Gulf Air may be on the verge of break-up amid suggestions that the emirate of Abu Dhabi is preparing to take control of the airline, perhaps within the first half of 1997.

Abu Dhabi has a 25 per cent stake in the carrier and, as the richest of the current owners, is in a position to bale out the unprofitable airline. It is also keen to build its airport into a hub to rival neighbouring Dubai. Gulf Air requires a substantial capital injection after plunging to a loss of $135 million in 1995 and has a debt burden of more than $600 million.

Sources suggest that Abu Dhabi may underwrite the capital injection, in return for taking control of the carrier from the other shareholders - the governments of Bahrain, Oman and Qatar. The others seem unlikely to commit significant funds to Gulf Air; Oman and Qatar have both launched competing carriers.

Abu Dhabi is understood to have considered the option of launching its own airline, and there have been tentative discussions with Virgin about operating it under a franchise. Former Qatar Airways chief executive Sheikh Hamad Al-Thani is also in discussions with investors about the proposed launch of an Abu Dhabi-based independent, known as Arabian Star, which could be launched by next June.

A Virgin official confirms that the carrier is considering opening a route from London via a Middle East point to the Indian subcontinent, but says that it has not decided whether this should overtake other expansion options.

If the Abu Dhabi government succeeds in taking control of Gulf Air the airline would place a greater emphasis on Abu Dhabi as a hub, possibly even transferring its main base from Bahrain.

Abu Dhabi is spending $320 million on expanding its main airport, with a second runway, second satellite, an airport hotel and extra facilities for transfer passengers - including a golf course.

Gulf Air's chief executive is an Abu Dhabi national and has sought to restructure the carrier since his appointment in March, cutting capacity by 25 per cent and closing routes. However, one senior Gulf Air official doubts Abu Dhabi will take control: 'The shareholders all want Gulf Air to survive. It's all about the conditions placed upon the recapitalisation.' The official says recent rationalisation is improving the carrier's performance.

The rapid expansion of Qatar Airways was halted at the start of November when Sheikh Hamad was forced to resign. Hamad alleges the board was under pressure from Gulf Air shareholders and says the chairman stood to lose the US$10 million a year in commissions received as Gulf Air's Qatar general sales agent. 'There was a clear conflict of interest,' says Hamad, who adds that the airline is being forced to limit its infringement upon Gulf Air. Hamad was replaced by Akbar Al Baker, formerly head of finance and public relations at Qatar's DGCA.

While Gulf Air has undoubtedly viewed Qatar Airways as a competitive threat, the startup's own erratic development has played a role in Hamad's departure. The carrier has used six aircraft types so far and its switch to B747-200s surprised executives in the region.

While the Qatar market was expected to support a small regional operation, the switch to high-capacity aircraft increased losses. The new management has already shelved plans to launch services to Frankfurt, Moscow, Tehran and Saan'a.

R Whitaker/D Cameron

Source: Airline Business