KUWAIT AIRWAYS DISAPPOINTED WITH IRAQI PROPOSAL

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000639 SIPDIS STATE FOR NEA/ARP, NEA/I; BAGHDAD FOR MMCCORMICK; EB FOR COLEMAN E.O. 12958: DECL: 06/02/2013 TAGS: PGOV EAIR ETRD ECON KU IZ SUBJECT: KUWAIT AIRWAYS DISAPPOINTED WITH IRAQI PROPOSAL FOR SETTLING IAW DEBT REF: A. KUWAIT 217 ¶B. KUWAIT 498 Classified By: Ambassador Deborah K. Jones for reasons 1.4 (b) and (d) ¶1. (C) Summary: In a meeting with Econoff on June 1, Kuwait Airways Corporation (KAC) legal advisor Abdulsattar SETAREH expressed disappointment with the Iraqi proposal for debt repayment presented to KAC and the GOK on May 26 and 27. Setareh reported that the Iraqi Finance Minister told KAC the afternoon of May 26 that the GOI had presented a settlement agreement to GOK officials in a Ministerial meeting earlier and had received assurances that the Iraqi proposal would be accepted at the political levels. In a May 27 meeting, the GOI provided few details of the proposal, which includes an upfront payment of 150 million USD, per a 2003 agreement, and a commercial cooperation arrangement between KAC and IAW that would include a profit sharing and services agreement. KAC asked for full details of this commercial arrangement, but IAW insisted that details would not be available until GOK accepts the proposal. KAC asked the Iraqi delegation to return to Kuwait soon for further discussion. KAC will present this proposal to the Ministerial Committee on June 2. End Summary. ¶2. (C) SETAREH told Econoff June 1 that KAC was not notified of any of the meetings until May 26 when KAC Chairman Hamad al-Falah and Legal Advisor SETAREH were summoned to meet with the Iraqi Finance Minister, DG of IAW, and PM Maliki's aviation and legal advisor in the Minister's hotel room. The Iraqi Finance Minister told KAC officials that the Minister had met with GOK Ministers - Finance, Foreign Affairs and Communications - and discussed a proposal that includes a cash payment of 150 million USD and a profit-sharing commercial agreement between IAW and KAC. The Iraqi Minister said that he had received assurances that this deal would be accepted at the highest levels of the GOK and that the details need to be worked out between the two airlines. He asked KAC to meet separately with IAW officials the following day to work out the details. ¶3. (C) KAC Chairman and Legal Advisor met, in a lengthy session, with IAW Director General, other IAW officials and PM Maliki's transportation advisor Ahmed Saadawi on May 27 to discuss details of the proposal. According to Setareh, the Iraqis started the discussion stating that Iraq does not recognize the legal judgment and is not obligated to pay the USD 1.2 billion debt. Iraq is, however, willing to come to some agreement with KAC that would be beneficial to both parties, Saadawi conceded. The Iraqis proposed a 150 million USD cash payment and a commercial cooperation deal between the two airlines. Conversation between the two legal advisors turned adversarial over the need to acknowledge the debt owed. The KAC Chairman informed the Iraqis that KAC does not have the authority to accept or reject any deals and that the decision would ultimately be made by the Amir and the National Assembly. He stated that KAC owes USD 450 million to its insurance underwriters as part of the legal judgment. Any agreement between KAC and IAW has to take KAC obligations into consideration, he added. ¶4. (C) Legal Advisor SETAREH conceded to the Iraqis that KAC would accept any proposal that is agreed upon by the Kuwaiti government regardless of the obligations under the legal judgment. However, KAC would need details of the proposed commercial cooperation agreement to make an informed decision about its feasibility, he insisted. The Iraqi officials assured the Kuwaitis that the deal would be fair and lucrative for both parties but did not produce any details. They insisted that KAC and the GOK must accept the deal, at least in principle, before GOI can provide any details. GOI officials asked KAC to promote this proposal to the Ministerial Committee that will make the decision on any settlement. SETAREH reiterated that KAC is not in a position to promote this deal without further details but would present it to the Committee. ¶5. (C) The Iraqis asked the Kuwaiti officials to visit Baghdad for the next round of meetings where the two parties could discuss further details of the commercial agreement. KAC officials are not keen on a trip to Baghdad and would prefer to host the Iraqis again in Kuwait, SETAREH said. The Kuwaitis asked the Iraqis to return to Kuwait soon with details of the commercial agreement so that the two parties can move forward. The KAC Chairman and Legal Advisor were to KUWAIT 00000639 002.2 OF 002 meet with the Ministerial Committee on June 2 to present the Iraqi proposal. SETAREH was not optimistic that the proposal would be accepted by the committee in its current state. KAC hopes to meet with IAW again soon and start working out concrete details. Comment -------------- ¶6. (C) The GOK and KAC remain eager to settle this dispute through a mutually beneficial agreement prior to moving forward with privatization of Kuwait Airways. SETAREH assured us that KAC views a commercial agreement as a feasible option to settling this dispute and is keen to obtain details about the deal. The Kuwaitis tell us they are discouraged by what they see as Iraqi arrogance in dealing with this dispute. SETAREH is convinced that the Iraqis will ultimately get their way because they have lobbied Kuwaiti politicians at the highest levels. Although the May 26 and 27 meetings did not lead to any concrete decisions, a ministerial meeting and following working-level meetings were a small step forward. End Comment. ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/?cable s Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ********************************************* * JONES