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Sun 23 Aug 2009 08:36 PM

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Bahrain's Gulf Air may renegotiate plane orders - CEO

Route closures, job cuts, also possible once restructuring plans finalised.

Bahrain's Gulf Air said on Sunday it may renegotiate plane orders with Airbus and Boeing, as well as close underperforming routes and cut jobs after restructuring plans are finalised.The struggling airline, which is fully owned by the Bahraini sovereign wealth fund Mumtalakat, also said it was open to merging with other airlines, but is not in talks yet.

Speaking to Reuters in a telephone interview, the carrier's recently-appointed CEO Samer Majali said the company would "honour the terms of the contract" with manufacturers but may negotiate amending airplane numbers and sizes.

"In light of our new network we will be engaging our manufacturers in discussions," he said, adding: "Potentially, there will be discussions around (amending existing orders) if we come up with a fleet requirement that is vastly different than the current order books," Majali said.

Gulf Air has 35 Airbus and 24 Boeing aeroplanes on order.

Gulf Arab airlines were among the fastest growing in the world with the likes of Dubai-based Emirates, Qatar Airways and Abu Dhabi's Etihad Airways pouring billions of dollars into new aircraft orders as they looked to establish themselves as hubs between East and West.

Low-cost airlines including Air Arabia and Jazeera Airways have also arrived on the scene, taking advantage of a large expatriate population.

On August 13, Jazeera Airways said it was keen to take advantage of lower valuations to make acquisitions.

"We are open to anything that will improve Gulf Air and the situation - strengthening our bilateral, co-chairing arrangements with carriers and looking into alliances and any strategic link-up with like-minded carriers," Majali, the former CEO of Royal Jordanian who was hired to restructure the ailing airline, said.

Majali said passenger numbers were down 3 percent in the first seven months of 2009, while yields were 15 to 20 percent lower, compared with the same period last year.

Capacity deployment is "very tight", said Majali, who hopes to achieve results close to last year's in the second half.

"Yields are still quite low and I'm not sure anything, globally speaking, has put major brakes on yields," he said.

Yields are a keenly watched measure in the airline industry as they show the average revenue gained per mile per passenger.

The airline has seen three chief executives attempt to turn its loss-making operations around since 2002, cutting jobs and realigning its network as previous shareholders Abu Dhabi, Qatar and Oman gave up their stakes in the ailing carrier.

In 2007, the airline cut jobs and trimmed its network after reporting losses of more than $1 million a day.

Staff cuts will depend on the size of the airline after restructuring, said Majali, adding that firing was not "necessarily" the only option.

"You can have voluntary redundancies, people retiring normally, contracts finishing and so on, so there was no 272 people that were waiting to be fired," he said.

In August, the Gulf Air trade union told Reuters the airline planned to lay off 272 employees this year.

"There is no number yet because we haven't really come up with the new shape of the Gulf Air network that will dictate the size of the structure that supports it," he added.

In terms of cutting costs, Majali said the airline will look at "some route closures", while also launching new ones, in addition to "accelerating the retirement of the older aeroplanes and the introduction of the new ones".

Plans to sell shares in Gulf Air in an initial public offering were first announced in 2007, but this now seems to have been shelved.

"The plan now is to commercialise the airline. There is no decision on an IPO at the moment," said Majali. (Reuters)

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