As the Finance Ministry prepares to meet the General Workers Union about the state of affairs within Air Malta this morning, The Malta Independent can reveal the team being brought in from London’s Ernst & Young base to which will advise on restructuring the airline.

The Ernst & Young team will be led by Ernst & Young Partner Alan Hudson. Robert Palmer, former easyJet Group Financial Controller and BMI Chief Financial Officer Robert Palmer (also a former assistant director of E&Y), has also been drafted in.

There has been much speculation about Air Malta since the Prime Minister’s announcement that the government was seeking to pump €100 million into the airline as a one off “cash injection”.

The announcement was made just after the budget, and this newspaper later caught up with Dr Gonzi in Brussels, where he made it clear that Air Malta needed to become financially viable and that restructuring over the past five years should have been “more aggressive”.

Sources in Brussels, however, have said that Europe is not likely to accede to Malta’s request to inject the money into the airline. There had been a similar case in Cyprus where the government had argued that being an island, Cyprus should be allowed to give a one-off payment to a company providing a link service to the mainland.

The EC refused; and is likely to take the same line as Malta, with the reasoning being that Malta has other links provided by other carriers which operate to and from the Malta International Airport.

The team being brought in is one with good experience of airlines. Mr Palmer in particular was part of the easyJet team which oversaw a 12-strong airline grow to one with over 145 aircraft. easyJet now has 177 aircraft with a further 43 on order. Palmer later moved to BMI where he played a big part in restructuring the almost bankrupt airline which has since returned to profitability and joined with Lufthansa.

Mr Hudson has led various teams which have advised on airline restructuring in the past. It is understood that the major problem within Air Malta is it cost structure. Sources said that successive governments and management teams have not adapted to the realities of the changing airline industry and as a result, problems have just grown over the years. Meanwhile, the cost structure has been compounded by the reduction in price of flights offered to the customer as Air Malta began to compete with low cost carriers.

In the ongoing debate, fingers are usually pointed at the Ramp Section, and while the government believes that some savings can be made in this area, it is not believed to be a ‘major’ problem.

Back-office is another area which needs attention, while various departments could be integrated with a wider range of responsibilities. To give an idea, Air Malta operates 12 aircraft with a staff complement of about 1,400. In 2007, easyJet operated 140+ aircraft with a total of 5,574.

However, Air Malta has some very important pluses. The aircraft are all of one standardised manufacturer - Airbus, and the average life of the fleet is only 2.4 years. This leads to lower maintenance costs. In addition, it leases out some aircraft in the winter to offset reduced demand and has done so successfully with Etihad.

The ace up the sleeve, though, is the fact that Air Malta has ‘primetime’ and highly sought after landing slots in some very important destinations such as Heathrow, Gatwick, Rome, Paris and the like, so a possibility could be to ‘lease’ or sell slots to other airlines if Air Malta does not need them.

Air Malta

Air Malta started its flying operations on 1 April 1974 with scheduled services to London, Birmingham, Manchester, Rome, Frankfurt, Paris and Tripoli. Today Air Malta operates a modern fleet of aircraft to over 50 destinations in Europe, North Africa and the Eastern Mediterranean, with 200 flights a week.

Main problem areas

• Ramp

• Back-office

• Underperforming staff and management

• Aircraft utilisation

• Cash flow

• Costs

The successful low

cost carrier model

EasyJet, like Ryanair, borrows its business model from United States carrier Southwest Airlines. Both airlines have adapted this model for the European market through further cost-cutting measures such as not selling connecting flights or providing complimentary snacks on board. The key points of this business model are high aircraft utilisation, quick turnaround times, charging for extras (such as priority boarding, hold baggage and food) and keeping operating costs low. One main difference easyJet and Ryanair have from Southwest is they both fly a young fleet of aircraft. Southwest have a fleet age of 14.1 years whereas easyJet’s fleet age is just 3.6 years.

EasyJet flies mainly to primary airports in the cities that it serves, while Ryanair often chooses secondary airports to further reduce costs. EasyJet also focuses on attracting business passengers by offering convenient services such as the option to transfer on to an earlier flight without charge.

Ernst & Young team

The restructuring team, headed by Mr Hudson, were key advisors during the restructuring of airline companies / tourism-related industries, including airlines, an aviation parts supplier, a global tour operator and a ground handling company. Their remit includes:

• crisis stabilisation;

• cash forecasting and management;

• restructuring strategy development and implementation;

• stakeholder management and

negotiation;

• restructuring of underperforming divisions;

• transactions

Robert Palmer

Mr Palmer is working hand in hand with Ernst & Young on the Air Malta restructuring project in his capacity as consultant. He brings with him many years’ of operational and financial experience in the airline business. In 1999 he joined easyJet as Financial Planning Manager and, in 2002, became Group Financial Controller.

During his career at easyJet, the airline changed from a 12-aircraft operation with £100m of turnover to a 145-aircraft, £2.7bn listed company, and Mr Palmer oversaw the financial decision to acquire 120 aircraft as well as the acquisition and integration of Go Fly in 2002/3. Mr Palmer was also a director of a number of easyJet’s subsidiaries, including its joint venture ground handling company.

In 2007 Mr Palmer joined British Midland International as Chief Financial Officer, where he was responsible for the Finance, Procurement, IT, Insurance, Legal, Property and Pensions departments.

As part of this he was responsible for BMI’s integration into Lufthansa, where he implemented a number of business improvement and cost reduction measures as well as cash optimisation and working capital management.