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Sun 6 Sep 2009 04:00 AM

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Can he fix it?

How will Gulf Air's new CEO Samer Majali restore Bahrain's failing national carrier to commercial credibility?

Can he fix it?
Can he fix it?
Despite facing difficult times, Gulf Air has signed a massive aircraft order for 15 Airbus A320s, 20 A330-300s and 20 Boeing 787 Dreamliners, a deal worth an estimated $11bn.
Can he fix it?
Can he fix it?
Majali says Gulf Air employs around 5,000 people, 40 percent of whom are Bahraini nationals.

New Gulf Air CEO Samer Majali has the hardest job in Gulf aviation. How will he restore Bahrain's failing national carrier to commercial credibility, and will he be given long enough to do it?How hot is that seat?" I ask Samer Majali, the fourth CEO of Gulf Air in three years, pointing at the chair behind the desk in the enormous office that comes with the job of trying to turn the Gulf's once leading carrier back into an outfit that makes money, rather than loses a million dollars a day.

"Very hot," he says immediately, blinking. And then he chuckles nervously.

When we meet, Majali has been in the job exactly one month. He is still trying to get to grips with his new charge - commissioning fact-finding reports and strategy reviews on everything bearing the Gulf Air logo. Well he might. If Gulf Air operated the same policy for passengers as it does for leaders, all seats would be of the ejecting variety. If he is going to talk, he may as well talk sense.

The story of Gulf Air in recent times is a sad one, and an almost perfect illustration of the economic model whereby a successful company becomes overly staid and cumbersome, making it vulnerable to competition from new, and more dynamic, rivals. Once backed by the governments of the UAE, Qatar, Oman and Bahrain, Gulf Air was until the late 1990s the biggest bird in the region's skies. But since the advent of Emirates, Etihad, Qatar Airways and Oman Air, Gulf Air has been left in the sole control of Bahrain, and profits have nosedived. And then there are those pesky low cost, short haul carriers like Air Arabia and Bahrain Air, making a nuisance of themselves by encroaching on what were once bread and butter markets for Gulf Air. It's Majali's job to stop the rot, as fast as possible. But how?

Is it simply that Gulf Air doesn't do what it does as well as its rivals, or has the company lost its way? At the question, Majali hesitates to weigh his words, and then says: "Obviously with the change of competitive environment that has happened over the years, the advent of Emirates and Etihad and Qatar Airways, and others, the airline itself never really went through a rethink of its new role and what that should be. It relied on its legacy and hoped the problem would go away, but it didn't. Problems never go away, they just get postponed and then they get bigger.

"So Gulf Air never really had the chance to rethink its role, and whether or not it should be looking for a niche. And so this is the process that we are thinking about now. That is the essential thing - to find a niche for the airline. A niche in which we can play a leadership position, rather than being a follower on all of the route segments that we compete on with everyone else. That's essential to the way we move forward."

There was a time when the entire Gulf was a niche, when merely to fly here was to operate routes untapped by any competitors.

Gulf Air celebrates its 60th birthday next year. When British pilot and entrepreneur Freddie Bosworth began an air taxi service in 1950 from Bahrain to Dhahran and Doha, he didn't have to worry about being undercut by more powerful state-backed rivals. That obviously isn't the case now. The Gulf is fast becoming the most fiercely competitive aviation market in the world. Are there any niches left?

Majali says: "We will take any niche that works. No option is off the table, with the exception of becoming a low cost carrier. We will do something different. Longer routes, shorter routes, different routes.

"We need to look at markets and routes that are not currently being served. Iraq is a case in point. It allows us to take leadership. When the others get in, we will need to find other routes. Look, when you are at a disadvantage, when you are a smaller airline with fewer resources, you have to be much more agile and nimble and get in and out of markets, and be two steps ahead. That's what we did with Royal Jordanian."

Before joining Gulf Air, Majali was an extremely effective CEO of Royal Jordanian (he had spent his entire career with the airline), turning $700m debts into profits and privatisation in little over two years after becoming the boss in 2001.

Does he think he can work the same sort of miracle at Gulf Air?

"It took me two and a half years to turn Royal Jordanian around. If I get two and a half years here, I will be very happy," he jokes. "But look, the airline has to be commercialised. For Bahrain, it should not be a zero-sum game. The value that Gulf Air provides should not be costing money. We should be providing value, with a small price tag, or zero. The target is to provide maximum value to Bahrain, with the least possible price tag. That's value."

And over what timeframe is that achievable? Majali looks like he would rather be having teeth pulled than answer the question.

He says: "Five years is too long, one year too short. Can I get the loss down to zero in three years? I don't know. That would be making promises that I don't know if I can keep.

"The target is to move in the next three to four years to a position where the airline is a commercial enterprise."

