In 2012, the directors of Air Malta expressed confidence following the positive news released by the European Commission in which it formally authorised the restructuring plan proposed by the government that was aimed to restore its viability. Trumpets were blown expressing the joy and satisfaction of all airline employees that the Commission had approved a €130 million aid package granted to the state-owned airline flying the ubiquitous Malta cross. Such restructuring was considered as not conflicting with EU state aid rules. The restructuring included a significant capacity reduction and sale of assets as part of a plan advised by UK consultants EY. The blueprint claimed to ensure long-term viability without undue distortions of competition.

However, the restructuring of Air Malta was never going to be an easy task. Cost-cutting measures, including the reduction of about 500 employees on early retirement terms, came with a heavy price tag. It is a strange fact that the reduced fleet of eight aircraft now has 122 pilots (each take home an average of €93,000 per year) and a sizeable number of repair engineers. Financial loss was crystal clear once low-cost airlines were introduced (and financially assisted). They started to carve away at many of the national airline’s profitable niches. Now in its sixth year of the restructuring plan, the company was supposed to return to glorious profits. This proved elusive. In 2015, the company reported a €16.4 million loss partially due to the closure of the Libya route and a drastic drop in passengers from Russia following the Ukrainian crisis. All this coincided with the reform in resizing of the fleet down to eight leased aircraft.

We were told that Air Malta must find a strategic partnership with a legacy airline to render it sustainable even though the Alitalia deal is now dead. Does this mean that currently it is not sustainable? Under the PN administration, the minister in charge formulated a plan to do a root and branch overhaul based on a report coined external consultants Ernst and Young (E & Y). Projections in this plan (reputed to have cost around €3 million) foretell how the airline’s profitability was planned to commence in 2016 and was expected to be on a similar level to that of major carriers. There is no denying that Air Malta has a strategic importance in the tourism industry given that it also carries social cases such as sick passengers. The Opposition strongly believed that there was no need for a reduction in routes or planes as these did not form part of the approved E & Y restructuring plan.

Let us examine the course of events that started six years ago to restructure the company following the aborted E & Y plan. At the onset of the rescue plan, the Airline Pilots Association had expressed doubts that the study would succeed. The plan called for the dropping of 20 per cent of capacity including the surrender of certain profitable or potentially profitable routes. Currently, Air Malta is in a weak financial position with a €66 million debt and does not own its aircraft but has a long-lease agreement with an international company. The 2011/2 financial rescue strategy included a further capital injection (also approved by the Commission) of €108 million together with measures to trim expenses and a sharp rightsizing of the staff complement. Even after these knee jerks, the Commission had its doubts on whether the rescue plan and its implementation would succeed in reviving the airline, saying it was based on unrealistic assumed market growth of 5.9 per cent.

Critics of the rescue plan say that having sold its family silver on the cheap, Air Malta is now denuded of any assets that in the past generated good profits when times were hard. One cannot forget that in the first years of operation, when it enjoyed a quasi-monopoly it registered respectable returns resulting in healthy surpluses. However, one also cannot forget when disaster hit the airline principally due to mega losses generated by the introduction of a regional hub concept. This was promoted in the mid-nineties and hailed as the elixir that would turn the island into a reputable hub in the Med. However, it proved disastrous for Air Malta as it was under-capitalized for such an ambitious task. The board of 1992-1997, chaired by Joseph N. Tabone, left the airline with 1,750 employees and resultant losses (head count later increased to 2,000 under the chairmanship of Louis Grech).

In the period 1992-97, seven Avro Liners were ordered. Much fuss was made at that time by the board of directors that the investment would turn the tide and Air Malta would reap untold financial rewards. This was supported by professional studies and reports by consultants which the board commissioned as a basis to justify the selection of this particular type of aircraft. Fortune did not smile on the hub concept and considerable losses plagued the balance sheet. Really and truly, the root cause of Air Malta’s problems is not the business model it operates but political interference. Both parties in government have and continue to load it with non-commercial burdens.

Another enigma is that Malta International airport (MIA) is registering record arrival/departures figures showing good profit when, by comparison, Air Malta which carries around a good quota of passenger traffic and almost 100 per cent of export of cargo is in the doldrums. Needless to say, low cost airlines are reporting remarkable growth in the number of passenger traffic with Ryan air adding its fourth aircraft and new routes this year. It is a mystery how increased traffic at MIA, now exceeding five million passengers, does not directly cause the national airline’s balance sheet to turn into the black after painstakingly trimming its payroll and reducing its fleet.

As a cost reduction measure, it replaced cooked meals on flights by timidly serving a bread roll and a bottle of water. Notwithstanding this sad tale, we are all very proud of the humble origins of our national airline – remembering how it started operations, with two wet leased Boeing 720Bs that served Rome, Tripoli, London, Manchester, Frankfurt and Paris. Shortly afterwards, it invested in three more Boeing 720Bs and bought the original two. Those were pioneering days for a young nation which in the early 1970s, in the wake of the oil crisis, took the bull by the horns following an inspiration to connect the island to the outside world and ventured bravely to set up a thriving airline.

Back then, we had a vision to help a nascent tourist industry and to serve other social purposes providing a reliable link to mainland Europe. In the 1970s, the government had signed with Pakistan International Airlines – once regarded as Asia's best airline – to train our pilots and teach technical staff how to handle the aviation/commercial ropes. Something needs to happen and regrettably time is not on our side, and the 1000 workers need some reassurance their job is protected. Philip Fenech, president GRTU travel and tourism section, takes a pragmatic view. In his opinion, the main issue in Air Malta is to how tackle the passenger v employee ratio, saying this is one of the fundamental pillars on which all airlines base their commercial viability. Heads may roll unless an alliance with a legacy airline is sealed. For workers, 2017 brings with it a chilly north wind that does not warm their hearts.

 

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Mr Mangion is a partner in PKF an audit and business advisory firm