The opposition said in parliament yesterday it would vote in favour of government plans to improve Air Malta's capital base by Lm30 million through the issue of share capital. The government will pay for its new shares through the emphyteutical grant of properties in Luqa and Pembroke which the airline already holds without permanent title. Lm23 million due to the government from those properties will be ploughed back into the airline.

Public Investment Minister Austin Gatt said at the opening of the debate that Air Malta did not have cash-flow problems and liquidity was good. The airline, however, had a balance sheet problem.

The government had never invested in Air Malta since its setting up in 1973, and the airline had managed to sustain itself without the need for capital injection. But such an injection was required now due to the problems it was facing. International civil aviation authorities had to be satisfied that airlines had a solid financial basis with which to operate and finance their debts.

He explained that losses in the past few years were due to core operations and losses in relation to AzzurraAir.

The capital injection would make good for the company's losses in AzzurraAir. That chapter was closed this year and no more losses were expected from that area.

The real future problem was over core operations. Losses of Lm16.9 million were made in the past three years, independently of the results from AzzurraAir and the purchase of RJ aircraft.

Unless such losses were reversed, they would strain reserves and cash flow.

Air Malta, on the whole, had a good track record. It was, essentially, a profitable company and if the right decisions were taken it had a good future. If everyone realised their responsibility and pulled the same rope, he had no doubt that the airline would return to profit.

There were no easy solutions. The international environment was difficult and fiercely competitive, made more complicated by the aftermath of the 9/11 events and the advent of low-cost airlines.

There were, however, also many opportunities. One of them, which stemmed from EU membership, was Third Package rights which as of now had enabled Air Malta to fly services directly between EU airports without the flight having to come to Malta.

Dr Gatt said airlines all over the world had shed thousands of jobs. The commercial world owed no favours to Air Malta.

Air Malta was continually faced with choices on whether to go for charter or individual traffic; how it could help tourism without having a millstone around its neck; how to use the Third Package and how to raise seat factor and passenger yield. Some of these aspects worked against each other: helping tourism sometimes meant losing money on new routes.

It was unsustainable for Air Malta to keep losing so much money. It had to fight the opportunism of low-cost carriers, of which it could never be one itself. These were the real choices facing the national airline.

Faced with all the strong competition, one must be realistic, face challenges and turn to new opportunities. With this sort of mentality there was still enough strength in Air Malta if all involved gave their contribution.

The government was taking the first step by injecting Lm30 million into the airline. Air Malta's past was worthy of Malta, and the future could be just as good, concluded Dr Gatt.

Opposition deputy leader Charles Mangion said he was satisfied that Dr Gatt had confirmed that there were still good prospects for the airline.

The opposition believed in the need for Air Malta's development to be well understood, as well as its meaning for tourism and for its workforce. It would vote for the motion because it made a national airline of strategic importance stronger.

Over its 30 years of operation Air Malta had always generated enough profits for the government not to pump any cash into it. In doing so it had created new job opportunities for 2,000 employees, including pilots and aircraft engineers, while helping tourism.

Because Air Malta was not a private company some of its board's decisions needed sanctioning by the government, and there would yet be more of these. Its core operations had deteriorated in the aftermath of 9/11, which had affected travelling and cargo, but there had also been some strategic decisions, particularly the purchase of RJ70 aircraft, that had been taken against all better judgement and cost Air Malta some Lm60 million.

Dr Mangion asked if the government was looking at Air Malta as a private company, although there should be no objection against insisting on productivity and accountability.

Air Malta had been efficient in its 30 years because it had produced results, but it had also always integrated with the development of tourism which involved hundreds of millions of liri in private-sector investment.

It was not just any airline that would have willingly faced this sort of situation. Improvement in tourism meant more passengers to Malta, making for foreign currency earnings and hotel and restaurant occupancy. This notwithstanding, Air Malta could still exploit other unrelated markets.

