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The announcement by Kuwait Airways that ithas signed a contract to purchase 25 aircraftand lease a further 12 was, on the surface, a

welcome step forward by the heavily loss-makingflag-carrier.

Airbus will deliver 15 A320neos and 10 A350-900s over an unspecified timeframe, KuwaitAirways said in December, while also facilitating12 short-term leases beginning in the secondquarter of 2014.

For an airline whose average aircraft age is 19years, the long-awaited order would breathe newlife into its fuel-guzzling fleet.

But, as is often the case in Kuwait, it was not

long before cracks emerged. Airbus has yet toconfirm the deal, echoing prevarication, whichseemingly unravelled the flag-carriers previousfleet announcement in May. Within days of thelatest news, Kuwaiti MPs were demanding aprobe intoa contract that, they said, lacked detailand appeared to be suspicious.

Factor in the sudden dismissal of chairmanSami Al Nesf who was pushed out in November,immediately after announcing an ill-fated leasingdeal with Indias Jet Airways and it seems to bebusiness as usual for the beleaguered airline.

Such chaotic scenes will come as somedisappointment to Ahmad Alzabin, chiefexecutive of Kuwaiti leasing firm ALAFCO.Having previously worked at Kuwait Airways for27 years, he would like nothing more than for theflag-carrier to mimic ALAFCOs own remarkablesuccess.

On a personal level, I want to serve KuwaitAirways by paying back for all the things that Ihave learnt from them, he said duringNovembers Arab Air Carriers Organisation(AACO) AGM in Doha. I was an engineer byprofession, and I progressed up to the level ofdeputy director general technical. Of course, I dida lot of leasing from Kuwait Airways to otherairlines, and this is how I got my leasingbackground.

Whereas the flag-carrier has languished,

Kuwaits flag-carrier may be on life support, but the emirate has stillproduced a major success story for Gulf aviation. Martin Rivers meets

Ahmad Alzabin, chief executive of Kuwaiti leasing firm ALAFCO.

ALAFCO has grown steadily to become theMiddle Easts fourth-largest buyer of aeroplanes.Its order book trails behind only Dubais Emirates,Abu Dhabis Etihad and Qatar Airways.

The lessor currently owns 47 aircraft, which areleased to 14 airlines spread across the Middle East,Europe, Asia, Africa and Latin America. Anotherthree aircraft are managed for investors.

ALAFCOs clients include major carriers likeTurkish Airlines, Ethiopian Airlines and Saudia,along with lesser-known operators such asCaribbean Airlines and Chinas Okay Airways.

It has outstanding orders for 117 aircraft 85A320neos, 12 A350-900s and 20 Boeing 737

MAXs due to arrive between 2017 and 2022.The only confirmed customer so far is ThaiAirways, which will take six of the A350s on 12-year leases. We are busy placing the rest,Alzabin said. This will keep us busy for quite afew years.

Talks are under way

Separately, ALAFCO had also signed for 22 787Dreamliners. Talks are under way with Boeingabout placing the last eight units, with Saudia andOman Air already having taken control of eightand six orders respectively.

Alzabins target of reaching 100 aircraft hasslipped back from 2017 to 2020 under the latestprojections. But his willingness to revise the planunderscores ALAFCOs commitment toprofitability. The company posted a net profit of20.6 million Kuwaiti dinars ($73 million) for the2013 fiscal year, against total assets of KD670million. Its result was down from KD25.6 millionin 2012, but still firmly in the black.

Contrast that with Kuwait Airways, which isestimated to have lost $1.6 billion in the past fiveyears alone. The flag-carrier seems hamstrung bypolitical indecision over its privatisation process,as well as its sorely needed fleet renewal. WhileAlzabin can onlywatch from the sidelines, hestressed that ALAFCO remains a willing partnerfor the airline.

We talk to Kuwait Airways all the time. Wextend all our services to Kuwait Airways all thtime, he insisted, noting that the flag-carrieowns 11.47% of ALAFCO. Another 53.69% iheld by Kuwait Finance House, with thremainder in the hands of private investors.

Asked whether he expects Kuwait Airways tosource its upcoming aircraft from ALAFCO alogical presumption, given that the lessors ordebook includes both of the types named in thAirbus deal Alzabin cautioned against thinking iwas a foregone conclusion.

I do hope so, because there are many elementthat will encourage this decision, he said

ALAFCO keeps talking to Kuwait Airwaystryingto offer solutions that they may need for thcomposition of their fleet, or for complementingtheir fleet with newer, younger, more fuelefficient, more technologically advanced aircraftBut I cannot say that we have already got KuwaiAirways order. That would be a false statement

We keep talking to them. Its only natural thawe would keep talking to them, as we are bothKuwaiti companies, he continued. KuwaiAirways is going through a lot of administrativissues. Once this is settled, probably they will bmore ready to make their decision.

Indeed, with or without Kuwait Airwayscustom, ALAFCO is more than capable omeeting demand. The lessor continues to tap thebond markets with relative ease, most recentlyissuing a US Export-Import Bank-guaranteedbond valued at $162 million. That transactionwent towards a sale-and-leaseback deal withGaruda Indonesia for two new 777-300ERs.

Alzabin admitted that further mega-orders arunlikely until ALAFCO progresses with placing itupcoming 117 aircraft.

The last such order for the 737 MAXs wasigned at the 2012 Farnborough Airshow. Budefinitely we are in the market for sale-andleasebacks, he noted.

The company is also working towards a 30%secondary listing on the London Stock Exchange

Alzabin points the wayto a new lease of life

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complementing its existing presence on thKuwait Stock Exchange and broadeninALAFCOs appeal to potential foreign investors

We had a general assembly on August 15 201and the shareholders approved a listing on foreign stock exchange, Alzabin confirmed. Ware working now with the consultant [DeutschBank] on the listing requirements. We also artalking to the Kuwait Capital Markets Authoritto obtain the necessary approval.

The business we are in is an internationabusiness, and we want it to be easier for foreiginvestors to look at ALAFCO as a global leasincompany. Being exposed to these markets give

you more ability to ask for more funds in capitaincreases, helping whatever expansion plans yohave.

Risky businessAlthough lessors are generally regarded as morstable than airlines, the leasing business is bdefinition a risky one. The collapse of Turkeys SkAirlines last year disrupted the sale-and-leasebacof two 737-900ERs. Kuwaits failed WataniyAirways proved equally troublesome in 2011Large aircraft orders can also be undone bmacroeconomic shocks, as evidenced by DAECapitals fall from grace after the global financiacrisis.

Nonetheless, Alzabin is optimistic about thoutlook. The signs are very clear that the sector iin recovery mode now, he said. The demanpresents itself at these international airshows bthe number of aircraft being ordered.

Closer cooperation with stakeholder KuwaiAirways is not essential, but it would certainly dno harm.

While Alzabin works to build his lessorreputation overseas, the fractured Kuwaitparliament must now urgently end its bickerinand sanctionthe flag-carriers reforms. Thenperhaps, a more fuel-efficient fleet and a privatesector mind-set will allow Kuwait Airways tfollow in ALAFCOs footsteps.

We talk to Kuwait Airwaysall the time. We extend allour services to KuwaitAirways all the time.AHMAD ALZABIN