Air Malta will be selling Selmun Palace, which up to a few years ago was used as a hotel, to the government, airline chairman Maria Micallef said.

In an interview, Ms Micallef said that the sale of the property will be at the best possible rates.

The government's intentions are to rent out the property which, it is envisaged, will continue to be used for tourism purposes.

The announcement comes in the wake of another interview given by Ms Micallef in which she said that the airline is set to lose €16 million this year.

The sale of Selmun Palace - the amount involved has not been disclosed - would go a long way to offset this year's deficit.

This sale is the second government to government deal to be announced this week. Enemalta's petroleum division has been sold to the government in a deal worth €80 million, a move that will enable the government to maintain its promise to reduce energy rates for industry. The government has admitted that the new power station at Delimara, which was linked to the cutting down of the rates for indusrty, will not be completed in time.

Enemalta and Air Malta are both government-controlled entities.