UPDATE 2-Kuwait Airways cancels $3 bln aircraft order

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By H. Hashim Ahmed

KUWAIT, Aug 28 (Reuters) - Kuwait Airways [KA.UL] cancelled an initial order for 19 passenger planes worth about $3 billion from a local firm, raising the prospect it will go direct to manufacturers Boeing Co (BA.N) and Airbus (EAD.PA).

Kuwait's Aviation Lease and Finance Co. (ALAF.KW) (Alafco), which rents out and sells aircraft, said on Tuesday state-owned Kuwait Airways cancelled the order because it failed to get government approval.

"The letter of intent signed with Kuwait Airways for the supply of 19 aircraft is considered cancelled," the leasing company said in a statement on the Kuwait bourse Web site.

A Kuwait Airways spokesman declined to comment. Ahmad Alzabin, Alafco's chief executive, could not immediately be reached.

The loss-making airline was ordering the new aircraft from a lessor rather than direct from the manufacturers because it wanted delivery between 2009 and 2014. Alafco had already ordered the 787s and would have been able to deliver sooner than the manufacturers.

"Now Kuwait Airways can go straight to the manufacturing companies and order their aircraft from them without having to pay a 10 to 15 percent premium," said Karim Murad, a transport analyst at Dubai-based Shuaa Capital.

The carrier, which operates a fleet of 17 mainly Airbus planes, will have to delay its fleet renewal programme or perhaps offer planemakers an incentive for the early delivery of some of the planes, Murad said.

Shares of Alafco, which surged 15 percent during the four trading days before it announced the Kuwait Airways in June [ID:nL0445552], plunged 7.2 percent on Tuesday, their biggest one-day fall in almost 11 months.

Alafco said in June it had reached initial agreement with Kuwait Airways to sell it 19 Boeing 787s and Airbus A320 aircraft. [ID:nL05641405]

A Kuwait Airways official told Reuters at the time that the order for 12 787 "Dreamliners" and seven single-aisle A320s was worth about $3 billion. The carrier also took options for seven more A320s.

Kuwait Airways lost most its fleet - 15 planes - during Iraq's 1990-1991 occupation of the Gulf Arab oil producer, according to its Web site.

The carrier may spend as much as $6 billion to replace and expand its current fleet, Chairman Talal Mubarak al-Sabah told Reuters in April. [ID:nL10303213]

An A320 costs about $136 million at list prices and a 787 between $146 million and $200 million, depending on the version, according to the Web sites of the two plane makers.

That would value the Kuwait Airways order at $952 million for the Airbus aircraft and between $1.75 billion and $2.4 billion for the Boeing planes.