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Gulf Air begins a painful process of restructuring and returning to profitability as Bahrain becomes the soleowner of the airline.

As he sat oozing with confidence, Bahrain’s Crown Prince Shaikh Salman Bin Hamad Al Khalifa had one clear message for the people sitting around the long table in Gulf Air’s meeting room: “Gulf Air will succeed under Bahrain’s sole ownership. It will not be easy, but it will be possible.” This statement and others by the Crown Prince, who was born 19 years after Gulf Air launched its first flight in the region, were meant as a first pragmatic move to bring the situation in Bahrain under steady control following a frenetic week of wild speculation, anxious concern and poignant appeals. Last month, Gulf Air’s newly-appointed president and chief executive officer Andre Dose told reporters that the Bahrain-based airliner, which was till then equally co-owned by Manama and Muscat, needed a serious restructuring to halt the nearly $1 million a day hemorrhage. “Since 2003, Gulf Air has constantly increased its losses,” said Dose as he painted a bleak picture of the situation. “Losses in 2006 were 130 million Bahraini dinars [$345 million] versus a budgeted profit of 26 million dinars. Accumulated losses and costs amounted to 254 million dinars [$675 million]. Currently operational losses are in excess of half a million dinars [$1 million] per day,” he said. It was the first time that someone spelled out so candidly the plight of Gulf Air, the aviation icon founded in 1950, and was for years equally owned by the governments of Bahrain, Oman, Qatar and Abu Dhabi. Qatar withdrew in 2002 and Abu Dhabi in 2005. Oman said this month that it ceased to be a shareholder, leaving Bahrain as the only owner. Adopting a new approach that sharply contrasted with previous ones, Dose explained why the company needed 310 million dinars ($825 million) and how it would work on securing the amount. Restructuring costs included network transition, the closure of some routes and the reduction of aircraft. Such fateful measures would help save or bring in 120 million dinars ($319 million). Investment costs, including fleet improvement, lounge investments and new facilities would amount to 190 million dinars ($505 million). Punctuality According to Dose closing the profitability gap of 156 million dinars ($414 million) can be achieved by reducing costs by 66 million dinars (fleet, personnel, fuel, commissions, other) and generating additional revenues of 90 million dinars through sales and network improvements. Another major source of problems at Gulf Air, according to Dose, is punctuality, which failed to match internal or industry standards. “Too many flights are cancelled, creating a negative domino effect on the rest of the fleet, and delay problems are often not communicated openly to passengers,” he said. “Customer service in case of problems, such as cancelled flights, is often inadequate.” Yet another serious problem plaguing the company, according to the new management, was that its organisation was too complex, with unclear, overlapping responsibilities and little cross-divisional teamwork. Overhead costs were high due to the complex and oversized organisational structure. But the new managerial team expressed confidence that it could successfully tackle the situation by focusing on four key performance indicators: safety, punctuality, profitability and customer service. “Progress will be monitored on a daily basis through the key performance indicators, and funds have already been put aside to reward progress.” The restructuring plan has been dubbed as the “Getting Well” programme. The first initiative is to implement a simpler and customer focused organisation, where all operations are concentrated in four division and responsibilities for each division and department are clearly defined. As for the fleet, it will be reduced from 34 to 28 as the Boeing 767s and Airbus A340s will be phased out and all planes will be Airbus. Meanwhile, realistic flight plan tables that reflect effective flight time will be implemented. The new plan will add connections to major destinations and, once Gulf Air is stable, will establish new connections to important economic centres. Gulf Air says that it has identified 11 major areas of restructuring, and that it had the ability to address them within two years. The restructuring programme seems to be running on a clear timetable. The new organisation to stabilise operations and improve productivity has already been implemented. May will be witnessing action to improve fleet management, punctuality, reduce the cost structure, downsize staff, improve customer service on the ground as well as the decommissioning of the 767s. Next month, the company will start the review and monitoring by independent safety experts, while the remodelled and customer-friendlier network will be operational in July. Improvements on ground (lounges) and in the air (cabins) and having an all-Airbus fleet will also start in July. Although Gulf Air was exceptionally open and honest in presenting the bitter reality, and despite the seemingly plausible plan announced by the management, several people in Bahrain remained edgy. The news that about 1,500 staff would be sacked as part of the restructuring plan triggered a wave of concerns that prompted trade unionists and