In reading the GDN during the last few days, there have been a few, and from what I read, conflicting statements made by Mr. Kooheji that have left me with vertigo. I am now unclear and worried about where Gulf Air is headed.
I am talking about the
Flight Path to Success article published in the July 26th edition of the Gulf Daily News that sums up the Board's dissatisfaction with Mr. Dosé's way of doing business, and then the article published the next day in the GDN (and cited by
Sal-e) that tells of plans to make the company go public sometime in 2008.
In light of the misgivings that the Board has had with Dosé's objective-based management techniques, "floating" the company next year seems equivalent to putting a boat in the ocean before a chance has been given to patch all of the holes in the hull.
I've heard a few people referring to Gulf Air as "The Alitalia of the Middle East." An interesting article about Alitalia's problems were published in this week's edition of
The Economist. It is bothersome to read so many parallels.
Down to earth with a bump
Jul 19th 2007 | ROME
From The Economist print edition
The Italian government's plan to sell its stake in Alitalia fails to take off
AFP
WHAT are your airline loyalty points worth? Alitalia's 3m MilleMiglia cardholders are wondering how quickly they can use theirs, since their value could soon fall to zero given the precarious and uncertain future of Alitalia, Italy's state-controlled flag-carrier. On July 17th Air One, a privately owned Italian airline, announced that it would not bid for the shares in Alitalia that the government offered for sale at the end of last year, initially attracting 11 expressions of interest. As potential bidders dropped out, Air One was seen as the last hope for an Italian buyer. It said that it had decided not to make a binding offer because of the contractual conditions, though difficulties in financing the deal probably did not help.
The lack of interest in Alitalia is not surprising, given the conditions that the buyer was required to meet. These included taking on Alitalia's debt and maintaining its current route structure, territorial coverage and Italian identity—keeping things pretty much as they are, in short.
Yet Alitalia clearly needs shock therapy. Last year it reported a consolidated net loss of €626m ($785m), having lost about €2.6 billion between 1999 and 2005. The misery has continued this year with a pre-tax loss of €147m in the first quarter. Alitalia's difficulties are such that Consob, Italy's stockmarket regulator, requires the airline to report on its financial position every month. At the end of May the group had net debt of €1.05 billion and €466m in net available funds. Without new capital Alitalia is close to stalling, as cash reserves run low and creditors start to worry more about getting paid.
Clearly a buyer will need deep pockets to keep Alitalia airborne. Air One had hoped that Intesa Sanpaolo, Italy's second-largest bank, would provide them. But could such a tiny outfit really turn Alitalia around? Air One had a fleet of 40 aircraft at the end of last year, against Alitalia's 186. It made a profit of €7m, but its traffic revenues of €570m were one-eighth of Alitalia's, at €4.4 billion. At the end of 2006 its net assets amounted to just €59m.
Air One's owner, Carlo Toto, can claim success in launching a scheduled airline, but he did this before low-cost airlines landed in Italy, and in a market where travellers were glad of an alternative to the incumbent. Sorting out the problems at Alitalia, where more than ten trade unions defend long-established privileges—one of them flexed its muscles by striking on July 18th—is a different challenge altogether.
So what will happen next? After vast infusions of state aid, Alitalia should now be refused more public money under European Union rules. No doubt Italy's politicians would find ways to pump in more money if the airline were placed in administration. The best option would be liquidation, opening the way for low-cost airlines to acquire Alitalia's routes and boost competition. But the government, which owns 49.9% of Alitalia, may simply decide to open direct negotiations with Air One, or with Air France, which has held a 2% stake in Alitalia since November 2002 and was expected to express an interest, but did not. If the French airline were to buy Alitalia, it would at least put an end to the worries of all those MilleMiglia cardholders, since both airlines are members of the SkyTeam alliance.
Economist Article: Down to Earth with a bump