Can Samer Majali save Gulf Air?

11 September 2009

The appointment of the airline’s fourth chief executive officer in three years could be its last hope

The recent turbulent history of Gulf Air entered a new chapter in August with the appointment of Samer Majali as the Bahraini airline’s chief executive officer (CEO). Joining from Royal Jordanian, Majali is Gulf Air’s fourth CEO in three years and inherits a troubled company.

The airline is losing about $1m a day, despite being bolstered by government subsidies of some $200m a month. It has been muscled out of the top-tier of Gulf carriers and has been struggling to find a role for itself in an increasingly crowded market.

Majali is being talked of as the airline’s last hope, but can he succeed where so many before him have failed?

Majali arrives with an outstanding track record. At Royal Jordanian he took on a loss-making airline that was $700m in debt in 2001 and led it into profit, before taking it to the market in 2007 as the first privatisation of a carrier in the Middle East.

The methods Majali adopted to turn around Royal Jordanian were based on simplifying the business and selling non-core assets.

“We know what he did in Jordan and we expect him to do the same here but there is a lot of nervousness,” says one source inside Gulf Air. “I do not know if the company is ready for the changes that are necessary.”

Direct flights

The task facing Majali in Bahrain is, if anything, even greater than it was in Jordan. The financial chasm in the business is deeper and Gulf Air, which is wholly owned by Bahrain’s sovereign wealth fund, Mumtalakat, does not have the same non-core units it could sell to offset its losses.

His first steps have been surefooted. With the US consultant Simat Helliesen & Eichner, he launched a full strategic review of the business in August and he has put the company’s ageing Airbus A340 jets up for sale. Other initiatives have also gone ahead. On 1 September, Gulf Air launched direct flights from Manama to Baghdad, and four more destinations in Iraq will follow before the end of the year.

“Majali has been very transparent. For the time being he has made a very positive impression”

Mustafa al-Tooq, chairman, Gatu

Most importantly, he has refused to be bounced into making knee-jerk decisions. In a statement to staff on 23 August he urged patience. Although Gulf Air is not sustainable and is devouring public money, he said, no decisions have yet been taken on how best to turn the company around.

Majali declined to be interviewed for this article, but he has promised that a full strategy will be set out by the end of the year.

Commercial reality

“So far, so good,” says Jassim Husain Ali, a member of the Bahraini parliament’s financial and economic affairs committee. “Everyone is impressed with his experience and he has ideas for the company. The Baghdad schedule sets the company apart.

“He really wants to run this business on a commercial basis. He recognises the need to cut the subsidy. Gulf Air should be making a greater contribution to the national economy.”

However, the patience is unlikely to last for long, particularly once the thorny issue of cutting staff numbers is brought up again. Like most national carriers in the region, Gulf Air is overstaffed, but successive CEOs have struggled to reduce the company’s headcount.

Since the then CEO Andre Dose launched a round of job cuts in April 2007, the airline’s management has been on a collision course with parliament, which wants to keep locals in jobs. The insistence of MPs that Bahraini jobs be prioritised prompted an exodus of foreign workers, particularly pilots and cabin crew.

Majali’s immediate predecessor, Swiss businessman Bjorn Naf, also had to contend with the vocal opposition of a cabal of Bahraini MPs who despised having the company run by a Westerner and appeared convinced that they could manage the business better themselves. Naf hoped to slash staff numbers by about 1,000 but was only permitted to cut personnel through natural attrition or for gross misconduct.

The Gulf Air Trade Union (Gatu) wasted no time in testing Majali’s resolve on the issue. Within days of his arrival, Gatu threatened strike action over plans launched under Naf to make 272 staff redundant by the end of the year. Mustafa al-Tooq, chairman of Gatu, accused the previous management of exaggerating the findings of disciplinary hearings to provide grounds for dismissal. Majali has resisted this attempt to force him on to the defensive, and instead called a meeting with union leaders and the Labour Ministry to clear up the row.

“The 272 departures have been halted,” says Al-Tooq. “We have an agreement that there will be no terminations except through natural attrition. The exceptions are those staff who are completely unproductive, not performing and have a bad record.

“Majali has been very transparent with us. He has agreed to consult the union before any major decisions are taken. For the time being he has made a very positive impression.”

The change in the union’s tone between August and September is striking and indicates that Majali may be able to cope with the airline’s internal political landscape better than his predecessors.

While his experience at Royal Jordanian may have won him the job, from speaking to staff throughout the company it is clear that Majali’s strongest asset may simply be that he is an Arab.

Neither Dose nor Naf received the unequivocal support of the local political establishment that is necessary to overhaul such a prized national asset, but Majali appears to be making better progress.

Beyond his job at Gulf Air, he has been notably active in the local business community, helping him to win the support of the elite.

“Personally I was quite impressed with what Naf did in a very difficult market, but local politics made it impossible for him,” says Husain Ali. “Majali has the advantage of being an Arab, he can bring a new culture and identity to the company. There is no animosity to him in parliament, which is very different to previous chief executives.”

Majali’s manoeuvrings between the competing interest groups in the company during his first weeks in the job has been assured, but it is clear the toughest decisions lie ahead of him.

In the absence of a public statement of his preferred strategy, it is assumed that the long-term plan is to privatise Gulf Air as he did with Royal Jordanian.

Clear direction

For now, any talk of sackings is off the agenda and Majali has made it clear that safeguarding jobs is a key priority. But the company must become profitable before a flotation is a realistic prospect, and that is likely to involve painful cuts – something those inside the company are well aware of.

“Will he close or merge departments?” asks the company source. “A lot of people here just do nothing, but will Mumtalakat give Majali the green light to sack them?”

Parliament and the union will scrutinise his every move but for now he has the full backing of the government and will be given time to get to work.

“He is definitely the right man for job. Jordan and Bahrain are similar, they are not flooded with cash,” says Mahmoud al-Kooheji, a former chairman of Gulf Air and now deputy CEO of Mumtalakat.

“We need a local touch. In Europe, if you want to restructure Lufthansa, it is very easy to fire 30,000 employees tomorrow. It is acceptable. Here you cannot do that, you have to work within a lot of boundaries. He is used to that, which gives me confidence.”

For all its problems, Gulf Air retains a strong brand and a broad route network that can be pruned to reposition the airline. Above all, after two years of infighting, the company needs order and a clear direction.

“The feeling is that if [Majali] cannot turn the airline around it is time to say enough and close it down,” says Al-Tooq. “He is seen as the last hope for the government so they will do everything they can to help him succeed.”

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications