Rolls-Royce could lose a $1.5 billion (£903 million) contract awarded only five months ago by Gulf Air after the carrier announced a big change in strategy.

The Bahrain-based airline said yesterday that it would renegotiate contracts with Airbus, Boeing and Rolls-Royce for new long-haul aircraft and engines as it seeks to save $2.65 billion over the next five years.

Gulf Air will abandon 15 long-haul routes, including Shanghai, Bangalore and Hyderabad and instead concentrate on regional and short-haul flights. Gulf announced a $1.5 billion order for Rolls engines at the Paris Air Show this year to power a new fleet of 20 Airbus A330s that it ordered last year. Gulf also ordered Boeing 787 Dreamliners in a $6 billion deal.

A number of carriers have been forced to delay or cancel orders this year because of the severe downturn in the aviation industry, but Gulf’s restructuring is potentially the largest to date. All the contracts will be renegotiated as Gulf looks to replace long-haul, wide-body aircraft with short-haul, single-aisle aircraft. The carrier, which sponsors Queens Park Rangers Football Club, said that it would also consider selling five A340 aircraft while shutting down the unprofitable parts of its long-haul network. Gulf is expected to retain its direct flight to London but may reduce the frequency.

The sudden change in direction comes as Gulf Air faces operating losses of $510 million this year. The carrier had hoped to compete with its fast-growing regional rivals as they try to turn the Middle East into a hub for passengers transferring between East and West and North and South. Gulf’s decision to concentrate on regional flights is effectively an acknowledgement that it cannot compete with the big-spending Emirates, Etihad and Qatar airways.

Analysts had expressed doubts that all four could pursue the same strategy, given the small populations of their countries. Gulf had tried to operate a large global network from a country with a population of about 800,000. It will focus on flights to cities in North Africa, the wider Middle East and Eastern Europe.

Talal al-Zain, the chief executive of Mumtalakat, the Bahrain sovereign wealth fund, which owns Gulf, said: “Gulf Air relies on significant government support, spending far more than it earns. This is clearly unsustainable. If we do not implement this programme, Gulf Air will continue to be an unacceptable burden on the national economy.”

Samer al-Majali, the chief executive of Gulf Air, said: “This strategy will create more value for money, realigning the network to reflect customer demand as well as redesigning the product to deliver more customer value on a consistent basis.”

Rolls-Royce declined to comment.

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