraq, even though it is paying some $300m to Kuwait.

“Not only will Iraqi Airways now be able to induct their Boeing 737s and Boeing 787-8s without the threat of legal action, they can also start putting their flag carrier back on the map and pit it head to head with other GCC airlines that have spawned a slew of routes throughout the country.

“Cities like Baghdad, Basra, Najaf and Erbil will stand to gain as the Iraqi Government expands Iraqi Airways' presence in the country. While Kuwait Airways and Jazeera Airways will likely score a few extra routes, the dire financial situation that Kuwait Airways is in means it may not yield them any benefit until they turn their loss making business around. “Further, with the 787-8s coming to Iraq in just a few years, the carrier can look to expand into Europe, Africa and Asia - but for now, getting the threat of legal action removed and with an agreement in place to put the past behind them, both Iraq and Kuwait should make the most of this cooperation and look to better compete with their rival Arab airlines.

 “There is plenty of growth and expansion to be had around the GCC so the quicker they break their shackles, the more beneficial it will become for Iraqi Airways and Kuwait Airways to emerge as stronger, viable entities in a region where competition is distinctly healthy and vibrant."

Kuwait Airways had claimed in the courts that Iraq owes it $1.2 billion for planes and parts stolen after the Iraqi invasion of Kuwait in 1990. However, the new Iraq government and the airline had said this was the fault of the previous regime under Saddam Hussein.

In an exclusive interview with Arabian Aerospace in December, Saad Mahdi Saeed Al-Khafaji. The CEO of Iraqi Airways said he expected the issue to be resolved early this year.

Zebari said the emir of Kuwait, Sabah Ahmed al-Sabah, will attend the Arab League meeting in Baghdad, which is set to begin March 27 after a year-long postponement. Sources suggest the final settlement will be signed then.