Kuwait Airways has put up a $280m stake for sale to international carriers and investors, the initial stage of a first airline privatisation for the oil-rich region.

The Gulf state's struggling national airline, which owns 17 large aircraft, will this week start holding talks with potential investors to offer a management contract and 35 per cent of the privatised entity's KD220m ($802m) share capital, according to documents seen by the Financial Times.

The Kuwait Investment Authority, the country's sovereign wealth fund, will subscribe to a fifth of the share capital with the balance slated to be offered to employees and investors in a future initial public offering.

Regional rivals such as Qatar Airways, Abu Dhabi's Etihad and Emirates Airlines in Dubai are believed to be among the potential suitors.

Kuwait Airways has reportedly lost money for the past two decades and has in recent years come under increasingly tough competition from better-funded, more aggressive state airlines in the region.

The Gulf's oldest national carrier recorded a net loss of $556m on revenues of $771m last year, according to documents, partially due to the company's large number of well-paid Kuwaiti employees.

The carrier represents a considerable turnround challenge, due to its financial travails, regional competition, the difficulty of sacking nationals in the Gulf and a state bureaucracy that even locals say stifles entrepreneurship.

Wataniya Airways, one of only three airlines in the country, was this year forced to discontinue operations due to losses and scrapped a planned capital raising in June. Its continued existence remains in question.

Gulf Air, Bahrain's national carrier, is also struggling to stem years of losses and remains heavily subsidised by the government.

However, the Kuwaiti government is keen to increase the role of the private sector in the oil-dominated economy and has offered interested parties a series of sweeteners.

These include a seven-year, 10 per cent discount on fuel - on top of an existing, indefinite 10 per cent discount offered to all airlines operating out of Kuwait - exclusive government business for seven years, and a five-year concession to provide land services, such as catering and passenger and cargo handling at Kuwait International Airport.

The airline will also enjoy an indefinite exemption from customs taxes and charges for aircraft spare parts within the six main Gulf states and local employees will be offered the choice between staying at the new, privatised Kuwait Airways, transferring to another government job or early retirement, if eligible.

The deadline for submissions of expressions of interest is August 25.

Citigroup, Seabury, an aviation consultancy, and Ernst & Young are advising the privatisation committee.