$825m in fresh money to revive Gulf Air

The airline’s finances over the last seven years

Loss-making Gulf Air, owned by Bahrain and Oman, will focus on better serving the Middle East and prune loss-making long-haul services from its network as part of a $825 million revival and restructuring plan to pull the company out of the red.

One part of the new capital injection would be funded by shareholders and the other part by financial institutions, said Gulf Air board of directors deputy chairman Mahmood Al Kooheji, adding that the airline was currently losing more than $1 million a day. Together with costs such as financing, the ‘figure could be substantially higher.’ Accumulated losses and costs, including for 2007, would amount to BD254 million ($675 million), he said.
Under the ‘Get Well Gulf Air’ plan, tough new measures will be adopted, including downsizing the fleet size from 34 to 28, scrapping loss-making routes and retrenching about 25 per cent of the employees.
The airline will stop operating heavily loss-making long-haul services to Dublin, Hong Kong, Jakarta, Johannesburg, Sydney and Singapore. Instead, it will allocate more assets to better serve all important centres in the Gulf and the Middle Eastern region.
Kooheji said the board of directors was fully aware that the changes initiated now would take time and would be hard for many inside the Gulf Air organisation. “We cannot simply let the airline continue to perish. It has a direct impact of $246 million on the Bahrain economy annually and an indirect effect of $153 million. We are ready to increase our stake in the airline or even own it totally if needed,” he said.
Kooheji affirmed that parallel to the downsizing of its fleet by roughly 25 per cent Gulf Air’s workforce would have to be reduced too. Currently, the airline has nearly 6,000 employees. The exact number of jobs that will be cut has still to be defined. A portion of the downsizing of the workforce will occur through natural attrition.
Kooheji also said there was need to create a maintenance hub for Gulf Air in Bahrain.
The revival plan consists of two pillars to completely reshape the network to better serve the needs of the Bahrain and Oman economies and, to improve customer service through higher punctuality, better reliability and lower connection times. This will require investments in aircraft and ground facilities.
Under the first part of the programme that will cost $319 million, Gulf Air will undergo a major restructuring of its operations. The focus is on closing the airline's current profitability gap of $414 million, creating a network that serves better the needs of the Bahrain and Oman business community and increasing Gulf Air’s customer service level.
“The main goal of our restructuring and customer service programme is to increase flight frequencies to existing key destinations and add new connections to major economic centres of growing import-ance for the economies of Bahrain and Oman,” said the airline’s new president and CEO André Dosé.
“At the same time, Gulf Air’s new management will put great emphasis on improving punctuality, reliability and lower connection time between their flights. We have made safety, punctuality and customer service key issues of our restructuring programme because we are not satisfied with current service levels. Also, we have to improve the way we communicate with customers when delays occur.”
In line with its goal to radically simplify the business, the company will move to an all-Airbus fleet. In parallel, the network will be fundamentally restructured.
On how the network would be affected, he said, “It is our goal to offer each centre in the [Middle East] region at least two flights per day, and often more. The introduction of a ‘wave structure’ of inbound and outbound flights will also allow us shorter connection time and insure better connectivity with our Asian and European long-haul flights.”
The second pillar of Gulf Air’s ‘get well’ programme consists of investments of BD190 million ($505 million) to improve the quality of its product on the ground and in the air.
The airline intends to refurbish the cabins of its existing Airbus aircraft. In addition, ground facilities, such as lounges, will be upgraded.
The fleet simplification will involve the introduction of four Airbus A-321 aircraft by early 2008, the retirement of the entire Boeing B-767 fleet and the phasing out of the Gulf Traveller brand. Gulf Air will also replace part of its Airbus A-340 fleet by eight newer Airbus A-330 aircraft. It would take until the beginning of 2009 to complete the fleet replacement and restructuring programme,” he said.
 “We are fully aware that these are harsh measures and we have tough times ahead of us. But we need these measures to secure the survival of the company, to stabilise and improve our operations and to create a basis for further sustainable growth,” concluded Dosé.