Answering questions by The Malta Independent, Mr Zammit said that the airline had been pretty much on target with its projections on losses for 2003. “We were on the ball, we knew what losses we were expecting and we are expecting similar losses for the 2004 financial year,” he said.

TMID pointed out that while the rescue plan predicted Air Malta would only have a Lm1 million debt, there were no figures projected for the short term. “We know that we are expecting similar losses in 2004, as I have already said, but I am sure that by the end of the 2005 financial year, we would have started to chip away at the losses. I do not mean a few thousand liri. I am confident that we will be on track,” he said.

Mr Zammit said that the quicker the airline begins its restructuring and implementing cost-cutting and revenue generating measures, the more losses can be curbed.

The Air Malta chairman said that things had changed drastically in the airline business over the past 10 years. He said that this created the need for better management, control on expenditure, globalisation of the local industry and technological progress. “Unfortunately, none of this happened and Air Malta’s revenue fell drastically, as well as the number of passengers. This was coupled with the fact that costs spiralled out of control,” said Mr Zammit.

He said that he and the new board had to face up to reality immediately. “The new realities we were operating in first had to be identified, accepted and addressed before the company could ever move forward,” said Mr Zammit.

He said that the airline was going to try to drastically cut down costs. “But that will never, I repeat, never, be done at the expense of airline safety or security. But the issues have to be tackled. It would have been suicide for us to try to compete in the international arena without first having put our own house in order,” he said.

Mr Zammit said that while there was still much to be done, the airline had already taken some initiatives and had taken the first tentative steps down the road ahead.

“Investment Minister Austin Gatt was very clear in his message and he was correct. Air Malta must go through a radical change for the good of the airline itself, those who depend on it and the Maltese tourism industry as a whole,” he said.

Mr Zammit said the airline had the continuous support, help and strategic direction of Minister Gatt. “Dr Gatt was particularly instrumental in brokering a deal with the four workers’ unions involved to come up with the rescue plan,” he said.

Mr Zammit said the most important thing to tackle was to change the mentality of the airline staff at all levels and in all departments. “We need to focus on discipline and focus on our core business. Management must work especially hard to strengthen our internal organisation by improving communication throughout the company,” he said. He also said there was a great need for more accountability and to increase individual responsibility.

Mr Zammit said Air Malta needed to put the client at the centre of the company’s business. We need to understand their needs more and we need to be more

flexible, efficient and effective in our operations.

He said there needed to be greater cohesion between departments. “We must eradicate the mentality that each department is a separate entity. We must have a team not a group of individuals,” he said.

Chief executive officer Ernst Funk said that while Air Malta had its own problems, the global air industry had had one of its worst periods in history. “Only now is the industry recovering from the effects of 11 September, the sars virus and Gulf War II. We are also suffering from the fears of terror attacks,” said Mr Funk. He also pointed out that airlines were facing higher costs due to counter-terrorism measures.

He said, “Without making any excuses in advance, we must also point out that there are variables in the sense of fuel cost hikes and fluctuations in the rate of exchange which could affect Air Malta.”

Mr Funk said the most important thing was to push up revenue per passenger per kilometre while at the same time reducing operational cost per passenger per kilometre. Currently, there is a discrepancy of -0.8 cents per passenger per kilometre, effectively meaning that the airline incurs a 0.8 cents loss per passenger for every kilometre travelled.

The financial aspect

Financial year ending 31 July 2003 saw Air Malta generate an income of Lm123.9 million which was way short of 2002 results of Lm174.7 million (figures rounded to nearest 100,000). The group as a whole registered a Lm25.8 million loss compared to marginal profits of Lm332,000 in 2002. Lm14.2 million of the 2003 losses were incurred by AZZURRAairSpA and leasing of the Avro RJs (Lm7.2 million in 2002). Mr Zammit explained that Air Malta was doing its utmost to lease out or sell the infamous Avro RJs to other airlines. An exercise he described as “not easy”.

Subsidiary companies, such as airport shopping outlets generated Lm2.7 million compared to Lm3.7 in 2002. The total number of passengers in 2003 was a

paltry 1.5 million when compared to the previous year’s figures of 2.3 million.

Other factors that hit the airline badly included negative trends in the market, an increase in fleet maintenance costs, increase in salaries, and payments to Air Traffic Control.

Effectively, this whole picture translated into a loss of Lm8.86 million in passenger and cargo handling compared to Lm3.71 million loss in the 16-month financial year of 2002. This was the fourth consecutive year that Air Malta made a loss in

passenger and cargo handling.

To keep up with the losses, Air Malta had to use its reserves of Lm34.9 million and Lm12.5 million it had borrowed from banks. The reserves were from the sale of a previous fleet and leasing of aircraft

in 2002.

Measures to be implemented

Reduction in administrative costs expected to save about Lm400,000:

• Reduction of directors’ salaries

• Reduction or removal of senior management allowances

• Reduction in car hire costs

• More control on telephone and petrol consumption

• Removal of costs due to memberships in associations

• Removal of wedding gifts allowances

• Control of everyday travel expenses

• Better use of IT and more responsibility on workers

Reduction of in-flight expenditure expected to save Lm500,000:

• In-depth analysis of changes needed to in-flight services

• Overall cost reduction

Reduction of commercial expenses expected to save Lm1.35 million:

• Reorganisation of Air Malta overseas offices

• Better use of IT in ticket sales

Reduction of direct operational costs expected to save Lm1.5 million:

• Transfer of new Air Malta fleet

• Using up-to-date technology for fleet maintenance

• Removal of half-days in summer

• Overall increase in efficiency

• Palm readers to track employee

movement

Conclusions

Mr Zammit said that after three years, Air Malta would have recouped about Lm3.7 per year in addition to Lm1.2 million saved after the agreement signed with the four unions.

He said that in addition, Air Malta had to increase its own revenue to have the company in a stronger position after four years.

“These measures are just the start of a very difficult process. But with everyone’s cooperation we can overcome these problems. We are at the crossroads. We must stick to the route we have identified and we must pay attention to every single detail,” he said.