It was almost 10 years ago.
On 4 September 2002, Ray Abdilla wrote this story for the Malta Financial and Business Times:
Although already approved as Air Malta’s CEO, the contract between Ernest Funk and the airline is still awaiting final signature. Meanwhile, Labour’s Tourism Shadow Minister Karmenu Vella is adamant that employing a foreigner was not a good decision as it was thanks to the Maltese that Air Malta is what it is today.
Close to 100 individuals had applied for the post of CEO at Air Malta and the relevant interviews were conducted by a selection board specifically set-up by Air Malta, which included among its members a number of Air Malta’s directors.
The final short-list before the last round of interviews had included both expatriates and Maltese nationals and, according to Economic Services Minister Josef Bonnici, no one has disputed the credentials or the deliberations of the selection board.
Labour Tourism Shadow Minister, Karmenu Vella, said that his party has not yet taken a stand on the appointment of Ernst Funk as Air Malta’s new chief executive but on a personal basis he believes that he was not needed.
He said that over the years the Maltese airline has moved forward thanks to the Maltese and a comparison of what happened to several leading airlines after 11 September shows that Air Malta confirmed its business acumen by the way it continued to conduct its operations. Most of the big airlines even laid off people but Air Malta steered clear of such a measure, although with difficulty, throughout its day-to-day running.
However, Prof. Bonnici said that he has already explained through various pronouncements that the remuneration package for the prospective CEO of Air Malta follows closely upon the formula adopted (by the previous government) in connection with the appointment of two expatriate chief executives at the Malta Drydocks.
He also said that the salary package offered to the new CEO is the prerogative of Air Malta, if and when it deems appropriate, to divulge details about the salary package of its CEO, especially given that the relevant contract is still awaiting signature.
The minister added that Mr Funk is 58 years old, with a long and distinguished track record in the airline industry. Mr Funk had occupied a number of different posts in Swiss Air, gaining experience in various facets of the airline business. It is expected that this invaluable experience in senior posts (within what was undeniably one of the leading airlines, not only in Europe but also worldwide) will be the ideal complement to the expertise that already exists within Air Malta.
This augurs well for the future of Air Malta, since it must be able to evolve dynamically to face new challenges and exploit new opportunities.
But Mr Vella commented, “Give me a shrewd Maltese businessman or a Maltese leader and I would not swap him with any foreigner.”
He explained that during the Labour administration the first decision taken was that of instituting a non-executive chief officer and an executive officer. Louis Grech and Joe Capello were the people chosen and they did a fantastic job, he said.
Roll forward to 2 June 2005, less than three years down the line, and we get this announcement:
Air Malta announces that Ernst Funk will leave the company by the end of 2005.
The chairman of Air Malta Lawrence Zammit stated, “Mr Funk has been the main driver of the culture change in Air Malta. Under the strong and professional leadership of Ernst Funk a number of significant achievements have been reached and implemented in Air Malta:
• a new strategy, a new vision, a new positioning and a clear definition of the core business for the company;
• a new and focused organisation structure, which will eventually be able to deal with the completely liberalised market environment;
• the definition of the business-critical processes;
• a turnaround plan which was ultimately incorporated in a comprehensive three-year business plan;
• substantial revenue enhancements and substantial cost savings;
• a significant 50 per cent improvement in the operating result in the last two years in spite of the heavy negative impact of spiralling fuel prices which have doubled during the same period;
• the lease out or sale of six out of seven repossessed Avro RJ aircraft.
Mr Zammit commented further, “These achievements are the result of Mr Funk’s focused leadership and great determination which are coherent with the shareholder’s and the board’s vision for the airline.”
“We are clearly on the path of recovery and so far we have outperformed our ambitious objectives. However, to reach the ultimate goal of a sustainable turnaround, further possibly painful corrective measures will have to be considered particularly in view of the persistent high price of oil. In spite of heavy uncertainties, I remain firmly convinced that the turnaround is an achievable target within the time frame of the Rescue Plan,” Mr Funk said.
But just a few months before he decided to leave, in an interview carried by Leonard Hill in Air Transport World on 1 November 2004, it was written:
“With losses of close to $58 million over the past two years-including an estimated $32 million in the fiscal year ended last July 31 − Air Malta cannot continue to operate with a business-as-usual attitude. That is the message coming out of the executive office, where CEO Ernst Funk, a Swiss transplant who took over in fall 2002, and Air Malta Group Chairman Lawrence Zammit are shaking things up at this formerly sleepy Mediterranean carrier.
“With 41 years at Swissair behind him, Funk knows what it means for an airline to fail. ‘We have to introduce fundamental changes in the way the company functions,’ he told shareholders after he joined Air Malta in mid-October 2002, more than a month after actually being named to the position. “Echoes Zammit, who arrived 17 months ago, ‘We must place the customer at the centre of each and every decision . . . We have to change the culture where each department exists as an individual entity, independent of the rest of the organization.’
“Steps taken so far include streamlining the executive leadership ranks from a 24-person group to a six-member team of ‘chief officers’, along with a three-year wage freeze for staff plus improved work practices and other elements. Savings are projected at $4.3 million and the aim is to trim operational and administrative costs by a further $10.7 million. Essential to the rescue scenario is a $72.9 million government recapitalization that props up the balance sheet, a restructuring that took place shortly before Malta in May joined the European Union, which might have looked askance at the state aid.”
“I am right on schedule with the turnaround, and would be ahead of plan but for the rise in fuel costs,” Funk told ATW, citing a $5.7 million core-business cost reduction forecast through next March 31 (the airline will transition to an April 1 financial year in 2005). He calculates overall savings from various initiatives in progress as $3.7 million from the wage agreement coupled with $8.5-$11.4 million in revenue enhancement through foreign-base operations. Various other unspecified measures bring the total to $27 million. Among them are a review of distribution channels, accelerated online booking and renegotiation of contracts with suppliers. Responding to the still-rising price of oil, a €5-per-sector fuel surcharge levied in July was increased to €8 from the end of September.
“But there are limits to what Air Malta’s 98 per cent owner, the Maltese government, will accept in the interests of righting the carrier. Thus, although there is a wage pause, workers will be remunerated retroactively between 2008 and 2010 for forfeited raises and there have been no layoffs among the 1,763 employees who support a fleet of just 15 jets, a ratio of better than 115 employees per aircraft.
“No doubt the carrier needs to increase efficiency. With the country’s accession to the EU, the airline is losing its lucrative monopoly as sole provider of ground handling services at Malta International Airport, which is served by 61 carriers. GlobeGround is poised to enter the market this month. The airport averages 72 aircraft movements daily, 52.3 per cent of them Air Malta flights, according to Chris Fenech, the airport’s marketing and business development manager.”
That’s enough for today, there’s more where that came from.
Some questions: is it not evident that, for all the hype, the cuts carried out in 2002 – 2005 were not deep enough? Is it not evident that keeping such a high employee-to-plane ratio was sheer madness? Is it not evident that the airline was already loss-making, and that things would inevitably get worse in later years with the introduction of low cost airlines, Air Malta losing more monopoly positions and also market share?
Fast-forward to today: given such precedents, and all the hype that accompanied the 2004 “reform”, how can any government, any minister, any consultant, guarantee that the coming reform will work where so many before it did not?
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