Gulf Air costs government $2.4bn a year

11 September 2009

Despite receiving $200m a month in support from the government, daily losses remain at $1m

Bahrain’s national carrier, Gulf Air, is receiving $2.4bn a year in subsidies from the state government, highlighting the size of the task facing the new management team as it tries to turn the company around.

Sources in Bahrain say the airline gets some $200m a month in public financial support. Despite this, it is still losing about $1m a day (Agenda page 16).

“Gulf Air is getting $200m a month,” says a source in Bahrain’s parliament. “It is a sizeable amount of money for the government to pay that could be spent on other things. We must cut this contribution for the company.”

Samer Majali, Gulf Air’s chief executive officer, who joined the airline from Royal Jordanian at the beginning of August, has pledged to wean the airline off subsidies.

Gulf Air in Numbers

$2.4bn

Annual subsidy received from the Bahrain government

$200m

Monthly subsidy received from the Bahrain government

$1m

Daily losses at Gulf Air

Source: MEED

Many national carriers in the region receive some sort of state aid, particularly to help with fuel costs, although the scale of it rarely becomes public.

The two main UAE carriers, Emirates and Etihad, deny receiving subsidies.

Majali has made clear that his aim is to remove Gulf Air’s reliance on government handouts. “Gulf Air is not sustainable and is losing public money that could otherwise be invested in other successful parts of the national economy,” he said in a statement to staff on 23 August.

“Subsidies have been a fact of life at Gulf Air for quite some time, back when the airline was owned by four governments [Bahrain, Abu Dhabi, Oman and Qatar],” says another parliamentary source, Jassim Husain Ali, a member of parliament’s financial and economic affairs committee.

“For the past 15 or 16 months [since Oman withdrew from the business], Bahrain has paid the whole subsidy,” adds Husain Ali.

Majali’s appointment has been welcomed in Manama. He turned Royal Jordanian from a loss-making airline into a profitable one, and paid off the $700m debt he inherited when taking over in 2001. He also succeeded in privatising the company in 2007.

The subsidy for Gulf Air is thought to have come down in recent years and Majali is expected to take action to reduce it even faster.

Working with the US consultant Simat, Helliesen & Eichner, Majali has launched a full strategic review of Gulf Air.

He expects to set out the review’s findings by the end of the year.

Parliamentarians and Gulf Air’s ultimate owner, the country’s sovereign wealth fund, Mumtalakat, have welcomed a mooted partnership with another airline.

“Eventually there will have to be mergers of airlines in the Gulf. We believe this downturn will help bring this in,” says Mahmoud al-Kooheji, a board member of Mumtalakat.

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