Back in May of this year Gulf Air’s CEO, Samer Majali stood in front of executives from the airline and announced “It is not logical to continue to request funding from the government to support the airline’s operating losses to the tune of hundreds of millions of dollars per year; funds that could be much more usefully employed to improve the quality of life for the citizens of Bahrain in terms of infrastructure, roads, schools and medical care.”
This was a bold move for Mr. Majali, or really any CEO from a financially failing airline that is supported by its home country’s government (I had written about Mr. Majali’s statements HERE) … especially in the Middle East. Competition between national flag carrier airlines in the Middle East is more competitive than many other regions of the world, largely due to the deep pockets of their governments.
However, while Gulf Air has caught the attention of the British Airways - Iberia’s International Airlines Group as a potential airline they’d be interested in purchasing, the company remains in financial trouble. At this time Gulf Air’s intention to not seek government finding has ceased, five months after Mr. Majali’s bold statements. The airline has sought 400,000,000 Dinars (US$1.06billion) from the Bahraini Government, which were approved by Royal Decree, to adjust the airlines business strategy.
The US$1.06 billion will come from Bahrain’s Sovereign Wealth Fund, which is administered by the Mumtalakat Holding Company. The Mumtalakat Holding Company is estimated to control more than US$14 billion in liquid assets.
The financial assistance available to Gulf Air through the Mumtalakat Holding Company pales in comparison to the access to potential competitors can tap, with the UAE’s Sovereign Wealth Fund topping US$627 billion, Saudi Arabia’s Fund at an estimated US$415 billion and Qatar’s Fund with an estimated US$65 billion in its coffers.
Gulf Air is a significant employer in Bahrain, as well as the primary tenant of the Bahrain International Airport (BAH), making the airline vital the nations economic success. With this in mind, the US$1.06 billion will be used to stabilize Gulf Air, give the airline some latitude in its restructuring to move forward and return to being a profitable airline.
Whether or not this is the last time Gulf Air will seek government funding, only time will tell. However requesting more than US$1 billion in cash after announcing Gulf Air will not request further government funding, is a big step away from Mr. Majali’s original intentions.