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* Plan is to buy 25 new jets, with option for 10 more
* Airbus favoured over Boeing due to price
* Biggest overhaul in fleet since 1990 Iraq invasion
By Sylvia Westall
KUWAIT, May 16 (Reuters) - State-owned Kuwait Airways said it had signed an initial agreement with Airbus to buy 25 new aircraft and take an option on 10 more in the biggest overhaul of its fleet since the 1990 Iraqi invasion.
The order for the new planes would include 15 A320neo narrowbody jets and 10 of Airbus's new A350-900 XWB, Chairman Sami al-Nisf told a news conference on Thursday.
"We signed a letter of acceptance with Airbus," he said, adding that this was the step before signing a memorandum of understanding with Airbus within the next couple of weeks.
He declined to give a value for the order. The airline expects Airbus, owned by aerospace and defence group EADS , to start delivering the aircraft in 2019.
A source said on Monday that Kuwait Airways would pay around 850 million dinars ($2.98 billion) for 25 new planes. Such an order would be worth $4.38 billion at list prices, but aircraft are often sold at a discount.
The airline judged Airbus's offer the most attractive based on price and technical specifications in a tender that included Boeing and Bombardier, the source said.
The airline wants to take out of service 11 jets from its old fleet of 17, in which the planes' average age is 18 years.
The options are for five more A320neo and five more A350-900 XWB, Nisf said. He added that under the deal, which has government approval, the airline would also lease a further 22 Airbus jets.
The company is in talks with local and international banks for part of the financing.
Airbus is confident the A350, Europe's response to the Boeing 787 Dreamliner, can make its maiden flight in the summer, it said earlier this week.
The Kuwait Airways order comes months after the Gulf Arab state was awarded $500 million by Iraqi Airways for damage caused when former Iraqi President Saddam Hussein's forces seized aircraft and parts, ending a two-decade row over compensation.