Air Malta has once again been in the news following the publication of its audited figures, which showed that it posted a loss of €16.4 million for the year ending March 2015, and is set to lose €4 million next year. Now in its fifth year of the European Commission’s restructuring plan, the company was supposed to break even and return to glorious profits by next year.

At the AGM, Maria Micallef (current part-time chairperson) said that in its final year of the European Commission’s restructuring plan, the company reported a €16.4 million loss, partially due to the closure of the Libya route and a drastic drop in passengers from Russia following the Ukrainian crisis. She blamed the company’s “economies of scale disadvantage” and seemed to be in favour of the company entering into a strategic alliance, as this gives it the clout to command prices.

The tourism minister, who was equally optimistic, praised the number of reforms carried out in the last two years which included the resizing of the fleet. Again he was in agreement with the chairperson that Air Malta must find a strategic partnership with another airline as it was the only solution that would render it sustainable. Does this mean that it is not sustainable at present? Perhaps it is no coincidence that Air Malta was in talks with Turkish Airlines to discuss a potential take-over of the company. On the other hand, the Nationalist Party is not in favour of a company that does not have the national interest at heart taking a controlling interest in Air Malta.

Under the PN administration, the minister in charge of tourism started a well-publicized plan to carry a root and branch overhaul based on a report by the external consultants Ernst and Young (E & Y). Projections in this plan (reputed to have cost around €3 million) show clearly how the airline’s profitability was planned to commence in 2016 and was expected to be on a similar level as that of major carriers. Recently, the Opposition spokesman for the industry, Claudio Grech said that Air Malta has a strategic importance in the tourism industry given that 50 per cent of tourists fly on the national carrier. The PN also believes that there was no need for a reduction in routes or planes as these did not form part of the approved E & Y restructuring plan.

Let us examine the course of events that started five years ago to restructure the company following the aborted E & Y plan. Right from the beginning, the Airline Pilots Association had doubted that the plan would succeed in resuscitating Air Malta. The strategy included reducing capacity by 20 per cent and the surrender of certain profitable or potentially profitable routes. The financial rescue strategy included a further capital injection (as approved by the Commission) of €108 million together with other measures to trim expenses by cost cutting exercises and sharp right-sizing of the staff complement. Even after all this was done, the Commission had doubts on whether the rescue plan and its implementation would succeed in reviving the airline, saying it was based on unrealistic assumed market growth of 5.9 per cent. In particular, projected revenues through catering and on-board sales seemed to be too optimistic.

Critics of the rescue plan say that having sold its family silver on the cheap, Air Malta is now denuded of any assets that in the past generated good profits when times were hard. One cannot forget that in the airline’s first years of operation, when it enjoyed a quasi monopoly, it registered respectable returns resulting in healthy surpluses. However, one also cannot forget that disaster hit the airline principally due to mega losses generated by the introduction of a regional hub concept. This was triumphantly promoted in the early nineties as the elixir that would turn the island into a regional hub in the Med. But with hindsight it proved disastrous for Air Malta as it was under capitalised and limited to operate a small fleet of Avro Jet liners. The novel idea consisted in the purchase of seven Avro Liners ostensibly to turn Air Malta into a regional hub which turned out to be an ill-fated move.

At that time, the Board of Directors had the chutzpah to say that the investment would turn the tide and Air Malta would reap untold financial rewards. This advice was also corroborated by professional studies and reports by consultants, which the board had commissioned as a basis to justify the selection of this particular type of aircraft. In 1994, the airline purchased the first of four Avro RJ70s; the regional jets were the cause of so many operational headaches and losses that, as a short-term solution, they were absorbed in a joint-venture company with an Italian counterpart called Azzurra Air, which in turn caused more losses. Critics lament that the E & Y rescue plan failed and regrettably there are no valid alternatives, apart from privatisation or a substantial sale along the lines of the recent Alitalia/Etihad deal.

Really and truly, the root cause of Air Malta’s problems are political in origin as both parties when in government have and continue to load it with non-commercial burdens. Another enigma is that Malta International Airport (MIA) is registering record arrival/departures figures showing good profit when by comparison, Air Malta, which carries around 50 per cent of total passenger traffic and almost 100 per cent of export of cargo is still in the red. Low cost airlines are also reporting remarkable growth in the number of passenger traffic with Ryanair adding nine new routes for next year. NSO states that last year, there was a nine per cent increase in seat capacity as aircraft movements reached a total of 8,447. It is a dilemma how success in increased traffic does not directly put the local airline in the black after it had trimmed its payroll (this consisted of early retirement schemes costing around €30 million), reduced its fleet and replaced cooked meals on flights with a bread roll and a free bottle of water.

We are undoubtedly all very proud of the humble origins of our national airline, remembering how it started operations with two wet-leased Boeing 720Bs that served Rome, Tripoli, London, Manchester, Frankfurt and Paris. Shortly afterwards, it invested in three more Boeing 720Bs and bought the original two. Those were pioneering days for a young nation that in the early 1970s, in the wake of the oil crisis, took the bull by the horns following up the idea to connect the island to outside world and ventured bravely to set up an airline. It had a vision to help create a nascent tourist industry and to serve other social purposes providing a reliable link to mainland Europe. In the 1970s, the government had signed with Pakistan International Airlines, once regarded as Asia’s best airline, to train our pilots and teach technical staff how to handle the aviation and commercial roles.

Back to the present, reliable sources say discussions are being held on a regular basis about a possible alliance, which may include privatising part or the entire Maltese airline. This seems to the order of the day seeing how in Europe-Etihad now owns 49 per cent of Alitalia while Air France and KLM merged. Time is not on our side and something has to be decided fast to move on to the crucial stage of the rescue plan to save our national heritage.

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