Bahrain's sovereign wealth fund Mumtalakat said Thursday it would transfer ownership of the country's loss-making national carrier Gulf Air to the Bahraini government.
"Bahrain Mumtalakat Holding Company, the investment company for the Kingdom of Bahrain, announced today its intention to divest its interests in Gulf Air, Bahrain's national carrier, to the Bahraini government," the fund said in a statement.
Talal Al Zain, CEO of Mumtalakat, said an investment in the airline industry did not fit with the fund's investment strategy.
"Given it's in the airline industry, it is not a high-return investment but more of a strategic investment," he said.
"You will never have more than single-digit returns in this industry," Talal Al Zain said.
He also said Mumtalakat had fulfilled its role in the design of Gulf Air's new strategy that focuses on regional routes.
Gulf Air was established as a regional airline but has struggled to find its niche. Previous shareholders Oman, Abu Dhabi and Qatar gave up their stakes, after which ownership of the carrier was transferred to Mumtalakat in 2007.
It now competes with regional low-cost airlines such as Air Arabia and Bahrain Air, as well as with the state-owned airlines of its richer Gulf Arab neighbors that have large fleet expansion programs. Small oil producer Bahrain cannot afford to plough funds into its state-owned companies to the same extent.
"Given the strategic significance of Gulf Air to the Bahraini economy and combined with the business' significant funding requirements, Mumtalakat's board of directors has decided to transfer its interests in Gulf Air to the Bahraini government," Mumtalakat said in the statement.
Gulf Air has said it expected to post an operating loss of USD$510 million in 2009.
Mumtalakat has said it wants to improve the transparency and efficiency of its portfolio companies, virtually all of which are in Bahrain, in order to eventually divest them and diversify by investing abroad.
Zain said the Bahraini government may still privatize the airline.
"Eventually the government might still decide to do that, everything can be privatized," he said.