Members of Parliament to start building up pressure to ensure that Bahraini families would not be affected. Workforce Claims of generous compensation packages failed to allay growing concerns, and the inability of the new management to provide exact figures of the total number of workers who would be sacked during the restructuring has not helped either. During his visit to Gulf Air headquarters in the vicinity of the airport, one week after Bahrain announced that it had become the sole owner of the iconic company, Shaikh Salman brought much-needed clarity to the information needed to paint a fuller picture of what lies ahead for the thousands of its staff. He first sought to calm down growing concerns that hundreds of Bahrainis would lose their jobs. “I don’t want any Bahraini to pay the price of wrong policies,” he said. However, he clearly resented self-complacency, reminding everyone that performance was the magic word. “I am sure that the officials will look into this matter and try to set up measures so everyone is clear on the requirements of working and being promoted in this company. I have requested this from the company’s board of directors. Regardless of the employees’ nationality, we should not discriminate between one nationality and another. But we can distinguish between a good and a bad performance.” About 60 nationalities are on the payroll of the company which employs about 6,000 people, with non-Bahrainis making up 70 per cent of the total force. Competition For Shaikh Salman, the company is regarded by GCC nationals as the most salient symbol of the Gulf unity, which has reached this deplorable stage mainly because of its faulty decision-making process and its inability to compete with other airliners. But the crown prince, who, almost single-handedly succeeded in bringing Formula One to the Middle East and building an award-winning race track in the middle of the desert, believes that there must be a new policy on the role of Gulf Air. “Now that Bahrain has complete ownership of the company, previous shortcomings in terms of decision-making, policies, or balancing four centres in a small environment, should no longer apply. We must realise one thing: Bahrain’s economy will not grow without an airline … The question we should be asking is what type of company it is going to be. Currently we are supporting Gulf Air based on its requirements so it does not affect the economy, [and ensure that] not many jobs are lost by Bahrainis and a smooth restructuring process is carried out,” he added. “We will try our best to ensure that the company’s philosophy is in line with Bahrain’s economy and this requires time, a year or two, until the picture is clear.” For Shaikh Salman, the historic ownership by Bahrain of the airline leaves no room for emotions. He resisted calls to change its name to Bahrain Air or Royal Bahrain as was suggested by some Bahrainis enthralled by Bahrain’s becoming the sole owner. “We will preserve the name and will not change it. It is a powerful icon of tradition and heritage and we are keen on preserving it,” he said. Now that Bahrain owned the airline outright, the infusion of confidence-boosting measures and the amelioration of lacklustre performance seem to be almost as significant as the injection of cash to meet the new economic costs. “What we must do is define our own niche. We are providing a service that no one else can because we are the national carrier for Bahrain,” Shaikh Salman said. “Am I worried? No! Am I stimulated by the challenge? Yes!” Losses Since 2003, Gulf Air constantly increased its losses. Losses of 2006: 130 million Bahraini dinars ($345 million), versus budgeted profit of 26 million dinars Accumulated losses and costs amount to 254 million dinars ($675 million) Currently operational losses are in excess of 0.5 million dinars ($1 million) per day To reach profitability again, restructuring and investments are needed Total costs of the “Getting Well” programme amount to 310 million dinars ($825 million) Passengers Gulf Air served 7.1 millionpassengers in 2006 (-4%) Seat Load Factor (SLT) in 2006 was 72.1% (+0.4%) The network includes loss making destinations Aircraft utilisation is low due to an inefficient network Current network causes longconnection times for passengers The History The company was established on March 24, 1950 and started operations on July 5, 1950 under the name of Gulf Aviation. It initially provided regional services between Bahrain, Doha and Dhahran and contract work for oil exploration companies. British Overseas Airways Corporation (BOAC) was a major initial shareholder until the governments of Abu Dhabi, Bahrain, Oman and Qatar purchased BOAC’s shares in 1973. Gulf Aviation became the national carrier of the four states and was renamed Gulf Air when the Foundation Treaty was concluded on January 1, 1974. The government of Qatar withdrew from the airline in December 2002. On September 13, 2005, Abu Dhabi also withdrew from Gulf Air. Oman withdrew in May 2007 leaving Bahrain as the sole owner of Gulf Air. Contribution to Bahrain’s national economy Direct impact: $246m annually Indirect impact: $153m annually Total: $400m annually Gulf Air employs: 5,917 people directly Helps to create 3,600 jobs indirectly Total: More than 8,000 additional jobs in local market Gulf Air accounts for 70% of Bahrain International Airport’s traffic Source: Gulf Air

