Bahrain: Grand Prix Sponsor Lapped by Competition

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Lotus F1 Formula One driver Kimi Raikkonen of Finland drives during the first practice session of the Bahrain F1 Grand Prix at the Sakhir circuit in Manama 20 April 2012. (Photo: REUTERS - Steve Crisp)

By: Joe Dyke

Published Friday, April 20, 2012

With eyes on the Formula One Grand Prix and the protests outside Bahrain International Circuit, trouble brews at the national airline which happens to be the race’s main sponsor.

This Sunday millions of people will be watching worldwide when 26 cars squeeze their way around the race track in Bahrain, with the Grand Prix set to take place despite ongoing protests in the country. Thousands will be in the crowd cheering on their favorite racers, despite fears for their safety as violence increases. But less notice will be paid to how those thousands enter the country in the first place, with many expected to travel on the state's national carrier Gulf Air. The airline sponsors the race – officially called the Gulf Air Bahrain Grand Prix – yet it is beset by a crisis of its own.

Earlier this month the country's government was forced to deny reports that its flagship airline was facing closure. Instead, the minister of finance announced that there was to be a fresh US$1.76 billion cash injection. This resort to yet another state bailout marked a spectacular fall from grace for a company that as recently as the summer of 2010 was said to be heading back toward the black and possible privatization, according to the government.

Fierce Competition

The airline's woes have coincided with a political crisis but the roots of its problems can be traced to long before activists took to the streets last February. Since the heydays of the 1980s, when the company was a leading aviation figure in the region, it has seen its market share ebb away as Emirates, Qatar Airways, and Etihad have each taken chunks out of its business.

Husam Alshamlan, a retired airline executive, suggests that the emergence of those three larger airlines has left the company struggling to keep up. “They are competing with larger, more modern airlines. All three have huge modern fleets which are more economical to run,” he said.

An industry insider says the company is riddled with inefficiency, complete with the kind of sprawling bureaucracy that characterizes a number of Bahrain's state institutions. A Bahraini source who trades with the company, and prefers to remain anonymous to avoid jeopardizing business, describes the difficulty of doing business with the airline.

“Gulf Air is a very messy company – they have been in a mess for a decade. The bureaucracy is incredible. They employ hundreds of people who don't do anything – they punch in and leave and pretend they have been there all day,” the source said.

“They have been putting off dealing with this for a long time – nobody has had the political will to deal with it on a fundamental basis.”

For an already bureaucratic and declining company the uprising of last year may yet prove to be the final nail in the coffin. The Bahraini government has dealt with the pro-democracy protesters in an often brutal fashion, and the scene at Gulf Air proved little different. In the months after the marches began, over 100 employees were fired, allegedly for absenteeism but opposition leaders say it was because they sympathized with those on the streets.

Then in March the state-run airline announced they would cancel all flights to Lebanon, Iraq, and Iran. It was suggested by opposition figures that politics, rather than economics, formed the basis of the decision, as only six months prior, when the airline announced it was to focus just on short-haul flights, these three routes formed the backbone of the new strategy.

The Bahraini government argued that the decision to stop the flights was due to “security reasons” and have said the protests were being orchestrated by Iran. However a government-commissioned investigation last year concluded that there was “no clear link” between those on the streets and the Islamic Republic.

While flights to Lebanon and Iraq have since been restarted, the airline is still not flying to Iran. Justin John Gengler, a Doha-based Bahrain expert and founder of the bahrainipolitics blog, believes that the decisions made by the government have perpetuated, rather than eased, the crisis. For him this is reflected in the decision to cancel the flights, which aggravated Shia Muslims who often went to Iran and Iraq for religious pilgrimages.

“If you take the Iraq flights, for example, people annually for Ashura [Shia religious festival] were going to Karbala and other places. If they have a comparative advantage in those flights and then they are closing them down it is not clear how they will make up the financial revenue,” he said.

Gengler believes it is part of a wider campaign to paint Bahrain's Shias as “subversive.”

“There is obviously a targeting of that group, even though the official position is that these in no singling out of Shias,” he said.

Crash Landing

Having cut off one of its major sources of revenue and alienated the opposition, the airline has since been hit by dissent from within the pro-regime camp.

In February Talal al-Zain, the Chief Executive Officer of Mumtalakat Holding Company – the investment arm of Bahrain which runs the airline – resigned, with Reuters citing industry insiders as saying he had stormed out in protest over the constant focus on Gulf Air.

That decision came only one month after Bahrain's foreign minister ordered civil servants not to fly with the airline, allegedly after a dispute over which Linked word seat he could sit in. However Bahrain experts suggest the dispute may have to do with internal splits in the ruling royal family, with some more committed to the airline than others. Either way when even a country’s own ministers refuse to fly the national airline the signs are ominous.

The government remains hostile to any suggestion Gulf Air is due for a crash landing. Announcing the latest US$1.76 billion injection Finance Minister Sheikh Ahmed bin Mohammed Al Khalifa said: "The government's stance toward the future of the national carrier is crystal clear and does not support any room for interpretation, the aim is to empower the national carrier to continue to exist and overcome the challenges it is now facing.”

Mattar Ebrahim, a leading figure in the opposition al-Wefaq group and a member of the Bahraini parliament's finance committee until resigning from parliament over the crackdown in 2011, believes it will never be profitable without political reform.

“First of all if we leave the politics and just talk about the feasibility of Gulf Air to function properly it is very difficult with the competition in the region...secondly, with the current problems in Bahrain many officials found the unrest as an opportunity to continue and go further with corruption.”

Ebrahim points out that the government has injected cash into the airline before and the money has done little to stem the slide and questions whether the money wouldn't better be invested in trying to deal with the grievances of those on the streets demanding political and economic reforms.

Yet it is fairly certain that the government will keep backing the airline out of a desire not to fall behind in terms of prestige. “It would certainly be a blow to be the only Middle Eastern country not to have a national carrier – even Yemen has a national airline. If Bahrain were left without one it would undermine their position in terms of prestige,” Gengler said.

Unprofitable national airlines are trophy assets that resource-rich countries around Bahrain, notably the UAE and Qatar, can afford to prop up. They have the added bonus of bringing trade and tourism to their host countries, thus supporting the economy in indirect ways.

But in a country riddled with corruption and hit by an ongoing uprising, the decision to back the airline seemingly indefinitely suggests the government are throwing money away at a time when it is most needed.

“Maybe the other countries in the Gulf can survive with corruption but in a country without such resources we cannot get by without real reform,” Ebrahim said.

On Sunday when Michael Schumacher and Lewis Hamilton chase their way around Bahrain's track, nervous eyes will be on the protesters in the streets. Little attention will be paid to the race's sponsors, but they too may be gone in a flash.

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