ANALYSIS: Bahraini pressure claims first airline casualty

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Pressure mounting on Bahrain's troubled airlines finally claimed its first casualty after Bahrain Air ceased operations on 12 February and filed for liquidation.

It followed a bitter dispute with the kingdom's transport ministry, which had refused to extend its air operator's certificate beyond March until outstanding departure taxes of BD1.7 million ($3.7 million) were repaid.

That business failure came within weeks of Bahraini flag carrier Gulf Air's announcing its latest restructuring plan.

Speaking to Flightglobal two days before the liquidation filing, Bahrain Air chief executive Richard Nuttall outlined a litany of complaints against the transport ministry and the wider government. He said the authorities had hamstrung the carrier by demanding overdue taxes while simultaneously suspending its most profitable routes.

"The ministry of transportation decided that, if they were going to keep supporting us with traffic rights, they wanted to be paid what we owed them historically for departure taxes in a lump sum," Nuttall explained. "They stopped approving extra flights in peak seasons...and then with the beginning of the IATA winter schedule they disapproved a whole load of flying that we were doing. Perhaps 30% of our flying was reduced."

Bahrain Air had its flying rights to Dhaka and Trivandrum revoked in recent months, Nuttall said, while its Khartoum service was downgraded from a daily to twice-weekly service. Amman and Beirut were both limited to four-times weekly. The carrier's second hub in Dammam, Saudi Arabia, was "effectively closed down" by the Bahraini civil aviation authority, he added, grounding its connecting services to the Sudanese and Lebanese capitals. Charter services were also not being approved.

 BAHRAIN AIR ROUTE NETWORK (FEB 13)

 bahrain air network (feb13)

 Source: Innovata Flightmaps Analytics

The reductions followed the Bahraini government's ban on flights to Iran, Iraq and Lebanon in 2011, which was prompted by concerns about civil unrest spreading across the region during the Arab Spring. Nuttall said compensation promised by the authorities never materialised.

"When Iraq opened up, Gulf Air's flights were allowed but ours were not," he said.

Disclosing its intention to file for liquidation on 12 February, Bahrain Air unequivocally blamed transport minister Kamal Ahmed - who sits on the board of Gulf Air - for the failure of the business.

"His decisions to restrict route approvals have cost the airline BD4.5 million in lost revenues over the last three months," it said. "The airline has also spared no effort to negotiate a solution."

Gulf Air, which saw its latest attempts to move out of the red hit by the local unrest, was pulled back from the brink in October, when the Bahraini government approved a BD185 million funding injection. Parliamentarians had previously vetoed a BD664 million rescue package. A subsequent board reshuffle saw chief executive Samer Majali step down, and Bahrain's deputy prime minister appointed to the role of chairman.

After warning that "tough decisions" needed to be taken in order to "ensure the long-term sustainability" of Gulf Air, the board subsequently outlined a restructuring plan aiming for cost savings of 24% within 12 months. But few concrete details about the restructuring have emerged,

Gulf Air steadily shrunk its route network and cut its ambitious aircraft orders throughout 2012.

Nuttall stopped short of criticising Gulf Air, but noted that repeated overtures to the flag carrier to form some sort of partnership had always been rebuffed. "Historically, Gulf Air has been very clear that it does not want to work with Bahrain Air and that it sees us as an imposter," he said.

Bahrain Air operated a fleet of four Airbus A320-family aircraft on routes across the Middle East and south Asia. Its A320s had 20% higher capacity than Gulf Air's, Nuttall noted, and were put to work on higher-density markets with an element of labour and visiting-friends traffic. This contrasts with Gulf Air's premium focus, creating uncertainty about what benefit, if any, the flag carrier will draw from its rival's demise.