Outsourcing is a business practice where companies outsource selected or part of their business operations to other companies that specialize in those operations in order to lower cost and improve efficiency. But is always the case?!!
Gulf Air, the national airline of the Kingdom of Bahrain, has gone through a series of outsourcing some of its core business function to independent organizations. The first ever outsourcing done by Gulf Air was in 1977 when it helped to setup and form a new company called “Bahrain Airport Services (BAS)”, which gulf air owns 30% shares. Gulf Air ceased to perform ground handling operations and instead purchased it as a service from BAS. Then in 1987, Abu Dhabi-based Gulf Aircraft Maintenance Company (GAMCO) was formed as a joint venture between Gulf Air and Abu Dhabi government. Gulf Air outsourced its heavy maintenance operations of its aircraft maintenance department to GAMCO the same year. In 2010, Gulf Air disbanded its Training Department in an effort to reduce staff and cut cost and outsourced the training services to a new company called Gulf Aviation Academy (GAA), which took over Gulf Air state of the art aircraft simulators and training buildings. The same year another company formed “Gulf Technics” owned by government which also when it will be ready building their facility will handle the whole Engineering Department services which Gulf Air intend to outsource. Latest news on the sales side at Gulf Air is that they are likely to outsource most of their sales activities to a General Sales Agent (GSA).
With all of these outsourcing deals, was it a right move by Gulf Air or it was not a wised decision by the carrier? Recently Gulf Air is seeking a $1.762 billion from the government to help the company stay in business otherwise it will be forced to close. Gulf Air is losing nearly $1 million each day. Although the airline outsourced some of the core operations in order to cut costs and reduce their staff, but it failed to do so. So, what went wrongly? Obviously, the airline outsourced the business units that actually brings money and could help generating added revenues to the company. BAS is taking care of all the foreign airliners that land at Bahrain International Airport and provide full ground handling support to them. Now, GAMCO known as (ADAT) is fully owned by Abu Dhabi and is doing multi million projects with regional airlines. GAA is also making money and gulf Air accounted for less than 35% of their revenue. Also, the airline would pay so much commission to the GSA instead of bringing the business in-house. Overall, outsourcing did not alleviate the airline rather puts more responsibility on the airline for monitoring the service provider continuous performance.
So, do you think that it is the right time for Gulf Air to reverse their previous decisions and brings back their core business functions and put them under Gulf Air umbrella?