Gulf Air's future remains in doubt as Abu Dhabi still looks set to succeed in its bid to take control of the carrier.

The bid by the oil-rich Emirate was put on hold following new objections from Qatar and Oman. Concerned about their ability to grow their own carriers fast enough, they forced a compromise deal in January. This saw Gulf Air's current ownership structure retained and made its restructuring programme reliant on loans from its four shareholders.

Abu Dhabi's plan to inject US$265 million into the airline in return for increasing its 25 per cent stake to 68 per cent was rejected at an extraordinary general meeting in Doha on 8 January. Bahrain, Gulf Air's main base, lacks the resources to rescue the carrier, but Abu Dhabi was willing to underwrite an increase in Bahrain's stake to 32 per cent. The other two owner states, Oman and Qatar, have pursued independent airline strategies and have been unwilling to bail out Gulf Air, which has US$2 billion of debt.

Gulf Air's chief executive, Sheikh Ahmed bin Seif al-Nehyan, declined to state what additional funding would be provided by the owners. The expectation remains that Abu Dhabi will underwrite any loans and revive its original plan within two months.

The airline is continuing its restructuring and is seeking to lease out or sell additional aircraft - capacity has been cut by 20 per cent over the past year. It has hired two former British Airways executives to strengthen its management team. Walter Van West, BA's former group financial controller, takes over as vice president finance, while Ray Sayer, former BA director for Europe and the Middle East, becomes vice president marketing.

The airline announced in mid-January that it had sold six B767-300ERs, while eight A320s are still thought to be on the market. One further B767 was sold last year and two more are on lease, as are three A340s. The carrier will also stop its services to New York, Geneva, Johannesburg and Durban. One insider suggests that up to 1,000 staff will go, whether Abu Dhabi takes control or not.

The indecision over Gulf Air's future is causing nervousness in the financial community. While bankers say that the airline has an unblemished repayment record, some are reluctant to extend existing lines of credit until a final decision is made over the carrier's future.

Officials close to the talks attribute the compromise deal to nervousness by the Qatari and Oman authorities about the prospects of expanding their own carriers, Qatar Airways and Oman Aviation. The latter is profitable and a new management team has been brought in to restructure Qatar Airways, but both countries have run into resistance from third countries in renegotiating bilaterals to allow double designation with Gulf Air. Replacing the Bahraini-based carrier's designation with that of the fledgling national carrier is still too politically charged for either government.

Nevertheless, privately owned Qatar Airways is now officially designated as the country's flag carrier and new chief executive, Akbar Al-Baker, has brought in a high-profile team to relaunch the airline. Former Air Europe and British Mediterranean chief Hugh Parry will oversee finance and fleet renewal while Michael Hewitt, a former trouble-shooter at Cyprus Airways and Philippine Airlines, will take control of marketing and sales. They are joined by Virgin's former technical chief, Richard Plowes, and Capt Ghassan, Gulf Air's A340 fleet captain, who will head up operations.

The new team has already cut unprofitable services to Tripoli, Athens and Istanbul and plans to relaunch the airline in March, replacing its two B747-200s with smaller 250-seat aircraft. The four B727-200s are to be refurbished but are likely to be replaced with A320s or B737s. Hewitt says the strategy will shift from low-frequency sixth freedom-based traffic with multiple stops to more point-to-point service. Its London service transfers from Gatwick to Heathrow in May and Calcutta and Damascus are being added to create a 20-point network.

Hewitt says the new fleet will represent 'a considerable capacity increase' and the airline will strengthen its product and pricing and distribution systems to increase profitability. 'Our position in the past has been rather bucket-shop, and we aim to position ourselves as a reliable alternative to Gulf Air,' he says. He adds the carrier will overtake Gulf Air as the largest carrier out of Doha by the end of the year.

Hewitt insists the strategy will remain remote from developments at Gulf Air, which is expected to reduce its services from Qatar and Oman if the Abu Dhabi government assumes control.


Source: Airline Business