Gulf Air faces uncertain future

Gulf Air has had big financial problems.

Gulf Air, which operated the plane that crashed off Bahrain on Wednesday, has a good safety record.

The airline's most recent previous disaster came in 1983, when one of its Boeing 737-200s crashed during approach to Abu Dhabi after a bomb exploded in the baggage compartment.

All five crew and 107 passengers were killed.

Since then, Gulf Air has had only one incident in which a plane was damaged beyond repair.

Aborted take-off

This was in March 1997, when an Airbus A-320 was forced to abort take-off from Abu Dhabi and overran the runway.

The plane's nose collapsed but there were no fatalities.

Gulf Air was established in 1974 when the governments of Abu Dhabi, Bahrain, Oman and Qatar jointly bought Gulf Aviation Company - founded in 1950 - from the British Overseas Aircraft Corporation.

Today, the Bahrain-based airline flies from hubs in its four shareholding countries to 53 international destinations.

It is one of the Middle East's biggest and most prestigious international carriers but has suffered severe financial problems in recent years as oil price swings caused the Gulf's economic fortunes to fluctuate wildly.

Increased competition

Gulf Air has also been faced with increased competition locally, both from large carriers such as the Dubai-owned Emirates and smaller operations, including Qatar Airways and Oman Air, launched by some of the airline's own shareholders.

Gulf Air's strategy was also outpaced by a reorganisation of the global aviation industry.

A rapid expansion programme in the early 1980s, when confidence in the oil-rich Gulf countries was at its highest, quickly appeared misjudged to outside observers.

Many of the airline's routes to far-flung destinations were rendered unprofitable but substantial debts from new plane and equipment purchases remained.

The scale of the airline's mounting losses was only fully acknowledged in 1996 when Gulf Air began putting together a rescue plan.

By this stage, the airline was losing more than $150m a year and had accumulated debts of more than $1.5bn.

Order cancelled

A provisional order for six Boeing 777s and options on a further six was cancelled.

But progress with the restructuring was slow.

Abu Dhabi was thought to be keen to inject more capital into the company but wanted this reflected in a larger shareholding.

Qatar and Oman balked at plans to increase capital - preferring to spend money building up their own national airlines - but insisted they wanted to retain their shareholdings.

Compromise arrangement

In 1997, Gulf Air was lent $200m by its owners in a compromise arrangement, with Abu Dhabi thought to have put up the lion's share.

Cost-cutting measures, including staff cuts and axing of unprofitable routes, were finally introduced.

More radically, the airline in 1998 sold six Airbus A-320s to an Abu Dhabi-based company and leased them back in a $195m deal.

The cash released from the transaction was used to reduce debts and the airline promised a return to profitability.

However, two years later the future of Gulf Air is still uncertain.

Analysts say it is likely to remain so as long as other regional operators keep expanding and the uncomfortable relationship among the four shareholders remains unresolved.