Bahrain Air, the Persian Gulf
country’s first privately owned airline, said it has suspended
operations and will liquidate, succumbing to dwindling traffic
and mounting competition from larger state-controlled carriers.

The “unstable political and security situation” in the
country led to “sustained considerable financial losses,”
Bahrain Air said in a statement, following an extraordinary
general meeting for shareholders. The company said it suspended
all flights yesterday, and any stranded passengers will have to
make their own arrangements to reach their destinations.

Yesterday was “a sad day for all shareholders and
employees, and for our loyal and valued guests,” the airline
said on its website late yesterday.

Authorities in Bahrain asked the airline to suspend flights
to several destinations when political unrest erupted in 2011,
and the company said it had unsuccessfully sought compensations.
Bahrain Air’s breakdown contrasts with the fortunes of Emirates,
Etihad Airways and Qatar Airways Ltd., the state-owned Middle
East companies that have expanded into global airlines to
challenge established network carriers

Bahrain Air, which began operations in 2008 with flights to
Dubai, suffered from the lack of traffic to and from Bahrain,
and restrictions to operate on many routes have cost the carrier
4.5 million Bahrain dinars ($11.9 million) in lost revenues over
the last 3 months, it said.

Veteran CEO

The company is run by Richard Nuttall, an airline executive
with more than two decades of experience in the industry and
stints at Kenya Airways Ltd. and Cathay Pacific Airways.
Bahrain’s chairman is Sheikh Mohammed bin Abdullah Al Khalifah.

Shareholders decided to stop supporting the airline
financially this week after the ministry of transportation
demanded a payment of 4 million Bahraini dinars in return of
opening some “minor” routes, it said. The airline, with about
300 employees, is now being required to make immediate payments
on past government debts or face closure at the same time as
authorities reduced its routes and frequency, it said.

Private airlines in the Gulf region face financial
difficulties as they compete with state-owned carriers. Sama
Airlines, a Saudi low-cost private carrier, closed down in
August 2010 after a loss of 1 billion riyals ($266 million),
while it received 200 million riyals as a loan from the
government.

Regional Competition

Bahrain Air and the other state-owned carrier, Gulf Air,
both based in Manama, were among seven airlines shortlisted last
year to bid for a license to offer domestic routes in the
neighboring kingdom. Only Gulf Air, which received 185 million
dinars in financial aid last year, was awarded a license by
Saudi authorities to operate in Saudi Arabia.

Gulf Air, once the Middle East’s biggest carrier, will cut
planes and jobs after quitting eight routes to focus on
providing regional flights in the face of competition from
Emirates, Etihad and Qatar Airways. The 63 year-old carrier said
last month it will seek a 24 percent cost saving by the end of
2013 as it stops targeting transfer traffic, a market dominated
by the big three Persian Gulf airlines, to concentrate on local
point-to-point services.

To contact the reporter on this story:
Wael Mahdi in Manama at
wmahdi@bloomberg.net

To contact the editor responsible for this story:
Maher Chmaytelli at
mchmaytelli@bloomberg.net