The European Commission has not yet assessed whether the sale of Selmun Palace by Air Malta to the government amounts to state aid.
"A sale would not involve any state aid if the government pays a market price for acquiring the property. The Commission has not assessed whether this is the case," a spokesman for the Competition Commissioner Joaquin Almunia said.
Tourism Minister Edward Zammit Lewis said a competitive process will be announced in the coming months, leading to the privatisation of the hotel.
A spokesman for Air Malta did not place a value on the deal struck between the airline and the government.
"Air Malta's divestiture of Selmun Palace, which was part of the 2012 restructuring plan, is expected to be concluded in the coming months. This transaction between the government and Air Malta will not be state aid.
"It will be in accordance with EU rules and in line with past practices which have already been screened by the European Commission in similar situations, when other member state airlines sold a part of their portfolio of assets to their respective governments," the spokesman said.
Commission monitoring restructuring plan
The airline was given a loan of €52 million in 2010 as well as €130 million in state aid which was approved by the EU, on condition that Air Malta was completely restructured.
The plan was supposed to see the airline breaking even by this year and turning a profit by 2016.
The airline will be announcing a loss of €16 million for the financial year ending March 2014. Maria Micallef, chairperson of Air Malta, admits that Air Malta is struggling to maintain the same bottom line for the year ending March 2015, when it was supposed to break even.
The aim, she said, is to maintain a loss of €16 million.
The failure to abide by the restructuring plan has not set off alarm bells at the European Commission, but both the airline and the government will be in trouble if further state aid is given.
"If the financial results of the company deviate from the planned results, the Commission normally would not re-open a case unless it appears that additional state aid has been granted to the company," the Commission spokesman said.
"When a company in difficulty has received state aid which was approved by the Commission on the basis of a restructuring plan, the Commission monitors the compliance with the restructuring plan with regard to the implementation of the measures foreseen in the restructuring plan, the own contribution of the airline to the restructuring costs, the implementation of the measures to limit the distortion of competition and the principle that no further aid will be granted," the spokesman explained.
PN government valued Selmun Palace at €8.4 million
Attempts to sell Selmun Palace Hotel over four years ago all failed.
An advertisement in a March 2010 edition of The Financial Times first announced the sale of the property.
At that time, prospective buyers were requested to submit their bids and ideas for the site after the Commissioner of Land had turned down a previous €2 million offer, thought to have been submitted in early January 2010.
The government deemed the bid too low and later re-valued the hotel at €8.4 million. When the second call for tenders closed in April, the Lands Department had received two bids: one from Caterina Vitale Co. Ltd and the other from Orbis Group International. The former submitted a bid of nearly €8.6 million, slightly more than the minimum requested, while the other company did not specify how much it was offering. Both bids, however, once again fell short of government expectations.