Gulf Air pullout ‘makes sense’ for Abu Dhabi, say analysts

GULF emirate Abu Dhabi is set to pull out of debt-ridden regional carrier Gulf Air in a bid to focus on its own airline, Etihad Airways. The Bahrain-based carrier, which is rumoured to be studying the possibility of privatisation and even a public share offering is due to hold a board meeting in Muscat this week to discuss the pullout. “We will issue an update after the next meeting to be held this week,” said James Hogan, president and chief executive officer of the airline.

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By  Rhys Jones Published  September 18, 2005

GULF emirate Abu Dhabi is set to pull out of debt-ridden regional carrier Gulf Air in a bid to focus on its own airline, Etihad Airways. The Bahrain-based carrier, which is rumoured to be studying the possibility of privatisation and even a public share offering is due to hold a board meeting in Muscat this week to discuss the pullout. “We will issue an update after the next meeting to be held this week,” said James Hogan, president and chief executive officer of the airline. Analysts doubt whether the Abu Dhabi pullout is linked to privatisation plans and claim the move has been on the cards for a while. “I think that Abu Dhabi has obviously made the decision that it wants to pull out of Gulf Air and concentrate on its own carrier now,” Simon Williams, a regional analyst at the Economist Intelligence Unit (EIU) told Arabian Business. “Gulf Air is a product of the 1980s GCC and other airlines such as Emirates have since overtaken it and left it behind really,” he added. Jassim Hussein, head of economic research at Bahrain University echoes Williams’ sentiments: “I am not totally surprised by this step — this is a natural development,” Hussein commented. “Abu Dhabi has its own airline now and cannot overstretch its resources,” he added. Founded in 1950, Gulf Air is owned equally by Bahrain, Oman and Abu Dhabi. But in a similar scenario, Gulf Air shareholder Qatar pulled out in 2002 to focus on its flag carrier, Qatar Airways. And Abu Dhabi is expected to dump its stake in the same way Qatar did — without any financial compensation. “Abu Dhabi isn’t the first entity to pull out of Gulf Air and I don’t think it will be the last because it isn’t as an attractive proposition as it once was,” said the EIU’s Williams, adding that Oman could potentially be the next shareholder to withdraw. Oman is also grooming its carrier, Oman Air, which currently is acting as a feeder service to Gulf Air’s long-haul routes. The Bahrain-based airline came back into the black last year after years in the red following a three-year turn-around programme known as Project Falcon. Gulf Air reported a 2004 net profit of US$4 million, its first profit in years, and company officials claim it has not received state subsidies since December 2002. Gulf Air said in April it had reduced debt by around 8% and that the debt to equity ratio was 2.4 times below a limit of 3 set under a the restructuring plan, which was approved in 2002. However, the carrier still has over US$110 million worth of debt. “It (Gulf Air) has made some pretty meaty losses in the past and I think it makes commercial sense for Abu Dhabi to get out now,” explained Williams. “There’s also a great deal of growing competition between the region’s airlines these days and the GCC countries are more interested in their own operations,” he added. Project Falcon, led by Hogan, also created a second livery, Gulf Traveller in 2003 positioned in Abu Dhabi in an apparent bid to satisfy the emirate’s demand to have a larger share of Gulf Air’s operation. Despite this, in November 2003 Abu Dhabi launched Etihad, which is now expanding ambitiously. It flies to 17 destinations worldwide including Bangkok, Mumbai and London. Industry observers agree that the move makes commercial sense for Abu Dhabi to withdraw from Gulf Air and concentrate on its own airline, Etihad. However, analysts have raised concerns about cooperation among GCC states. “There is a conflict of interests between ownership in two airlines for Abu Dhabi, but the equity could have remained as an investment with another GCC state,” said aviation analyst Rajesh Biekra.

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