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Merger is out of our hands, says Gulf Air

Carrier says no deal with Bahrain Air yet, despite financial losses.
Bahrain, Gulf air, NEWS, Aviation

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Bahrain’s national carrier Gulf Air has said the decision about a possible merger with privately held Bahrain Air is out of its hands.

The state-backed company came no closer to suggesting a possible tie-up with the Gulf state’s second flag carrier, despite being stuck in a financial cul-de-sac.

“Bahrain Air is a privately-owned, low-cost airline while Gulf Air is a government-owned company and the flag carrier for the Kingdom of Bahrain,” the company said in a statement.

“As such any decision regarding a merger or otherwise rests fully with the government.”

The CEO of Bahrain Air Richard Nuttall told Arabian Business in March he would be open to a merger with the state-backed carrier in a bid to enhance the carriers’ network of flights and overall operational efficiency.

He said there was an urgent need to solve the problems that both loss-making airlines faced, and that a deal between the two carriers had a lot of support in the country.

“We are very open to merging with Gulf Air, and can see a number of synergies,” he said.

“It’s no secret that Gulf Air, Bahrain Air and most airlines in the region are hurting. If we come together we can rationalise and be that much more efficient with less cost.

“It is certainly an option we would be interested to pursue.”

Earlier this week, Bahrain MPs vetoed a government bailout of BD664.3m (US$1.8bn) for Gulf Air, and urged it to undergo a major operational overhaul, according to media reports.

Instead of a bailout, politicians recommended that the firm hire a new CEO with at least 20 years of experience, that it prosecute certain officials for allegedly squandering public money and put an end its dependence on external consultancies.

They also called for the carrier to adopt a policy of employing more Bahraini nationals, fire “unqualified expats” and closely monitor employees' work for financial irregularities.

Finally, they said the airline should try to secure lower fuel costs from state-owned petroleum company Bapco, that it diversify its offerings with investment in Bahrain Duty Free and in local hotels, and strive to help tourists with visit visas.

The case has now been referred to the Shura council in the Gulf state, who will give a final decision on whether a rescue package will be approved.

The airline expressed its “disappointment” at parliament’s decision, but remained optimistic about the possibility of receiving government aid.

“Gulf Air is disappointed by parliament’s decision not to accept the Government’s proposal to re-capitalise Gulf Air... [but it] looks forward to a resolution that will actively address Gulf Air’s current position and secure its long term sustainability.

It added: “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... 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.”

Gulf Air has been struggling to maintain profits since early last year, when passenger numbers to the island state dropped amid anti-government protests.

In May, the carrier said it had laid off some 200 members of staff, and that bookings were down by a quarter as demonstrations in the country continued to deter visitors. Gulf Air also had to abandon some routes to protest hit countries.

The struggling airline announced in January this year it planned to shrink operations and seek cash from government funds, including Bahrain's sovereign wealth fund Mumtalakat, which has a stake in the carrier.

Local media reported that the government was considering dissolving the airline, or selling it and creating a new one for a price of BD460m (US$1.22bn).

Hopes were raised when the company secured an US$80m loan from a unit of Mashreq Bank in Dubai, which was meant to help it meet its working capital requirements.

However, the loan has been unable to meet all the financial needs of the company, which has recorded losses of BD2bn since 2009 according to the airline’s temporary committee chairman.
 

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