Brussels approves loan of €52m to Air Malta

The European Commission has authorised a loan facility worth €52 million for Air Malta to prevent the collapse of the national airline.

The approval of 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.

Mr Almunia added yesterday he had also taken into account the very limited impact the measure would have on other member states.

The loan is in line with EU state aid rules, because it is limited in time and scope. The Commission said it 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.

In particular, the aid amount is limited to what is needed to keep the company in business over the next six months. Moreover, the Maltese authorities have committed to submit a restructuring plan guaranteeing the future viability of the services currently provided by Air Malta. In case of failure, Air Malta would have to reimburse the loan or undergo liquidation.

EU rules do not allow member states to provide continued support to ailing companies because such a practice would not only be detrimental to competition within the internal market but would also go against the interests of taxpayers.

Speaking in Parliament yesterday, Maltese Finance Minister Tonio Fenech described Air Malta’s situation as serious.

Meanwhile, Parliament last night unanimously passed through all stages the Government Borrowing and Granting of Loans to Air Malta plc Bill, which authorises and regulates the raising of loans for the purpose of entering into re-lending agreements with Air Malta plc with a view to enabling the rescuing and restructuring of the company.

Introducing the Bill, Finance Minister Fenech said Air Malta was facing a liquidity problem and the cash injection would allow the national airline a six-month respite to pay its suppliers.

The economy relies heavily on tourism and the share of tourists carried by Air Malta exceeds more than half the total passengers.

The government and trade unions have agreed to set up a steering committee to oversee the company’s restructuring. Leading international consultants from Ernst and Young have been engaged to draw up a restructuring plan to ensure the long-term viability of the airline.

The government has not yet divulged its reform plans.

Air Malta suffered losses of €31 million in 2009 and it is expected to go deeper in the red this year.

The government had made several attempts to get the airline back to viability with the latest one in 2004 failing to lift the airline to profitability, in the wake of competition from low-cost airlines and rising fuel costs.