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Inflation to rein in UAE growth

Dubai: Galloping inflation may slow the growth of Gulf economies, especially the UAE and Qatar, a top IMF official said yesterday. “The unprecedented economic boom driven by oil revenues and the recycling of regional liquidity has seen Gulf GDPs racing at a pace close to those of some of the East Asian countries. But inflation is becoming a major limiting factor,” Mohsin S. Khan, director of the International Monetary Fund’s (IMF) Middle East and Central Asia Department, told Gulf News yesterday. The real GDP of the UAE and Qatar is growing by almost 10 per cent annually and the other Gulf countries are growing by 6 to 8 per cent. With the surge in econ-omic growth these countries are facing high inflation, primarily driven by supply constraints. The UAE Ministry of Economy earlier said nominal GDP last year grew by 23.6 per cent to Dh599 billion. “In the UAE, inflation is estimated at above 10 per cent. However, this figure is for the whole of the UAE and for a city like Dubai the inflation rate could be much higher,” he said. With the rising cost of living, the UAE is facing upward pressure on wages and an overall cost escalation in all economic sectors, especially tourism, hospitality and financial services. According to the IMF, a key driver of inflation in the UAE and Qatar is soaring house rents. Despite assurances by the government and the central bank, the IMF does not expect new supplies of housing this year to cool inflationary pressure. “New supplies of housing units will have some impact on rents and inflation, but not as much as the central banks would expect to happen,” Khan said. On the monetary policy measures taken to tame inflation, Khan said the Gulf countries in general have limited options because interest rates follow the US rates due to the currency peg. Curtailing liquidity by other measures such as variable reserve requirements or bank rates is not effective in the region because of the sheer volume of liquidity that is floating in the financial system. Apart from the huge liquidity available in the region, Khan said stock market corrections have resulted in a lot of money re-entering the banking system and real estate. According to Khan, the inflationary pressure caused by excess cash flows in the region is compounded by the sheer lack of assets that can absorb liquidity. “Ideally, the corporate sector in the region should create an active debt market. The emergence of sukuks and convertible sukuks to some extent is a viable solution to rein in liquidity but the current size of these asset class is relatively small,” the IMF official said. Not cool enough According to the IMF, a key driver of inflation in the UAE and Qatar is the soaring house rents. Despite assurances by the government and the central bank, the IMF does not expect new supplies of housing units this year to cool inflationary pressure. Source : el watan

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Saudi Arabian introduces 14 more flights to Dubai

Riyadh: Saudi Arabian Airlines, the national carrier of the Kingdom, has increased the number of its weekly flights to Dubai by 14, said Hassan Al Yami, the carrier’s general manager for the Middle East and Gulf. The latest move brings the total weekly flights between the two destinations to 44. In a statement, Al Yami said the move is to meet the increasing demand in the Saudi Arabia-Dubai sector. He said the new flight schedules include significant changes as there are flights that take off from Dubai in the morning. Heavy demand He added that the airline expects the demand to be heavy as it provides flexibility for passengers in general and businessmen in particular. “According to the new schedule, Saudi Arabian Airlines will have 14 new weekly flights between Dubai and the Kingdom. Twelve of them will be between Dubai and Dammam using MD90 planes,” the official said. He added that two weekly non-stop flights will operate between Dubai and Madinah. One of the two flights will be on Tuesday night using a Boeing 777 plane and the second on Thursday morning with an MD90 plane. The airline will also start two-weekly direct flights between Dubai and Salalah, Oman, from June 27. Source : el watan

