VZCZCXRO4248
PP RUEHDE RUEHDIR
DE RUEHMK #0408/01 1230958
ZNY CCCCC ZZH
P 030958Z MAY 07
FM AMEMBASSY MANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 6777
INFO RUEBBEA/DOT WASHDC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEANHA/FAA HQ WASHDC PRIORITY
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000408 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR NEA/ARP, EEB/TRA/AN, EEB/CBA 
DOT FOR OST 
COMMERCE FOR 4520/ITA/MAC/ONE/THOFFMAN 
ABU DHABI FAA FOR PBARTKO 
 
E.O. 12958: DECL: 10/25/2015 
TAGS: EAIR EINV ETRD PREL BA REGION ECTRD
SUBJECT: BAHRAIN MAJORITY GULF AIR STAKE TO CLEAR THE WAY 
FOR MAJOR RESTRUCTURING 
 
REF: A. MUSCAT 378 
 
     ¶B. MANAMA 338 
 
Classified By: Ambassador William T. Monroe, Reasons 1.4 (b) and (d). 
 
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SUMMARY 
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¶1. (C) The GOB is set to increase its stake in Gulf Air from 
fifty to eighty percent, with possible plans to fully acquire 
and privatize the carrier.  However, Finance Minister Shaikh 
Ahmed bin Hamad Al Khalifa suspects that Gulf Air partner 
Oman may have lingering reservations about ceding joint 
ownership of the airline and states that GOB officials will 
seek to accelerate restructuring arrangements in a visit to 
Oman.  A majority interest in Gulf Air would give the GOB, 
and by extension new Gulf Air CEO Andre Dose, a free hand to 
implement badly-needed restructuring, including cuts to 
staff, routes, and aircraft.  Dose confirms plans to downsize 
to an Airbus fleet, but holds open the possibility for future 
opportunities for Boeing.  Dose faces a tough challenge in 
trying to turn troubled Gulf Air around.  Initial impressions 
are that he is bringing a much-needed shot of energy and 
management to Gulf Air, but the next 6-12 months will be 
crucial in determining if he can succeed. 
 
--------------------   ------------------------- 
BAHRAIN TO TAKE OVER - CREW MAY GET SOFT LANDING 
--------------------   ------------------------- 
 
¶2. (U) Local press reports May 1 quoted Shaikh Ahmed as 
advising the Parliament's upper house Shura Council that the 
GOB has plans to purchase Gulf Air outright and privatize it. 
 The GOB would initially acquire an additional thirty percent 
stake from the Sultanate of Oman, bringing its interest to 
eighty percent.  "We are currently working to get an eighty 
percent share of the company, with the possibility of owning 
it all, through our national holding company, Mumtalakat, so 
we can take proper decisions to implement our comprehensive 
strategic plans."  He added that  Mumtalakat officials would 
meet with officials in Oman and seek to accelerate Gulf Air's 
capital restructuring. 
 
¶3. (C) Shaikh Ahmed told the Ambassador April 5 (Ref. B) that 
he suspected that Omani officials were dragging their feet on 
finalizing the agreed thirty percent share transfer over 
hesitancy at losing key operations and associated jobs.  On 
the Bahraini side, the biggest local concern has been Gulf 
Air's reported plans to reduce its workforce by 1,000, 
although it is expected that the majority of these will be 
expatriates.  However, the Gulf Daily News May 1 pointed to 
one apparent source of relief.  Abu Dhabi-based airline 
Etihad, now headed by former Gulf Air CEO James Hogan, has 
reportedly offered to take all captains, first officers, and 
cabin crew who lose their jobs as the result of Gulf Air's 
downsizing measures. 
 
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ROUTES TRIMMED 
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¶4. (C) New Gulf Air CEO Andre Dose told the Ambassador April 
22 that "a lot of things are broken" at Gulf Air, "including 
the basics."  He said the carrier's condition is worse than 
he had expected when he accepted leadership of the airline. 
Dose said Gulf Air's on-time rating currently stands below 
fifty percent. 
 