What was the present state of Air Malta? Its group operating profit for 2002/3 had been small, but better than the loss of the previous year. The airline's market share had increased, and turnover had gone up by Lm2 million. From Lm81 million in 1998 its debts had been reduced to Lm13 million in 2003.

Dr Mangion said the airline's cash balances of Lm41 million in 2002 had been heavily reduced in 2003 because of its involvement in AzzurraAair, the RJ aircraft and other problems.

He agreed it was time to face reality, meaning how to face up to the competition of low-cost carriers, subsidise new routes to help tourism, increase market share, cut costs and increase competitiveness. Any bad decisions along the way would undermine the company, but it would not be right to lump the workforce with them.

Dr Mangion said the government still had to explain how in 1993 the airline had decided to purchase four RJ70 aircraft, preferring them to the proven Boeing 737s, even though the RJs' operating costs equalled those of the bigger aircraft but the RJs carried less passengers.

The first four RJ70s had had 20 engine shutdowns, 15 engines had had to be sent overseas for extensive maintenance, 37 flights had had to be cancelled and flight operations had had to be increased by 29 per cent in three years. Yet, inexplicably, the airline still opted to buy RJ85s soon after.

Although the clock could not be turned back over the purchase of the RJ70s, someone should shoulder the responsibility for the decisions which had been taken. The first decision was bad, so why had the airline persisted in error?

Turning to core operations, the minister had rightly said that performance was bound to the development of tourism. Air Malta was part and parcel of tourism and the two could not be isolated.

But in view of the 9/11 tragedy and the uncertainty in the tourism market, what was Malta doing to improve its tourism product?

Decisions had to be taken about what was to be done with the company's subsidiaries - the hotels and the duty-free shops, for example. It was important to understand what the state wanted from Air Malta.

An Air Malta report to the government in 2001 listed measures which had to be taken to improve the airline. Which of these measures had been accepted? Which had been implemented? Which had been refused?

Air Malta had a strategic position in Malta's economy. All, therefore, should work to improve the company. That included getting the workers on board rather than threatening the conditions they enjoyed. They should not be made to carry the burden of the bad decisions taken by others.

The Labour Party, Dr Mangion said, had confidence in Air Malta but not in the strategic decisions this government could take. It would vote in favour of the resolutions because it would back all measures to improve Air Malta.

Tonio Fenech (PN) said the government's investment in Air Malta reflected its confidence in the airline, as well as realism. There was no doubt that the airline needed to take a hard look at its operations and restructure itself to become more efficient in an increasingly competitive environment.

Like Air Malta, major European airlines were making losses on their core operations. All were seeking to cut costs and many had dismissed workers, something which the Maltese government did not want for Air Malta.

The losses were due to a four-year economic downturn, higher fuel prices, the 9/11 events and other terrorism, SARS, the Iraq war and higher insurance premia. There was also strong pressure on prices by low-cost carriers and the fact that Mediterranean tourism was growing at a slower rate than other destinations, particularly in Asia.

Air Malta needed to make investment in its balance sheet because this was alarming. The crucial point was Air Malta's core business. The present situation was not sustainable and action therefore was needed urgently. The situation could only be sustained for up to two years if the situation remained as it was today. One could not risk that Air Malta loses its credit rating.

Mr Fenech said that in seeking a review of operations and work practices, the government did not want to touch the workers' basic pay either. Figures showed, however, that Air Malta was spending an average of Lm12,000 for each of its workers. Allowances and overtime which were unjustified were akin to shooting oneself in the foot. Certainly one could not preserve the status quo. Neither could Malta become a Ryanair, which employed a minimal number of people. But it should be recognised that had Air Malta not been a government entity, some decisions would have been taken differently. For example, had Air Malta been private, its back office work would probably have been taken elsewhere. The government would not do so, but this underlined the need for increased competitiveness.

Air Malta should continue to establish routes with leading hubs and also seek to establish alliances with other airlines and possibly, code-sharing agreements.