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McDonald’s plans more outlets in UAE

Dubai: American fast-food chain McDonald’s intends to beef up its operations in the UAE by adding more restaurants this year. McDonald’s Managing Director Rafic Fakih told Gulf News yesterday they are set to open 10 to 12 outlets in Dubai, Sharjah, Abu Dhabi, Al Ain and Ras Al Khaimah. Some of the restaurants, which will boost the 44-strong chain in the UAE, are scheduled to commence operations in about two or three months. The famous American brand’s Middle East portfolio boasts of 220 outlets throughout the Gulf region. Revenues Fakih admitted that given the number of restaurants in the UAE, their segment is not considered the major driver in the Asia-Pacific, Middle East and Africa region, but revenue figures have always been promising. “Up to now, since the last three or four years, we’ve always posted double-digit growth,” he said. Based on the latest financial report released by McDonald’s Corporation, comparable sales in Asia-Pacific, Middle East and Africa (APMEA) rose from five per cent to 9.6 per cent in March, driven primarily by the strong performance in Japan and China. Overall, McDonald’s restaurants worldwide posted 8.2 per cent increase in comparable sales in March. The food chain’s operations in Europe reported the highest monthly comparable sales growth of 11.2 per cent, compared to 6.2 per cent in the U.S. and 9.6 per cent in APMEA. Source : El watan

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Dubai : Family businesses show better prudence

Dubai: Family-owned GCC conglomerates are strong on credit quality and accounting standards, according to a report by Moody’s, the international rating agency. “Whilst financial transparency and conglomerate-type business strategies pose analytical challenges, such companies also frequently demonstrate hidden credit strengths,” said Moody’s Investors Service. Analysing the key characteristics and issues involved in assessing the credit strength of family-owned companies in the Middle East, Philipp Lotter, Moody’s Senior Credit Officer and author of the report, said, “The main analytical challenges in assessing the credit quality of family-owned companies in the GCC, where such groups are commonplace, are the ownership structure and the limited public financial disclosure.” Key areas Moody’s new report, titled ‘Family-Owned Corporates in the GCC, looks at four keys areas such as corporate structures, accounting and transparency issues, capital structure and liquidity and analytical considerations. According to Moody’s, many large family-owned or closely held companies in the GCC encompass diversified core operations, often comprising real estate, construction and energy activities complemented by large land banks and investment portfolios. As a result of closely-held corporations being not obliged to publicly report their results, the availability of public information can often be sketchy. To assess a company’s financial strength, Moody’s has so far relied on private annual accounts, often prepared under International Financial Reporting Standards and audited by international firms. Moody’s said the quality of information, and indeed companies’ willingness to share such information on a confidential basis, are often high. Moody’s observes that many companies in the GCC – whether closely held or publicly quoted – rely heavily on short-term funding, which often depends on the strength of their banking relationships rather than any contractual commitment. The use of uncommitted lines to meet potential short-term liquidity needs remains a source of some uncertainty. Source : El watan

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Dubai : HSBC branch in Britain tells poorer clients to go elsewhere

