Iraq reached a $500 million deal Wednesday with Kuwait to settle a Saddam-era legal dispute that has for years snarled business for Iraq's national airline, officials said.
The agreement ends one of the most bitter diplomatic issues between Iraq and Kuwait since Saddam Hussein's invasion in 1990.
In a telephone interview from Kuwait City, Iraqi Foreign Minister Hoshyar Zebari said the two nations agreed to eliminate $1.2 billion in legal sanctions against the state-owned Iraqi Airways. In return, Zebari said, Iraq will pay $300 million in reparations and another $200 million to set up a joint airline operated by both counties.
Neither Zebari nor Iraqi government spokesman Ali al-Dabbagh would explain what made Kuwait give up the bigger payment. Al-Dabbagh attributed it to a new era of diplomacy between the two counties that had strained relations for a generation.
Kuwait's state-run official news agency confirmed the deal "to cancel all lawsuits and verdicts against the Iraqi Airways." It offered no details in reports Wednesday about an Iraqi delegation's visit to Kuwait, led by Prime Minister Nouri al-Maliki.
"This visit is successful," Zebari told The Associated Press. "We will sign the Iraqi Airways agreement today to close this issue, finally."
The long-standing dispute centered on Kuwait's accusations that Saddam's regime stole 10 airplanes and millions of dollars in equipment and spare parts from its fleet during the 1990 invasion.
Kuwait sought $1.2 billion in reparations, but Iraq's post-Saddam leaders resisted paying it, leading to lawsuits and threats to eliminate flights. At least one planned Iraqi Airways route, between Baghdad and London, was grounded on its maiden flight when Kuwait attempted to confiscate the plane.
Both Iraqi Airways and its neighbor's national carrier, Kuwait Airways, have struggled financially in recent years — a sharp contrast to the rapid growth of newer Mideast/Gulf-based airlines such as Dubai's Emirates, Qatar Airways and Abu Dhabi's Etihad Airways.
In August, Kuwait Airways launched a search for a buyer for a 35 percent slice of the state-owned airline as it looked to push forward a long-awaited turnaround plan. The privatization effort appears to have stalled. The head of a privatization committee said in October that "a number of operational and structural issues" needed to be addressed before going back to the market.
Kuwait Airways operates a fleet of 17 jetliners that fly mainly to Europe, the Middle East and Asia. In fiscal 2010, the carrier brought in $771 million in revenue but posted a loss of $556 million, according to a government presentation for potential investors last year.
Another Kuwaiti carrier, Wataniya Airways, abruptly stopped flying a year ago, citing financial troubles and unrest in the region.
Zebari said Kuwaiti and Iraqi officials are still working toward agreements in other areas where the two nations have disputes, including borders, joint oil fields and rival ports on the Persian Gulf.
Also Wednesday, al-Dabbagh said Kuwait's emir said they will attend the Arab League summit meeting in Baghdad at the end of this month. The visit by Sheik Sabah Al Ahmad Al Sabah will be the first by a Kuwaiti ruler since Saddam's invasion of the oil-rich Gulf state.
The League summit originally was scheduled for the Iraqi capital last year, but political unrest across the Mideast, combined with concerns about Iraq's security, delayed it.
It is set now for March 27-29.
Associated Press writers Sinan Salaheddin in Baghdad and Adam Schreck in Kuwait City, Kuwait, contributed to this report.