Upheaval In Bahrain

The Airline sector has been simmering for the last year. Rumors of Gulf Air's CEO resigning were all over the place, until the Board accepted it in November 2012. There has been rumors of a merger between Bahrain Air and Gulf Air with Bahrain Air Taking over the helm (The Airline Scene In Bahrain and Bahrain, Merger In The Air).

As 2012 came to a close and the CEO has finally resigned, there was all this talk about right sizing the airline and getting a Bahraini national at the helm.

Then it all came to a head in February 2013, Bahrain Air went into voluntary liquidation amid veiled accusations of the government not allowing a bail out in favor of Gulf Air. On the other hand, Gulf Air right sized, letting 15% of its workforce go since the beginning of 2013. Neither the parliament nor the unions are happy. There are calls for getting rid of expatriates instead of nationals because the savings are better, but then there are essential jobs that are performed by expatriates.

As of today Gulf Air is struggling and Bahrain Air is history, with international carriers picking up the slack and making money.

This was not only economic forces at play but political high stakes among the ruling elites in government.

Gulf Air had to survive, the government has invested too much to keep the airline going. Besides it has won the third license to operate in Saudi Arabia.

So were do we go from here. Gulf Air does not have a CEO as yet and I am sure the Board is looking for one to get the airline from the mess it is in. Parliament wantsa a national to head the airline and less expatriates hired. Things should become easier for Gulf Air but they need to pay attention international carriers.

It took a year to get to where we are at today, it may take another 6 months before things clear up

Gulf Air Restructuring, The Final Version

Following the appointment of the new Board; the Chairman, the Executive Restructuring Committee and the GF Management have been working on a balanced restructuring strategy. The startegy is designed to reduce losses, improve customer services and better serve the Kingdom of Bahrain.

The new strategy was announced in mid January 2013. It reaffirmed the strategy adopted earlier. The strategy focused on the following:

1. A realigned network that puts emphasis on MENA operations to better serve the customers. It also aims at reducing losses by shedding unprofitable stations, eight have been closed down already.

2. A simplified modern fleet; GF has previously come to a agreement with Airbus to change the A330 order into A320 and A320NEO aircraft to meet the regional operation requirements. It also reduced its B787 order from 28 to12 to 16 aircraft. 

3. A right sized workforce through a performance based review and individual job assessments against business requirements. The aim is to simplify the organization. Gulf Air management has met in mid January 2013 to brief the unions and the Ministry of Labor on their down sizing plans.

The plan is aimed at reducing costs by 24% by the ned of 2013 and increasing revenue by 9%.

The Board will meet on a monthly basis to review the restructuring progress.

The new restructuring policy is no different than the one adopted in the last three years

Gulf Air At A Crossroads

Earlier this month the Government of Bahrain announced a 185 millions BD (490 millions USD) injection into Gulf Air. Any fund allocations by the airline have to be approved by the government prior to disbursement. Earlier in May the parliament rejected a 664 millions BD (1.76 billions USD) financial package for Gulf Air.

Gulf Air has been affected by political instability in the country for almost the last two years and the suspension of flights to Lebanon, Iraq and Iran in March 2011 which are among the most popular and profitable. Beirut has been reinstated since June 2012 and Iraq flights resumed in September/October 2012 while flights to Iran planned for October had to be suspended indefinitely due to the lack of clearances from the Iran government. The Arab Spring contributed to a reduction of air travel to Egypt and Syria and other countries. Rising fuel prices added to the financial pressures.

The proposed bailout will come with a deep restructuring and downsizing of the airline, but that is nothing new and a few years back such plans were opposed by the labor unions.
In 2009 the Trade Union opposed a 272 reduction of Bahraini staff until an agreement was reached. However, the current plan calls for halving the workforce from 3800 to 1800 and the fleet from 39 to 20 aircraft. Amid the uncertainty, staff are leaving to other airlines in the region. The Trade Union affirmed in a statement prior to Eid Al Adha that no restructuring of the workforce or fleet should affect the staff employment interests and rights (Click for more). This is not a numbers game, if the airline fails to retain qualified staff, it will be very hard to operate efficiently and productively to effect a change.

Similarly in 2009, the new CEO declared that Gulf Air will not compete with the Global airlines of the region and it will concentrate on the region, Europe, Africa and Asia. Now the airline may have to reduce its flights to Europe to only two destinations London and Paris, curtail its expansion into Africa and concentrate more on MENA and India. It already has a code share with Royal Jordanian, whereas all flights between Amman and Bahrain are operated by Gulf Air and of course Gulf Air is a contender for the third Air Operator Licence in Saudi Arabia. A license, if awarded to Gulf Air may ease its fleet downsizing by diverting some aircraft to the new airline.

Senior management in Gulf Air understand that bail outs are not sustainable and restructuring is a necessity, however there maybe a lack of understanding among politicians of the social, political and economical impact of this restructuring.

The Airline Scene in Bahrain

I was in Bahrain at the beginning of the month after almost 9 years. The place has changed, malls, highways and newly developed areas reclaimed from the sea in the usual Bahrain way. I had a good time, doing business and meeting friends and relatives and did not feel unsafe at any time during my stay.

However, some things never change in Bahrain and that is stories about Gulf Air. Well, there are several stories being bandied around one of them is that the CEO will be leaving by the end of the month and the other is that some business interests have aligned with some political figures in the government to promote Bahrain Air as a replacement of Gulf Air.

