Gulf Air, the heavily loss-making Bahraini airline, has shelved plans to float on the stock market, after agreeing a fresh financing deal to upgrade its fleet.

Bahrain’s national carrier is also weighing potential acquisitions to expand the business, as it seeks to transform itself after a tough 2007.

Mahmood al-Kooheji, chairman of Gulf Air, announced plans for the airline’s initial public offering (IPO) at the Dubai Airshow in 2007. It had been hoping to float part of the company in 2008 or early 2009.

However, the airline has since secured credit facilities to buy aircraft from Boeing in a deal worth up to $6bn announced this week (MEED 14:1:08). As a result, it has decided against going to the market to raise funds.

The IPO will be postponed until the business is in a stronger commercial position. “The airline will be privatised when it is financially feasible,” says Bjorn Naf, acting chief executive officer.

Talks are also under way at senior level to incorporate an aircraft hanger business and a maintenance operation. The company is also considering international expansion, with a possible purchase of a stake in a foreign airline.

Any acquisitions will be brought within Gulf Air’s holding company, Mumtalakat. Al-Kooheji is deputy chief executive officer of Mumtalakat.

The plans are part of Manama’s strategy to consolidate its assets in the aviation sector, as it has done in other areas of the economy, such as aluminium, and oil and gas.

On 15 January, Crown Prince Sheikh Salman bin Hamad al-Khalifa issued directives to bring Bahrain International Airport into Mumtalakat with a fully commercial mandate.

“With a centralised management, the airport can develop according to the airline’s exact needs,” says an airline official.

“Gulf Air has aligned its strategy with the Kingdom of Bahrain, which is growing at 7 per cent a year,” says Naf. “Now it is time to look for financially feasible growth opportunities.”

The airline’s renewed ambition marks a remarkable turnaround from a torrid 2007. It was forced to reduce its fleet and cut loss-making routes to stabilise an operation that was haemorrhaging cash.

Gulf Air was losing more than $1m a day in April 2007. These losses have since been reduced to $600,000 a day. Al-Kooheji has set a target for the business to break even in 2009. A flotation is unlikely until this is achieved.

Naf says several cost-reduction programmes put in place in 2007 will begin to bear fruit in 2008. It is also seeking to boost the proportion of sales made over the internet to reduce its distribution costs.