EU assent is sought to rescue Air Malta
Request for state aid
Malta has officially set the ball rolling for a bold restructuring plan aimed at saving the national airline.
On Wednesday, the government notified the European Commission of its intention to grant Air Malta urgent rescue aid which would then be followed by restructuring aid, tied to a massive restructuring programme still to be agreed with the EU, Commission sources said yesterday.
Malta cannot, under EU rules, grant any state aid to Air Malta without the prior consent of Brussels. Member states are obliged to send a formal notification which would then be studied in depth by EU experts before a formal decision is taken.
“Last Wednesday we received a formal notification from Malta asking for the granting of rescue and restructuring aid for Air Malta. We will now examine Malta’s proposals and give our reply in the coming weeks,” the sources said.
The Commission had already turned down an attempt by the government to inject €100 million into Air Malta’s shareholding capital as a form of investment. However, the government is now trying the state aid route.
A Commission spokesman for competition confirmed that informal discussions with the Maltese authorities over the future of the airline had already taken place but said no decision had yet been taken.
The Commission could not even consider the case without Malta submitting its formal notification, the spokesman said.
The first type of aid that the government is requesting to grant, rescue aid, would be a temporary measure aimed at keeping the company afloat until a restructuring plan is drawn up, agreed and put in place.
If approved, a second type of aid, called restructuring aid, would kick in during the period when the restructuring programme is being implemented.
Malta will have just six months to submit a restructuring programme to the Commission after rescue aid is given.
The EU’s rules also stipulate that Air Malta can only benefit once from state aid – if the restructuring programme does not work, no further aid from public coffers would be allowed.
Air Malta has been hit hard over the past few years due to a number of factors including the rise in the cost of fuel and the new competition from low-cost airlines.
Reporting on the last financial year, in January, Air Malta announced losses of up to €31 million. Although the latest accounts are not yet available, it is expected that the figure for this year will be even higher with the company even reporting losses during summer, its busiest season.
Last week Prime Minister Lawrence Gonzi said that although restructuring at Air Malta has been going on for the past six years he wished that the pace was more aggressive so that better results could be achieved.
Rules on rescue
Under the EU’s 2004 Community State Aid guidelines for the Rescue and Restructuring of firms in difficulty, rescue aid must be limited to the minimum necessary designed to temporarily keep the company afloat. At the end of six months, the aid must either be repaid, the company liquidated, or the member state must submit a restructuring plan.
Restructuring aid too must be limited to the minimum necessary, with the member state submitting a restructuring plan aimed at restoring the company to profitability so it would need no further aid.
To prevent distortions, the EU guidelines require that the restructured company provided a level of own contribution to the plan and offer compensatory measures (typically reductions in market share or capacity).
This aid can be given only once.