London: Britain’s largest bank is closing the doors of one of its branches – but only to poorer customers. The HSBC in the well-heeled area of Canford Cliffs, near Poole in Dorset, will only offer cashier services to richer clients from June 11. Anyone else will have to make do with cash machines. The branch lies close to the Sandbanks area overlooking Poole Harbour which boasts some of the most expensive property prices in Britain outside London. To be eligible for face-to-face banking services at the branch, customers will have to fall into its “premier” category, which means they will have to have savings of at least £50,000 or a £200,000 mortgage. Alternately, they must have a £100,000 mortgage plus a salary of £75,000-plus. HSBC – which promotes itself as “the world’s local bank” – said all customers would still be able to deposit cash, cheques and coins at “express” terminals within the branch and withdraw cash. Premier status But those who do not qualify for premier status will have to pay a fee of £19.95 per month to use cashier services – such as opening a current account or applying for a mortgage. A spokesman said the group had a “unique” situation in the area, with three branches in a radius of around two miles. It has a branch in Westbourne one mile away and another in Poole just over two miles away, both of which will remain full-service branches. The spokesman said: “We’re not banning the poor – that’s utterly untrue. “What we’re recognising is that, in this area, we have a unique situation: we have a high proportion of ‘premier’ customers who have more complex needs and warrant a premier service. “We have other branches that are very close that can service the other needs of customers who aren’t ‘premier’ customers.” He added that the banking giant had no plans to convert other branches to offer face-to-face banking to premier customers only. However, Canon Jeremy Oakes, vicar of the parish of Canford Cliffs and Sandbanks – whose church also banks at the branch – said many elderly parishioners with mobility problems would find it “very difficult indeed” to use the two other branches. Source : Glfnews

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Dubai keen to export Iranian flowers

DUBAI (ArabianBusiness.com) — Dubai Flower Center (DFC) is to serve as a center for exporting flowers from Central Asia and Iran. These states want to boost their export activities into Europe and the Far East, according to DFC marketing director Ibrahim Ahli. Representatives from the flower center recently visited Central Asia to generate interest from the region, particularly from companies operating in Iran, which currently possesses 3,000 flower production units. The country also produces more than 1,486 million stems of cut flowers, 38 million pot plants and 120 million trees and shrubs every year, which could prove potentially lucrative for facilities such as Dubai Flower Center. “Central Asian and Iranian flower exporters can greatly benefit from the proximity of Dubai and its excellent infrastructure including DFC’s cool supply chain, which offers the ideal solution for transhipment of perishable cargo from these regions,” said Ahli. “DFC already houses international operators offering various services, which could immensely help countries from the region to increase their exports, especially with our capacity of 180,000 tons per annum,” he added. Iran is famous for its diverse floriculture products, which include tulips, hyacinth, chrysanthemums, carnations and iris. However, with nearly one million stems wasted every day due to lack of storage facilities, the country is eyeing the technology found at DFC. DFC believes it can provide not only the logistical support the Iranian flower exports sector requires, but a strategic positioning for the PGCC market as well. By paying a 5% customs duty at DFC, Iranian companies would be able to send products directly to any PGCC countries. “We can assure the Iranian producers and exporters that DFC offers a free zone environment, with no customs duty for cargo in transit and our connectivity to global markets through more than 117 airlines operating from Dubai International Airport,” said Ahli. Iran is currently preparing to build four terminals in Mazandaran, Markazi, Khuzestan, and Teheran provinces. On completion, the terminals will be linked with hubs such as Dubai, Germany and the Netherlands. “We noticed an eagerness from the Iranian industry professionals and other officials to cooperate and participate to work towards improving logistical support for the exporters,” said Ahli. “The DFC, which has already established itself as one of the leading transhipment hub for perishable goods, can surely support the Iranian floriculture industry as we have the necessary infrastructure to meet their requirements.”

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UAE takes strong exception to HRW report on workers