There are two subjects that Gulf Air is particularly touchy about confronting. One is the massive aircraft order it has made, the other job cuts. The order (15 Airbus A320s, 20 A330-300s and 20 Boeing 787 Dreamliners) is worth some $11bn. The job cuts are as yet unconfirmed, but have already caused the Gulf Air union to threaten strikes, and Bahraini ministers to issue statements about the importance of not laying off Bahrainis.Majali will readily admit that the company is going through "difficult times," but he is circumspect in the extreme when asked if those difficult times will lead to an adjustment of that aircraft order, or to redundancies.

"Obviously, this is a very fluid industry. So whether the external forces force you to change, or whether internally you come up with different plans, you continuously have this ongoing engagement with the manufacturer and the supplier of your aeroplanes," he says. "You talk about looking at reviewing the orders, maybe increasing them, maybe reducing them, maybe deferring them, maybe bringing them forward. This is an ongoing process."

But isn't Gulf Air locked into parting with $11bn for these planes? No, is the answer. Majali says the manufacturers are prepared to be flexible in order to build lasting relationships with airlines. He also emphasises that the aircraft order is not all about growth. Much of it is about replacing old planes in the current fleet. But will the order change?

The eyebrows go up. "It could, yes," he says. And then a pregnant pause, before: "Upwards, downwards, sideways. We'll see."

Gulf Air employs approximately 5,000 people, 40 percent of whom are Bahraini. Compared to the number of local people the other regional carriers in the Gulf employ, this is a very impressive statistic.

But with the high domestic employment rate comes political pressure. Majali says he wants to address everything else in the airline before he addresses the issue of redundancies. But if he finds he has to make them, can he?

"Yes. But there are many different ways of making job cuts. One of them is firing people. Another is not employing new people, or allowing contracts to lapse. Then there is voluntary redundancies. If you go in with a hatchet and you fire a thousand people, that does nothing for the company. It creates bad morale and bad feeling and so on.

"You do reduce the staff, but you do it in a manageable format, in a manageable fashion, working with the people, working with the staff, working with the union. You do all kinds of packages and so on and you gradually reduce the level to the level that you need."

He says he doesn't know yet what that level is, but is likely to have a clearer idea in a month when the strategy review is completed.

And as for the union strikes? Majali says it is perfectly natural for any union to stand against redundancies, but that he will work hard with the union towards the goal of a happy, motivated staff working for a successful company. He says the two are "intertwined and interlinked."

He is also keen to re-emphasise his position on retaining Bahraini workers: "I have said I want to retain all the good Bahrainis that we have. This is the national airline of Bahrain. So I want to keep the good ones who love this company and want to work for it. If there are job cuts, I will try to retrain people and place them somewhere else in the airline."

There have been industry rumours recently that Gulf Air is looking to merge with another regional airline. When I put this to Majali, I half expect to be thrown out of the room.

But far from it, he is open to the idea, although he will not talk about possible candidates with whom to merge. All he will say is that they must be "like-minded." I ask if Royal Jordanian might be like-minded? "Well, they are an airline, certainly," he quips.

He says: "Target one is to get the airline on a solid commercial footing and to improve the quality of our service so Gulf Air is a very good carrier.

"That has to be done first, but if this could be supported by getting into stronger code shares or even alliances, or potentially a strategic partnership with another airline, that is something we are looking at. You need a like-minded airline. It has to make commercial sense."

Talking to Majali, who is charming and likeable - as charming as you might expect the son of a former Prime Minister of Jordan to be - it all sounds so easy. Restructure, motivate the staff, do things differently, turn a profit - what's the fuss about? Why is being CEO of Gulf Air such a difficult job?

He smiles slowly. Of course he is too polite to say that his predecessors got it wrong, but his answer is interesting nonetheless.

"Because it is a tough problem. Gulf Air used to be the Gulf carrier. Sometimes it is hard to make tough decisions, like changing your strategy, like recognising that big is not necessarily beautiful, like understanding that givens now can't be givens anymore."

Givens change. Perhaps that sentence wouldn't be a bad company motto for the next few years.

Stopping the rot

On September 1 Gulf Air commenced flights to Baghdad, signalling a start to the company's initiative of operating in markets untapped by rivals.

The airline is trying to emerge from several years of losses and put an end to the rapid succession of chief executives that has plagued the carrier since James Hogan left the airline for Etihad Airways in 2006.

First created as a regional carrier, Gulf Air struggled to rebrand itself as a Bahraini airline after the governments of Oman, Abu Dhabi and Qatar sold their shares over the past decade.

Although the carrier has added a few new destinations in India, Gulf Air has kept its network basically unchanged for several years. The feeling is the airline company has lost its focus.

In addition to government support, the airline is in the process of securing funding from banks. Bahrain Islamic Bank will finance a $70m (Dn257.1m) loan towards the purchase of eight new Airbus A320 aeroplanes, the airline announced in August.

The four-year loan is the second reported credit facility given to the carrier from Bahrain Islamic Bank within a month.

Plans for an initial public offering have now been apparently put on hold as Gulf Air works towards profitability. Gulf Air's losses continued right through the boom years of 2005 to 2008 and are now being exacerbated by the global fall in demand for international air travel during the downturn.

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