Privately-owned airline Bahrain Air is closing down after sustaining “considerable financial losses”.

The voluntary liquidation of the company was confirmed by an official statement from the airline.

Bahrain Air’s blames its closure on political instability and security problems faced by the airline during 2011, when it struggled with a reduced flight schedule following government restrictions on where it could fly.

The authorities had feared that groups from countries such as Iran and Iraq were flying into Bahrain to incite rioters, exacerbating the civil unrest seen that year.

As a result of the restrictions, and to conserve fuel costs, Bahrain Air cut several routes across its network.

A royal decree had stated the airline would be compensated for the losses it suffered that year, but the carrier states it received no form of compensation.

Bahrain Air was also under pressure to make immediate payments on old government debts. It said the combination of both factors resulted in the business becoming untenable.

In an official statement, the airline said: “This effectively strangles the airline by simultaneously requesting payments and reducing its ability to generate the necessary revenues both to make these payments and to sustain long-term profitability.”

The carrier added it had attempted to negotiate with Bahrain’s minister of transportation, but no “meaningful solution” was reached.

The airline had made some progress to recoup on its lost revenues last year. It has resumed some routes and was expecting to see passenger throughput reach 800,000 by the end of the year, bring the business back in line with 2010 results.

Yet further decisions to restrict route approvals have cost the airline BD4.5m ($11.9m) in lost revenues over the past three months. Minor concessions on route approvals were eventually granted to the airline in February in return for payments exceeding BD4m.

The financial pressures, however, finally forced shareholders to put the company into voluntary liquidation.

In its final statement, Bahrain Air said: “Today is a sad day for all Bahrain Air shareholders and employees, for our loyal and valued guests, and all those who valued the freedom of choice when making their travel plans.”

In contrast, the government has blamed Bahrain Air’s closure on its inability to manage its finances, rather than the country’s political instability. 

An official source from the Civil Aviation Affairs at the Ministry of Transportation said that the ministry was “taken by surprise” but the announcement to liquidate the company, stating that it had given approval for the airline to settle outstanding debt in instalments.

The source states: “The government made various facilitations to the company since its inception in attempts to help enable the company to pay back its debt, one of the most important being the exemption of parking fees for all its planes since its establishment, in addition to discounts on air navigation charges and in the designated air service agreements between the Kingdom of Bahrain and other states.”

The transport ministry also says that it is “inaccurate” to blame the political and social unrest seen in the country for the airline’s demise, arguing that airline schedules were only impacted for “a short duration in 2011”, adding that Bahrain’s economy has shown resilience and growth during 2012.

The loss of privately owned Bahrain Air leaves the market open for state-backed Gulf Air to regain market share. Despite its own financial struggles, Gulf Air has enjoyed government support, receiving a financial bailout of BD185m in the final quarter of 2012.

The airline is currently going through a restructuring process, which includes making cuts to existing aircraft orders and job losses.