DUBAI — The Ministry of Labour (MoL) yesterday said the Human Rights Watch (HRW) report, suggesting that the country’s draft labour law falls far short of international standards insofar as protecting workers’ rights is concerned, is unfortunate as it does not reflect ground realities. A 15-page report released by the HRW at a Press conference yesterday urged the UAE government to revise the law to protect workers’ rights to organise themselves and bargain collectively. The report also said that the draft law should, among other things, cover such groups as domestic workers. Feedback In a statement, Dr Ali bin Abdullah Al Kaabi, Minister of Labour, said he appreciated the comments made by the HRW about the draft labour law in the UAE and the ministry would take them into consideration. He said the revised draft law has been placed on the Internet and is receiving feedback from relevant organisations. Public opinion The effort made by the MoL to seek public opinion about the revised draft labour law underscored its profound belief in the principle of transparency and the importance of taking views of all relevant parties, including HRW, into consideration, the minister added. Revised draft law Pointing out that the ministry was still receiving responses to the revised draft law, Dr Al Kaabi said, “Based on our values and keenness to grant workers their rights, we are going to thoroughly study all proposals.” Reiterating that the UAE has a clean record of protecting workers’ rights, he said the ministry would cover in its study the HRW’s proposals as well as opinions expressed by other parties. An earlier statement issued by the ministry said the HRW did not accurately reflect either the progress that had been made in addressing labour issues or the seriousness with which the government was dealing with these issues. However, the UAE government, the statement said, “welcomes constructive input and discussions from international bodies and organisations, with regard to the area of guest worker welfare in the country”. Sarah Leah Whitson, HRW’s Middle East Director, said the Labour Ministry’s request for comments on the draft law represented an important step towards reform and transparency in the UAE. “And we hope that the Labour Ministry takes advantage of this process to revise the serious flaws in its draft law.” She said the law failed to address a series of abuses against migrant workers, who comprise 95 per cent of the country’s workforce, and “are particularly at the risk of abuse”. Further, she claimed, in a blatant contravention of international standards, the proposed law contains no provisions on workers’ rights to organise themselves and bargain collectively and explicitly punishes striking workers. “The UAE must amend its draft law to respect workers’ rights to organise, bargain collectively and strike,” said Whitson, alleging that over the past one year, the authorities have been dealing with workers staging demonstrations, rather than addressing the poor working conditions that fuel labour unrest. She pointed out that the draft law also violates international standards by arbitrarily excluding from its purview all domestic workers employed in private households, public sector workers, security workers and most farming and grazing workers, leaving them vulnerable to exploitation. “The government should extend equal labour protection to domestic workers instead of reinforcing the discrimination they already face,” she said. Moreover, she said, the draft law discriminates against women workers and treats women workers as dependents rather than as competent adults with full and independent legal capacity. The draft labour law, she claimed, also fails to incorporate the 2001 Dubai Court of Cassation ruling that prohibits employers from confiscating employees’ passports. HRW officials also stressed the need for employment contracts and instructions to be made available to workers in a language they speak fluently to eliminate miscommunication of facts that further fuels the exploitation of migrant workers in the UAE. Besides, they said there is a need for the government to enforce its labour laws by providing effective penalties for violations and stringent punishment to employers. The current law continues to provide weak financial penalties of between Dh 6,000 and Dh 12,000 for employers found violating the law, they added. “The current fine of a few thousand dollars is no deterrent for employers with multi-million-dollar contracts,” said Whitson. Source : khaleedj

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Iraq, UAE oil companies sign agreements

An official at the UAE’s Crescent Petroleum Company announced that the company has finalized a 10-month study on oil exploration in Iraq jointly with Iraqi officials, Iraq Directory reported Monday. He said that the Iraqi area to be included in the study is between the southern city of Basra and the borders of Kuwait. He added that the firm has also conducted studies on other Iraqi regions and has drawn up a development plan for the giant southern Ratawi field. The UAE Crescent Petroleum and the Iraqi Oil Exploration Company have signed several technical cooperation agreements since 2005 to encourage foreign companies to invest and develop Iraq’s oil sector. (Source: MENAFN.com)

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UAE is most competitive Arab economy

Doha: The United Arab Emirates is the most competitive economy in the Arab world followed by Qatar and Kuwait, according to a World Economic Forum report released here yesterday. The report places four Gulf countries among the 40 most advanced econo-mies of the world. The UAE is ranked 29, Qatar 32, Kuwait 37th and Bahrain 39. While the UAE’s ranking remained unchanged compared to the 2005 report, Qatar and Kuwait have moved up from 34 and 36 respectively. But Bahrain is placed two ranks lower.