The illustrious leaders who have piloted Air Malta through its tempestuous business cycle of 37 years have all expressed their sincere wishes for the company to make a speedy recovery. Such business leaders have shared a common destiny. Starting with Albert Mizzi, who nursed the airline through its difficult first decades, and others such as Joe N. Tabone who reformed its administration and registered good profits (and is also remembered for his project re launching the “prop-engined” Avro-liners) to the current incumbent Peter Davies, they all owe their appointment to allegiance to the party in power. It is true to say that the company has seen better days and during its life has successfully managed to foster multiple job opportunities for technical staff that otherwise would never have been on offer.

Today Air Malta is on its knees scraping through with the intravenous intervention of a massive €130 million rescue package, having announced a €30 million operating loss at the end of its financial year in March 2012. The sad truth is that political pressure has been a hallmark of the constant interference by the government navigating by remote control in the cockpit. During its formative years, when gross profits were a-plenty, it was shamelessly used as a job centre for unemployed constituents but with the low-cost airlines overtaking it in competitive offerings, it came as no surprise that the company was to be top-heavy with staff. To be honest, no one could blame the unions for having a field day by pressing for better conditions and higher pay during the highly profitable interregnum of Joe N. Tabone. The sad truth is that, according to the Ernst & Young report, downsizing was the only viable option, and a two-year exercise was carried out to reach the right numbers, while the rest of the workforce was offered benevolent retirement schemes.

Yet going down memory lane we meet instances – particularly during the early 1900s – when the PN government boasted a feel-good-factor culminating in a money-no-problem mantra. It is no mirage that profits were pouring in to Air Malta‘s coffers and the unions took their cue and paraded their members through the streets, clamouring for a larger share of the cake. There was a time when governments ceded to excessive union demands in order to buy industrial peace and as a consequence riddled the company with escalating financial obligations so that it gradually lost its competitive edge.

Now that the company has reported heavy losses for the last three years, some unsavoury stories are coming to the surface. The media has reported how generously pampered were the senior management accountable for its critical condition: they certainly enjoyed privileges and perks.

The political masters such as ministers and MPs, as well as former parliamentarians, were also privileged by an allocation of subsidised tickets. The reform, headed by Finance Minister Tonio Fenech, saw that such ‘freebies’ were curtailed and as part of a top management reshuffle, he installed foreign managers at comparatively higher salaries (some are tax free) in the belief that a new broom sweeps clean. The slogan by Tonio Fenech that the company cannot be run by a “cuc Malti” was the swan song of the coterie of disposed management team, mostly composed of locals .So why is it that Air Malta, which in the early 1990s peaked at its best performance, is now reduced to go begging for a cash injection to pay its wages?

There will never be an answer, but observers point to grievous economic mistakes that crippled the company with its accumulated losses. In fact, some argue that the brunt of Air Malta’s woes is placed fairly and squarely on the directors who agreed – against better technical advice – to embark on a hair-brained adventure to turn the island into a hub, aka the Avro Liners debacle.

The choice of the aircraft and the subsequent sale of the RJ70s, as well as the creation and dissolution of subsidiary airline Azzurrair, are reported to have cost the airline about €150 million. And no heads rolled. This episode eroded the profits of the golden years. It is no secret that Joe N. Tabone as chairman, and his coterie of directors, stands accused by the unions of losses as result of investing, amid much aplomb in 1992, in the British designed Avro RJ70s. The choice of aircraft was not always supported by reports commissioned by the board from selected technical advisers but their advice was not heeded. Now that the days of plenty are over, it is futile to cry over spilt milk or criticise the efficiency of the workers. In short, before the recent bailout that was approved by the EU Commission, Air Malta was trying to pose as a legacy airline, a low-cost airline, a national airline and a tour operator all at the same time. This jack-of all trades attitude was orchestrated by its politically appointed directors who owe their allegiance to the illuminati at Castille.