¶5. (C) Dose questioned whether Oman has financial resources 
sufficient to fund Oman Air over the long-term, particularly 
in view of that airline's reliance on the less lucrative 
leisure travel segment (Ref. A).  He remarked that several 
leisure gateways had recently proven costly to Gulf Air, 
which had lost over BD 18 million (approximately USD 47.9 
million) annually on service to Sydney.  He added that to 
"stop the bleeding," Gulf Air would discontinue service to 
Sydney, Jakarta, Dublin, and Johannesburg.  Dose said he 
would keep Frankfurt.  He said his vision for Gulf Air is to 
remake it as a premier regional airline.  To that end, he 
said that beginning July 1, Gulf Air will beef-up regional 
scheduled service, with twice daily service to many 
destinations. But Dose also said he was intrigued by the 
possibility of offering direct Bahrain-US service. 
 
MANAMA 00000408  002 OF 002 
 
 
 
¶6. (C) Dose expressed frustration with Bahrain Airport 
Services, which takes care of baggage and other services.  He 
also complained that current landing schedules were limited 
by current runway resurfacing projects and added that the 
airport could not support instrument-aided landings in the 
final 6,000 meters of approach. 
 
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FLEET REDUCED 
------------- 
 
¶7. (C) Dose said that another problem is the deteriorating 
condition of the cabins in Gulf Air's fleet.  Dose stated 
that the entire fleet would be undergoing a "get well 
program," with each aircraft scheduled for a two-week 
refurbishment and cabin retro-fit in Zurich over the next 
year. 
 
¶8. (C) Dose said that it was necessary to downsize Gulf Air's 
fleet in the short-term.  Gulf Air's reported losses of USD 1 
million per day were actually closer to USD 2 million per day 
when interest and service fees are taken into account. 
Airbus' "family concept" on aircraft met Gulf Air's immediate 
needs.  Although Gulf Air's downsized 28-aircraft fleet would 
be made up of A-330s and A-340s in the short-term, the 
airline would eventually need to replace them.  He said that 
in the short term he would probably keep a couple of leased 
Boeing 767s to serve as back-ups in the event of mechanical 
problems with the existing fleet.  This would help overcome 
the current situation, where the loss of one aircraft in Gulf 
Air's overstretched fleet played havoc with the whole day's 
schedule. 
 
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OPEN TO BOEING IN FUTURE 
------------------------ 
 
¶9. (SBU) The Ambassador urged that Dose consider Boeing as he 
looked at longer-term planning and noted that Boeing 
representatives planned to visit him soon.  Dose said that, 
having been educated in New Orleans, he had once felt an 
affinity for Boeing, but that while heading SwissAir in 
2001-2002, he had been disappointed by Boeing's handling of a 
bid against Airbus.  However, Dose said that he was 
"extremely open" to Boeing as a future aircraft solution.  "I 
hear they are much better now on the customer side.  At the 
end of the day, it's about seat-mile cost." 
 
¶10. (SBU) Dose said he had also "done a lot of thinking on 
cargo" and said he would consider starting up a dedicated 
cargo service if he could find the right commercial partner. 
This, he said, would allow Gulf Air to keep "a couple of the 
leased Boeing 767s. 
 
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COMMENT 
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¶11. (C) The Ambassador told Dose he had two interests in 
looking at Gulf Air.  First, he hoped that Gulf Air would 
look at future purchases of Boeing.  Second, in selling 
Bahrain as a place from which and in which American companies 
could come to do business, it was important that Bahrain 
offer the full range of top quality services, including a 
good regional airline.  In recent years, the Ambassador 
noted, Gulf Air had slipped in reliability and consumer 
confidence.  As the new CEO, Andre Dose has a huge challenge 
to turn Gulf Air around.  Initial impressions are that he is 
bringing a much-needed shot of energy and management to the 
troubled airline.  He is also getting strong support from 
Minister of Finance Shaikh Ahmed, the chairman of Gulf Air's 
holding company Mumtalakat.  The next 6-12 months will be 
crucial in determining if the new team can restore Gulf Air 
to its former position as a premier airline in the region. 
 
 
********************************************* ******** 
Visit Embassy Manama's Classified Website: 
http://www.state.sgov.gov/p/nea/manama/ 
********************************************* ******** 
MONROE