Saturday, January 28, 2012

Bahrain's Gulf Air faces having its wings clipped after review

The government of Bahrain and its biggest sovereign wealth fund are expected to announce within days whether it will close down, sell off or undertake a wholesale restructuring of the struggling carrier Gulf Air.

"Gulf Air has faced challenges in recent times, in common with other carriers around the world and combinations of unprecedented regional and economic factors have made business increasingly difficult," Gulf Air said.

"Given this, Gulf Air, its shareholder Mumtalakat and the government, both through the cabinet and parliament, are all working towards a common goal - to secure Gulf Air's long-term sustainability and to actively address the airline's loss-making position. A range of strategic options are currently under consideration."

They include downsizing Gulf Air or dissolving it, injecting more state funds into it, or even selling it off, according to the Bahraini newspaper Gulf Daily News.

"We expect that [this] week there will be some announcement," Samer Majali, the chief executive of Gulf Air told Bloomberg News.

Analysts said major changes would need to be made to salvage the carrier.

"It's likely that one possible option is to inject more state aid into the carrier," said Saj Ahmad, the chief analyst at StrategicAero Research.

"After all, Emirates, Etihad and Qatar Airways have all started life through state aid and are currently among the world's fastest-growing carriers … and so there is a perception that Gulf Air can and should emulate its GCC peers and stage some sort of recovery with a new management focus."

He said Gulf Air, which once had the biggest network in the Gulf region, had struggled to compete against its GCC rivals, including low-cost airlines such as flydubai and Air Arabia.

The International Air Transport Association has forecast that Middle East carriers will post a profit of US$300 million (Dh1.1 billion) this year, down from a previous forecast of $700m, with long-haul market conditions likely to deteriorate, particularly those linked to weak economies in Europe.

"Gulf Air has been for too long living off past glories," Mr Ahmad said.

"In this competitive, cut-throat day and age, that simply isn't good enough and the carrier needs to radically change the way it flies or face entering the history books."

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