Air Malta has been given another lease of life thanks to a restructuring plan which was agreed to by the European Commission, wherein the Government of Malta will be able to grant the airline €130 million to address its financial problems.
The announcement was made by Finance Minister Tonio Fenech on Wednesday. He said: “This is a new beginning for Air Malta as it moves towards viability. The negotiation process with the EU was very complex, but the European Commission only took five months to conclude its investigations.
The fact that Air Malta has been given the go-ahead by the Commission (subject to monitoring and review of performance) shows that there is a good chance that the plan will allow Air Malta to recover and become viable once more.
The decision also speaks volumes when one considers that other airlines such as Malev and Air Finland were not given the green light by the EC, and shows that the plan is workable. As ever, Malta’s outgoing EU Ambassador, Richard Cachia Caruana, was instrumental in securing the deal after long negotiations with the Commission. This was another example of his skills and service to his country – skills which will be sorely missed when he is relieved of his position after having tendered his resignation following a crass and frivolous motion put forward by the opposition which was backed by one from his own party – but that is another story.
The Commission examined whether the planned measures are appropriate to restore the company’s long-term viability, and whether they ensure sufficient compensations for the distortions of competition triggered by the state support.
The European Commission’s decision shouldn’t be taken for granted. “We had long discussions with the Commission. Air Malta has already started following the restructuring programme and a few months ago chief executive Peter Davies said the airline had started to see “some small green shoots” in its long road to recovery.
The airline registered an operating loss before one-off items of €33.9 million during the financial year ended March 2011 (a 57% increase over the previous year), but there were encouraging signs that the situation is improving as positive figures started to emerge.
The restructuring measures foreseen, which include a significant capacity reduction and the sale of assets, should ensure long-term viability without continued state support, whilst avoiding undue distortions of competition. In November 2010, the Commission authorised a loan facility of €52 million for Air Malta as rescue aid, subject to the submission by the Maltese authorities of a restructuring plan within a six-month period. In May 2011, Malta notified the Commission of a €130 million capital increase to help restructure the company, which has been in difficulty for several years.
The Commission had a number of doubts whether the notified restructuring plan complied with the requirements of the 2004 EU Rescue and Restructuring Guidelines, so it opened an in-depth investigation in January 2012. The Commission said its investigation found that the restructuring plan, covering a period of five years until November 2015, “is based on realistic assumptions and should enable Air Malta to become viable within a reasonable timescale.” The Commission is satisfied that the proposed capacity reduction consisting in the withdrawal from certain routes will avoid undue distortions of competition. Moreover, Air Malta will contribute to the costs of restructuring by selling land and other assets, as well as securing a private bank loan.
Finally, the Commission found that a previous capital injection of 2004 was carried out on market terms and therefore did not constitute state aid in the meaning of EU rules. There is still a long way to go, but it looks like the airline is lifting itself out of the mire. This is not about politics – this is about Malta’s economy. Were mistakes made over the years? Certainly. But one of the most important lessons in life is to learn from them and not repeat them in the future.