"It has to make money": Gulf Air aims to clear debts by end of 2016, move into “expansion mode”

Bahrain's transport minister Kamal Bin Ahmed says plans to revive the flag carrier still include options to privatise it when it is in a more robust financial state
By Sarah Townsend
Mon 05 Oct 2015 11:13 AM

Gulf Air will have shaken off its losses by the end of 2016 and moved into “expansion mode”, according to the transport minister of Bahrain.

Kamal Bin Ahmed, minister of transportation and telecommunications and also a member of Gulf Air’s board of directors, told Arabian Business in an interview in Manama the cash-strapped national airline intended to repay all of its millions of dollars of outstanding debt by the end of next year, following a comprehensive restructuring in 2013.

He said: “[Gulf Air] was going through a tough time financially and losing a lot of money but it has managed from 2013/14 and this year to turn it around.

“It will have reduced losses by more than 75 percent by the end of this year and all outstanding legacy debts will have been repaid by the end of 2016.”

Last month Gulf Air announced its strongest annual results since 2004. The results reflected a fall in annual losses from BD93.3 million ($246 million) in 2013 to BD62.7 million in 2014 – equivalent to a 32.8 percent reduction.

Bin Ahmed said this was a dramatic improvement on previous years. Every year between 2008 and 2012 the company lost BD200 million ($529 million) per year but this year it hopes to end at less than BD40 million. “This is a fantastic story but more needs to be done,” he said.

Debt has been reduced by cutting the workforce by almost a third, halving aircraft numbers and reviewing destinations and flight frequencies.

“Tough decisions have been taken; Gulf Air has had to be more efficient. It has reduced the number of employees by 1,000 – currently it has 2,800 staff but it used to be [almost 4,000].

“It has rearranged the fleet and network by reviewing the schedule, frequency and timing of flights, and looking at which destinations were working and which were not.

“It has also reviewed aircraft numbers. Currently there are 28 [aircraft] but there used to be 38-40 depending on the particular year.”

Last month Gulf Air announced that it had put in an order for 50 Airbus planes. Bin Ahmed told Arabian Business the airline was now in “expansion mode” and planned to restore the previous size of its fleet and network over the next decade.

“Gulf Air is an important asset for Bahrain,” he stated. “It may not be the biggest airline in the region but it has the biggest concentration of flights within the region.

“Bahrain is the natural gateway to access the Gulf market and without a national carrier it would be difficult to connect the country to the world and the region. And, of course, if we want to be a business friendly environment and attract more visitors to Bahrain we need to make sure people are easily linked to the region.

“But we don’t want it to lose a lot of money. It has to make money. Gulf Air is on the right track; it has done a fantastic job now from where it was to where it is now.

“Like I said, it will have no debts from end of 2016, only working capital and the procurement of new aircraft. It has new orders in with Boeing and Airbus and hopefully will continue to expand its network beyond the GCC.”

Bin Ahmed said the company was eyeing several cities in Europe and Asia – it already serves “everywhere in the Gulf”, he said, including six cities in Saudi Arabia, which is its biggest market – but refused to disclose specifics. “I will not select and pick. All I will say is that it is studying several cities it is not serving and it all depends on the availability of aircraft.”

There are no plans to buy A380s, though, he insisted, saying this “does not suit the airline’s strategy and market at present”.

However, the ten-year expansion plans still include options to privatise the airline when it is in a more robust financial state.

Bin Ahmed said initial proposals for an initial public offering (IPO) had been shelved for now but the company was exploring other alternatives for privatisation such as joint ventures. “IPOs are mainly for a money-making company – I don’t think this can happen with a company that’s losing money.  

“But [IPO] is only one option for privatisation. There are other ways of doing it. You can have people owning it with you, in a joint venture, or perhaps if someone is interested in Gulf Air and wants to buy into it.

“We have to study this when we have something serious [to offer]. At present there’s nothing serious going on [in terms of specific discussions].”

The minister also gave his analysis of what had gone wrong for Gulf Air over the past decade.

“I don’t like to talk about the past,” he said. “Gulf Air was owned by four countries and the market was completely different. That market was Qatar, the UAE, Bahrain and Oman. And Gulf Air was a certain size and serving all of those markets.

“When those countries got their own airlines they left Gulf Air and it ended up with just one market, which is the smallest market (Bahrain), yet the size of the company was the same. This does not work.

“Simply, you need to adjust the size of your organisation and your strategy to serve your market and you cannot behave as you were in the past.”

Gulf Air receives no direct subsidies from Bahrain’s transport ministry, which, as regulator of the the Civil Aviation Authority, is extremely tough on safety and security, he said. “Our last audit showed remarkable results. Of course there is always more we can do.”

Bin Ahmed was speaking to Arabian Business as reports emerged that Muharraq Municipal Authority had proposed the introduction of a new BD10 ($26) tax for each plane that lands at the international airport.

No further details were available at the time of publication but the country is pressing forward with its $1 billion airport expansion, the first phase of which is expected to commence next year. A new 210,000 sq m airport terminal is scheduled to be completed by mid-2019.

Read the full interview with Kamal Bin Ahmed in Arabian Business later this month.

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