The government will have to provide an additional €25 million to recapitalise Air Malta while the airline must raise €51 million in bank loans or bonds, according to a draft of the restructuring plan seen by The Sunday Times.
This is the first time that details of the confidential restructuring plan drawn up by Ernst and Young have emerged, including a breakdown by section of the expected job losses at the airline.
According to the draft plan, the €25 million is over and above the €52 million in rescue aid given to the airline last year and is needed to strengthen the company’s balance sheet.
The plan also envisages a voluntary redundancy scheme that would cost the airline some €10 million.
To raise capital, Ernst and Young suggests the airline enters into negotiations with the banks and, in the second year of the restructuring plan, consider a bond issue with a tenure of between seven and 10 years that would be listed on the Malta Stock Exchange.
The airline will have to shed 511 workers for wage savings of between €12 million and €15 million.
Based on a fleet of 10 aircraft the company will also have to lose 57 pilots, 53 cabin crew, 21 engineers, 190 from ground operations and 190 office workers.
The airline will employ almost 800 people from the current complement of 1,300.
The report also suggests a number of revenue generating measures, which will impact Air Malta passengers, including a baggage fee for every luggage piece, the removal of discounts for children and the introduction of a credit card fee.
The airline will also target an increase in revenue of €500,000 per year from cargo transport, although the report admits that over recent years competition in this area has increased. The restructuring plan phased over a five-year period aims to make the loss-making company profitable by 2014.
Figures show that Air Malta has been making losses on its core airline business for several years. The financial year ending in March 2010 saw the airline make an operating loss of €23 million, which is expected to be followed this year by a loss of some €36 million.
Ernst and Young forecast that Air Malta will still make a loss in 2012, returning a marginal profit in 2013. The company will be expected to make a complete turnaround in 2014 with a profit of around €7 million.
The report is scathing about the airline’s senior management team and blames it for a number of “poor commercial and financial” decisions, including the inability to be proactive.
“Management were not proactive in reacting to the significant change in operating environment and this has been a key reason for the poor performance and the airline’s current fight for survival,” the report says.
It lists a number of poor decisions that range from operational ones such as pricing and route expansion to major ones such as fleet size and execution of uncompetitive or inflexible contracts.
The leasing of 12 aircraft was also identified as “a very poor decision”.
The report also highlights the strategic value of Air Malta.
It also says if the national airline fails the vital routes like London, Rome, Paris, Frankfurt and Brussels, these would only be served by low-cost carriers and Malta would lose its connectivity to key hubs, which are only served by the company and are vital for transit connections to the island.
These air connections are key to transport cargo, mail and medical cases, the report says.
It also delves into the airline’s route planning and identified serious shortcomings.
The report suggests that routes with low profitability and high competition such as Birmingham, Palermo, Tunis and Turin are eliminated. It also proposes reducing the frequency on some commercially viable routes like Gatwick.
The reorganisation of the airline’s route network does not only have a financial motivation but is also intended to make the rescue plan palatable to the EU Commission.
Serious shortcomings
As pay back for the financial support the company will receive, Air Malta will have to make a “market contribution” by releasing a number of routes and slots to the market, allowing the company’s competitors to increase their market share. In this way any market distortion created by state aid will be mitigated.
The report also questions Malta International Airport’s relatively high passenger charges, which at €21 per passenger represents almost a 50 per cent premium on the average charge of comparable airports analysed by Ernst and Young.
The report sets a target of reducing regulated airport charges per departing passenger, which will reduce costs for the airline, which is MIA’s largest client.
More money from passengers
The Ernst and Young report outlines a series of revenue generating measures similar to those employed by low-cost and other legacy airlines. These include:
• Baggage charge of €20 per baggage piece for those who use the online checking in facility and a €30 charge for those who check in at the airport. The airport check-in fee will go up to €40 in 2013. The company estimates an income of €18 million in 2016 from this measure;
• Charge of €8 per credit card transaction per passenger;
• Seat reservation charge of €10.
• Telephone booking charge to encourage people to use the internet facility;
• Children’s discounts will be eliminated in 2014 with 50 per cent of the benefit derived from this initiative expected to be used to reduce the average fare price;
• Airport check-in charge of €5 but internet check-in is free.
Layoffs
| Sectors | Current | Target | Reduction |
| Pilots | 149 | 92 | 57 |
| Cabin crew | 215 | 162 | 53 |
| Engineering | 135 | 114 | 21 |
| Ground operations | 440 | 250 | 190 |
| Administration | 370 | 178 | 190 |
| Total | 1,309 | 796 | 511 |
The target workforce is based on a fleet of 10 aircraft.
ksansone@timesofmalta.com
Air Malta clarifies report
In a statement this morning, Air Malta rebutted this report that gave details of the plan.
It said the report referred to an earlier draft of the plan and not the finalised version sent to the European Commission.
"The final report contains amendments that were not reflected in the article and do not mirror the current thinking on the way forward."