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Gulf Air in final crisis fight for survival

Posted 10 May 2012 · Add Comment

Aviation analysts are warning that Gulf Air could be losing the fight for survival following a decision in the Bahrain parliament to reject a $1.75bn bailout to rescue the ailing airline.

MPs voted against the funding support and the bid has been referred to the Shura Council.

The parliament has been demanding a number of changes at the airline including a Bahraini national as chief executive who must have 20 years experience in the industry as part of a new Bahrainisation approach.

The parliamentarians also called for officials to be prosecuted for squandering public money. Ironically MPs also said they wanted to bring to an end external interference that affects internal policies.

MPs also agreed the airline should revise its decision-making about destinations, buying and selling aircraft and contracts with consultancy firms or recruitment agencies as well as requiring the chief executive and the performance of senior management to be closely monitored.

The decision and the comments are seen by many in the industry to make highly respected chief executive Samer Majali’s role as untenable. Majali – the former head of Royal Jordanian had introduced a plan to restructure the airline to meet the financial demands of the owners – the country’s sovereign wealth fund, Mumtalakat – but met strong opposition by some high ranking Bahrainis who wanted the airline to be seen to compete with the other major and growing Gulf airlines.

The political situation in Bahrain, along with Arab spring uprisings in other MENA countries plus the high fuel costs and world economic crisis also severely affected the airline.

In a statement today, the airline said: “The requirement for additional funding is the direct result of a series of unprecedented regional and economic factors, including a significant increase in fuel costs that Gulf Air faced, in common with other carriers around the world. Added to this Gulf Air had specific other factors to contend with. The security situation locally and in the region meant the airline was forced to suspend eight of its most profitable destinations. Further concerns such as visa restrictions and, travel bans by several countries significantly cut the number of people travelling through Bahrain.

“The airline reassures its customers today that its current operations and services would continue as normal as the legislative process evolves. As it continues to strive to provide the highest levels of customer service, the airline thanked customers for their on-going support.

“Gulf Air is an important national infrastructure asset and one of the largest employers in the Kingdom, providing direct and indirect employment to over tens of thousands of people. Despite its losses, the national carrier contributes hundreds of millions of BD annually to the country’s GDP and has a positive and wider impact on several other local businesses such as hospitality, transport and tourism. The airline is a key strategic asset that allows Bahrain to maintain a  positive profile internationally and its independent destination status connecting local businesses with important regional and global markets.”

Analysts feel the problems are deeper than the external influences. Saj Ahmad said: Gulf Air is at an unfortunate crossroads with no clear sense of direction. The vote against a bailout for the airline now puts its expansion and recovery plans into serious doubt. It's all very well blaming fuel costs and regional upheaval as sources for the airlines difficulties, but the fact is that other GCC airlines are thriving and Gulf Air is waning and something needs to be done to stop that freefall.”

Suggestions have been made by some in Government that the airline could be broken up or merged with hybrid carrier Bahrain Air.  Ahmad disagrees.  “The problem essentially lies between what the Government wants and what Mumtalakat wants and there appears to be little in the way of consensus on how to move forward.  Partnering or merging with Bahrain Air would add, not remove complexities and drive costs up further with no guarantees that synergies will ever emerge. The big three Arab carriers haven't shown much interest in Gulf Air either so they can't turn to them either. It's a classic case of too many cooks spoiling the broth but no one wants to wield the axe to save the airline and guarantee its future.

 “This sort of quagmire is unsustainable and something will have to give. With the airline looking at cutting its Airbus A330 orders and deferring its Boeing 787-8 orders, Gulf Air will be devoid of new airplanes to assist growth and will be unable to control its fuel bill as effectively, and with jobs on the line too, there's a great risk that service and quality will suffer too.

 “Gulf Air can't survive for long in this state and some hard decisions are needed to ensure its viability - just as Kuwait Airways has become an unattractive state airline, Gulf Air too is quickly running down this same path - and it's not easy to come back from that. The market in the GCC is brutally unforgiving."

Local newspaper Gulf Daily News was covering the parliament session. It reported today that in the session, attended by Finance Minister Sheikh Ahmed bin Mohammed Al Khalifa and Transportation Minister Kamal Ahmed, Gulf Air temporary committee chairman Abdulhaleem Murad said the airline's losses had reached around $5 billion since 2009, when the existing management took the reins.

"There are around four million vacant seats each year and this shows that the management has done nothing to ensure more business because that rate continues and that of course is one of the main reasons behind the mounting losses of BD2bn," Murad said. "Turkish Airlines has 150 aircraft and 24 directors, here we have 50 aircraft and 34 directors, who unfortunately receive orders on what to do from outside the board.

"We have asked for board meeting reports, but the airline has not presented us even with the dates of their meetings or when they last met. Gulf Air has to stay, but it will have to learn how to deal with its problems without back-up from the government."

A spokeswoman from Gulf Air said: “Gulf Air is disappointed by Parliament’s decision not to accept the Government’s proposal to re-capitalise Gulf Air. Gulf Air understands that the decision has now been referred to the Shura Council for further discussion as the democratic processes continues and looks forward to a resolution that will actively address Gulf Air’s current position and secure its long term sustainability.”

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