The European Commission has accepted a Malta government request to give Air Malta temporary financial assistance to keep it flying while a rescue and restructuring plan is agreed, Finance Minister Tonio Fenech told Parliament this evening.
Separately, the European Commission said it had authorised a €52 million loan facility to Air Malta. The Commission said it had approved the measure temporarily, until it could take a position on the restructuring plan to be submitted by Malta within a maximum of six months.
Mr Fenech said the rescue plan has to be presented to the European Commission by January 2 with the intention being for this assistance to eventually become permanent through its conversion into capital once the rescue package is agreed within six months.
Mr Fenech was speaking at the opening of a debate in Parliament on a Bill to authorise the government to lend to Air Malta. The Bill was later approved unanimously.
Mr Fenech said Air Malta was very important for the economy and the difficulties which the airline was going through deserved serious attention.
Air Malta served a strategic role for the country. Tourism and many other sectors including manufacturing and financial services depended on it. Malta could not have an airline which did not have Malta at the heart of its operations.
Mr Fenech said that government room for manoeuvre to help the airline was limited by EU rules.
The government had made several attempts to get the airline back to viability. The 2004 reforms had been a breather, and he wanted to acknowledge the sacrifices borne by the workers.
However the realities of the aviation sector meant that many of the gains made at the time were eventually lost and liquidity problems mounted.
The EU had accepted the government request to lend to Air Malta for the next six months so that it could continue to operate. A restructuring plan had to be presented to the EU by January when this borrowing could be converted to capital and such assistance could thus be permanent.
The current situation, Mr Fenech said, was serious.
The government was determined to keep the airline flying, even as the rescue and restructuring package was negotiated with the EU.
Speaking on how Air Malta had reached this situation, Mr Fenech said Air Malta was facing the same problems faced by many other airlines.
The situation, he said, was brought about by a combination of factors including the 9/11 events, the itnernational economic situation, fuel prices and the impact of low cost carriers.
The aviation sector was going through a structural upheaval would airlines would never return to the situation which they considered normal in the past, Mr Fenech said.
Mr Fenech said that several ways were being considered to help Air Malta. The government under EU rules could help through two ways: either by viable investment or limited state aid.
In April the government proposed in talks with the EU to inject €100 million to the airline through the purchase of eight aircraft instead of leasing 12 as at present. However the commission argued that a logical investor would not invest €100 million unless there was restructuring to make the airline feasible. It therefore rejected the government's proposal at least for the time being until restructuring was agreed.
It agreed, however that there could be rescue and restructuring aid to save the airline, and talks were continuing in this area.
Mr Fenech said the government had engaged foreign experts with a proven track record to help it in its dealings with the EU, because Malta could not afford to go wrong.
Under EU rules, rescue and restructuring could only be given 10 years and if the package failed, the consequences were that the airline would disappear.
Among the experts helping the government were Ernst and Young London, who had been engaged in similar talks with the European Commission in the past.
The experts were analysing every route, every activity, every contract and every job to assess its viability. There needed to be a strategic cost reduction plan, which was not easy, as well as plans to raise revenue.
Mr Fenech said some measures had already been taken in hand, however the restructuring plan had not been defined and media reports on by how much the workforce needed to be reduced were very premature.
Through this Bill, Mr Fenech said, Air Malta would borrow €52 million from the government at commercial rates. The final restructuring plan had to show that within a definite period, Air Malta could recover and return to profitability and that this loan, therefore, could be converted to capital. Should the plan fail, the government may be told by the Commission to recover the loan.
Mr Fenech spoke on how the government is holding talks with the Opposition and the trade unions on the restructuring plan and said timeframes were tight.
EUROPEAN COMMISSION STATEMENT
The European Commission said it had authorised a loan facility worth €52 million for Air Malta in line with EU state aid rules, because it is limited in time and scope. The Commission approved the measure temporarily, until it can take a position on the restructuring plan to be submitted by Malta within maximum six months.
"The approval of the State support to Air Malta is only temporary to avoid a sudden disappearance of the airline which would lead to serious disturbances in the Maltese economy," said Joaquín Almunia, Commission Vice-President in charge of competition policy, adding that he had also taken into account "the very limited impact the measure will have on other Member States"
The Commission has been notified an emergency support by the Maltese authorities to prevent the collapse of Air Malta which, if it happened, would disrupt the economy of the island.
"The Maltese economy relies heavily on tourism and the share of tourists carried by Air Malta presently exceeds 50% of total passengers. Out of approximately 133 destinations served from the Malta international airport, more than half are only operated by Air Malta."
The support consists of a short-term €52 million State loan to tackle liquidity problems at the small airline.
The Maltese authorities have committed to submit a restructuring plan within six months guaranteeing future viability of the services currently provided by Air Malta.
"Otherwise Air Malta will have to reimburse the loan or undergo liquidation."
EU rules do not allow Member States to provide continued support to ailing companies. Such practice would not only be detrimental to competition within the internal market but would also go against the interests of taxpayers, the European Commission said.