Both Gulf Air and Bahrain Air had a hard 2011; in addition to the Arab Spring in key markets and problems in Bahrain, the rising fuel costs and Eurozone woes; the government banned flights to Lebanon, Iraq and Iran for a few months, all key markets for the airlines.

The future of Gulf air is being debated by a Parliamentary ad hoc committee that is reviewing options (keeping the status quo, dissolving the airline, selling it off to a strategic partner or downsizing it) presented by the government. Downsizing seems to be the preferred option provided it does not affect Bahrain nationals, a prime objective at all times. The Labor Union representing Gulf Air employees is very powerful and nothing will move forward without their express or tacit approval, a fact that should always be remembered.

Bahrain Air, a privately held airline, has the same woes as Gulf Air and could probably do with some government support.

Whether Bahrain Air can replace Gulf Air, the short answer is no; Gulf Air has a greater international
presence and operates far more international routes to Europe, Middle East, Africa and the Far East.

Another option is to merge both airlines?!

Only time will tell what the outcome will be,  but as everything else in the region, never a dull moment.

In any case, it was an enjoyable visit and I look forward to visiting again soon.

On The Way To Recovery... Gulf Air

Gulf Air seems to be on the way to recovery. In a statement to Reuters the CE of Gulf Air announced that in the last six months 500 jobs have been cut through attrition, non renewal of temporary contracts and a freeze on recruitment and have cut their total cost by 3% in the first quarter.

A voluntary redundancy and retirement scheme has been introduced to cover Bahrain nationals and nationals of the member states (Qatar, Oman and Abu Dhabi). The great news is that this has been accepted by the Gulf Air trade union ending months of contentious relationship with senior management.

Traditionally the Gulf Air trade union has been able to thwart several programs and plans that affected the well being of the staff. click here for related blog

With the labour issues behind him, Samer Majali can now concentrate on the real business of the turnaround and eventual privatisation of the airline.

Kudos to both the CE and the Trade Union to coming to an agreement that resolved months of disputes.

Gulf Air...Rocky Path Ahead

Mumtalakat, the investment company of the Kingdom of Bahrain transferred back the ownership of Gulf Air to the government. Mr. Talal Al Zain, the Chief executive of Mumtalakat told Reuters over the phone "Given it's in the airline industry, it is not a high-return investment but more of a strategic investment," and "You will never have more than single-digit returns in this industry." Read the full story here . He also said that Mumtalakat has fulfilled its role in the design of Gulf Air's new strategy that focuses on regional routes.

Agreed it is a strategic investment but if done properly an airline can yield double digit returns.

So, what happened all of sudden to change Mumtalakat's mind. Of course Gulf air is a strategic investment for the Kingdom of Bahrain, but then Mumtalakat is part of the government.

My guess is, Gulf Air is at the point whereas decisions about staffing levels have to be made and implemented. The Gulf Air employee union has always resisted management attempts at reducing staff or transferring staff.

My take on this is, there will be a show down very soon and Mumtalakat does not want to be distracted by labor strife and issues. It would rather have the government take the hard decision of who to support, a newly appointed CEO or bow to popular pressure.

I am sure the CEO will talk extensively with the union representatives to come to an acceptable solution, a hard job for sure and the many people before him have failed miserably.

Interesting times ahead for Gulf Air and the region, I am sure a few airlines will be watching how this will unfold.

In The Image of RJ

I have been closely involved with Gulf Air (GF) since 1996. I went through the years of decline of the airline dealing with maintenance issues.. For years the leadership of the airline was a political issue. We used to joke, every problem with Gulf Air was a diplomatic incident. I saw the airline go from an example of Arab cooperation to the flag carrier of Bahrain. I watched GF maintain a 5 million passengers annual uplft as Emirates, Qatar Airways and others eroded its market share.

Then enters James Hogan who transformed GF into little Ansett. I am not a great fan of the man but he did manage to increase the passenger uplift to 7 millions annually, rebranded the airline new paint scheme, Chef in the Air, Nanny in the Air and Bahrain F1. Then James Hogan bailed out to Etihad, but that is another story. Several CEOs came and went amidst political interference from Parliament, internal turmoil and accusations of corruption.

August 2009 enters Samer Majali, ex CEO of Royal Jordanian. He left RJ with a mid year net profit of 15 Million USD in the worst global recession. He privatised the airline and took it into One World. No small feat.

So, enters the new CEO, and the following events unfold

1. Government declares it can not subsidise GF forever.

2. Iraq operation started a month later (a very lucrative and profitable route)

3. Cut down on several losing routes and reopened new ones

4. A review of the airline structure is done looking at manpower and fleet.

5. A decision made to become more of a Middle East Airline.

6. A decision to sell the 5 A340 owned by the airline.

7. A decision to take delivery of new A320s (20) at the rate of one per month.

8. And lately a decision to lease ERJ170s and look at acquiring up to 10 Regional Jets.

The parallels with Royal Jordanian are so similar. (substitute A340s with A310s and L1011s, EMBRAER ERJ170/190, Iraq operation, route structures)

Gulf Air's legacy should be preserved. Gulf Air has been the dominant carrier in the region for decades and every airline aspired to emulate their 5 Stars service. Further, every airline in the GCC has senior managers who have worked for Gulf Air and contributed to the success of their respective airlines. Similarly every airline in the GCC has several ex Royal Jordanian employees contributing to their success.

Two carriers, different regions may end up with the same model, robust enough to compete with the heavily branded carriers of the Gulf and survive in an ever changing global market.