Party apologists throw water on the flames, saying the board of Joe Tabone was not to blame since orders from the top made them invest in the British aircraft. This ploy is alleged to arise from a political decision taken by former Prime Minister Eddie Fenech Adami when lobbying the British government for its support to its EU accession bid in 1992. With hindsight, we know that, were this true, the prize of bowing to pressure from the Brits (who are currently contemplating a referendum to leave the EU) did not do the trick, since Malta had to wait another 12 years to enter the pearly gates of Brussels.

There was another blow to the company’s viability in 2007 with the introduction of low-cost carriers (LCCs). This time, consultants PricewaterhouseCooper was commissioned directly by the Finance Minister to evaluate the impact from such competition. In 2006, the confidential report presented a devastating scenario, that would have a negative impact on the national airline, should LCCs be incentivised to begin operations here. Conversely, the government was encouraged to accede to demands by hotel lobbyists to subsidise the landing charges for LCCs for opening new routes.

Naturally, there was a strong lobby from various sectors that LCCs would more than double the number of tourist arrivals in the first year of operation. One such airline boasted of two million arrivals within a year. In the end, the government yielded to pressure and opened the floodgates to low cost tourists (predominantly the bucket and spade brigade) who merrily filled our beaches and instantly packed our promenades. Ever since then we see how LCCs are continuously looking to add subsidised routes. All these new routes were a godsend for LCCs but sounded the death knell for Air Malta’s minute fleet of 12 leased Airbuses. Profits from the 12 leased aircraft had to feed 1,400 employees (now downsized to around 800) and this was not helped by rocketing fuel costs. Yet, when everything is said and done, we note how the then parliamentary secretary Mario de Marco was ebullient regarding that year’s tourism achievements when LCCs started operations. From a national airline’s perspective, it is frightening to contemplate that, in such a short period of time, the LCCs’ share accounts for over 39 per cent of the market. Yet kudos is due to Dr de Marco (now promoted to Tourism Minister) for the record year in 2012, with arrivals (by both air and cruise liner) showing a record turnover.

The boost in arrivals came at a cost, however, and we notice a hefty allocation of funds of record proportions to market the island. Over €36 million has been paid to the Malta Tourism Authority, including the spectacular sum of €5.5 million directly earmarked for LCCs. Some could argue that Air Malta does benefit indirectly from this handsome allocation and we should be thankful to the government for creating a level playing field for airlines operating in Malta. Others contend that such competition is not fair for a legacy airline that has always supported the cargo business and the interests of the local community.

Travellers loyal to Air Malta say that it has always honoured its social commitment by transporting patients overseas for treatment, and continuously sponsoring local sports associations.

So what happens now? More consultants arrive on the scene. This time last year we saw the appointment of auditors Ernst & Young, who charged €3m to come up with a rescue roadmap and moved two of their brightest lads to Malta to advise the management on how to achieve a rapid recovery.

Their monumental task included recommendations for urgent restructuring, as this was sorely needed to save Air Malta from a similar fate as that of airlines such as Belgium’s Sabena and Geneva’s Swiss Air, but maybe the solution lies elsewhere. We recall that, notwithstanding the loss of business due to the Icelandic ash cloud, the Lufthansa group has announced the creation of 4,000 jobs despite a programme of cost cutting. Lufthansa has earned its laurels by announcing a swift recovery in demand, particularly in cargo and intercontinental traffic, and its efforts to reduce costs in all areas of the Group has yielded dividends.

Back to Air Malta and Louis Farrugia, its current chairman, has said unequivocally that unless private capital is introduced, there will be further difficulties ahead. This advice may be construed to mean a future privatisation as he warned that the successful tourism model could collapse if “too many more airlines are encouraged to serve Malta. We all know that if, God forbid, Air Malta stopped trading, other airlines would move in and increase fares as they attempt to take our space, so it stands to reason that by encouraging too many more airlines to serve our island we could tip the balance against Air Malta's sustainability.

To conclude: the experienced industrialist (ex-Farsons brewery MD) remarked: “Let us ensure that we succeed through sensible management in allowing competition to set the market prices at sustainable levels which will allow our current success to continue.” Peter Davies will drink to that, while the newly elected government will have to ask its board to fasten their seat belts to navigate smoothly through the turbulent skies ahead.

The writer is a partner in PKFMALTA, an audit and business advisory firm.

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