Labour MP John Attard Montalto briefly went over the history of the airline since its setting up by a Labour government and paid tribute to former chairman Albert Mizzi for his work, for which he had not received compensation.

Dr Attard Montalto said one could not say that the aviation world did not go through turmoil following the 9/11 events, but these were not to blame for all the negative issues which had hit Air Malta since.

The company had diversified in sectors which were not its core business when it could have developed its cargo. Another sector which could have been developed and which preceding governments had started to work on was the repair and maintenance of aircraft.

One of the problems of the airline industry, he said, was that airlines required an operations certificate every now and again and there was a shortage of certification companies. Air Malta could have developed into this role by expanding what it was currently doing with Lufthansa Technik, earlier and on a larger scale.

Aeroflot had been interested in using Malta for aircraft maintenance, and a large US company had shown similar interest.

Referring to the purchase of Avro RJ aircraft, Dr Attard Montalto asked whether that mistaken decision followed British pressure in return for support for Malta's EU membership bid. Indeed, he did not exclude personal interests, Dr Attard Montalto said.

The Labour MP called for a review of Air Malta's services, level of comfort and prices. In many cases, Air Malta's prices were much higher compared to other airlines which were not low-cost. Seat pitch in several other airlines was more comfortable.

While it was true that certain airlines had done badly, others had done well. A particular case in point was Emirates. It was wrong to compare Air Malta with companies which had gone bankrupt.

The government should see how to increase Air Malta's activity to justify the jobs of 2,000 people and not the other way round. This was not easy, Dr Attard Montalto said.

Nationalist MP Clyde Puli underlined Air Malta's role for Malta's tourism and as a major employer. He also highlighted the opportunities which the Third Package offered Air Malta thanks to Malta's EU membership.

The EU offered parameters so that companies operated competitively and in a fair marketplace. This meant that airlines could no longer be subsidised by airports or other entities. The parameters offered also included the elimination of monopolies in ground handling. This meant a better service and more competitive prices - all to the advantage of the end consumer.

Air Malta's market was now potentially of over 400 million customers around Europe. In order for it to survive, Air Malta had to tap niche markets throughout the EU so that it could benefit from the Third Package.

Low-cost carriers were not really harmed by the economic crises being faced by other, bigger airlines. Air Malta had to learn from these companies in order to become more competitive. The competition offered by these low-cost carriers had to be offset by restructuring Air Malta accordingly. The government with this motion was showing foresight in the future business of Air Malta.

Joseph Cuschieri (MLP) said the period 1992-96, under the chairmanship of J.N. Tabone, was the worst for Air Malta. It was a period characterised by the purchase of the RJ aircraft, the risky investment in AzzurraAir and the appointment of no less than 25 general managers so that the airline had an exaggerated number of what were now called group heads. The Tribunal for the Investigation of Injustices had found Air Malta guilty in at least four cases going back to this period.

About a month ago a meeting had been held between Air Malta chairman Lawrence Zammit, the GWU Port and Transport Section and the auditors of the company. At that time it had been decided that the financial situation was not unduly problematic, but that story had been overturned with the recent news conference given by minister Gatt. How had Dr Gatt decided to make his outburst even before meeting the unions? This gave the impression of a hidden agenda.

Mr Cuschieri asked if it was true that the RJ aircraft had been bought for up to US$1 million each more than their real price? Why were these aircraft now grounded in Exeter, not Malta? What were they costing Air Malta? He had received reports that if the aircraft were to take off they would be impounded.

With the situation at AzzurraAir having deteriorated over several years, why had Air Malta not decided to pull out earlier? Was it true that the Air Malta board had three times recommended that Air Malta pull out? Why had the government not heeded this advice? Had Air Malta's shares in AzzurraAir been sold since? If not, why?

Mr Cuschieri said the government should explain the airline's plans to sell its hotels. What would become of the workers?

He agreed on the need for restructuring in Air Malta, but the workers should not suffer the mistakes of others.

The debate continues today.

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