The move will shore up Gulf Air's balance sheet and increase
the island state's commitment to the government-owned carrier, which has cycled
through new management and lost money for years as it struggles to compete in
the crowded Mideast aviation market.
Gulf Air said the government raised the carrier's authorized
share capital by 400 million dinars ($1.06 billion). It described the move as
the airline's first "capital restructuring" since Bahrain assumed
full ownership in November 2007.
The carrier was once owned by a consortium of Gulf states.
As they backed out to form their own competing airlines,
Bahrain was left as Gulf Air's sole owner. It is now fully owned by the
country's sovereign wealth fund.
"The proposed further injection of funds from the government
of Bahrain announced today highlights the importance of this business to the
Bahraini economy," said Talal Al-Zain, chief executive of the state fund
that owns Gulf Air. "It will go towards securing a stronger future for the
carrier and assist in ensuring a swift return to Gulf Air's
profitability." The company expects to use the additional funds for
ongoing restructuring costs.
Gulf Air last year hired the former head of Royal Jordanian
Airlines, Samer Majali, as chief executive in a bid to revive its business.
Majali quickly launched a review of Gulf Air's entire operations, and said the
carrier might consider shedding unprofitable routes and renegotiating billions
of dollars worth of aircraft orders with Boeing Co. and Airbus.
The airline is a major employer in Bahrain. It remains under
close scrutiny both by an employee union and Bahrain's young Parliament, which
faces elections on Saturday.
Once the premier airline in the region, Gulf Air has
struggled in recent years. It faces stiff competition from well-funded Gulf
rivals Emirates, Etihad Airways and Qatar Airways, as well as smaller budget
carriers such as FlyDubai.
The state fund that owns Gulf Air, Bahrain Mumtalakat
Holding Co., saw its losses more than double to $485 million last year. It attributed
much of the wider loss to financial challenges at Gulf Air and smelter
Aluminium Bahrain.
Mumtalakat announced Sunday it is looking to raise more than
$500 million by selling off a stake in the smelter, which goes by Alba.
Gulf Air didn't say when its additional funds would be
injected or how the financing would be provided. Al-Wasat newspaper reported
that a royal decree issued last week authorizes the government to borrow
additional funds to cover the additional funding needs.
