Bank secures claim on Selmun hotel

Air Malta is unlikely to reap any dividends from the sale of Selmun Palace Hotel because the subsidiary has significant liabilities that have to be settled, according to the airline’s draft restructuring plan.

The plan, drawn up by government-appointed consultants Ernst and Young, “does not assume any value being realised” from the sale of the land and property at Selmun, which is also pledged as a security against bank loans.

According to the report, Bank of Valletta has a secured claim over the land and property of Selmun Palace Hotel Co. Ltd to the tune of €1.9 million and the property is also pledged as guarantee up to €8.4 million against Air Malta loans.

The report warns that BOV may end up “taking all the proceeds” from the sale of the hotel if the bank chooses to enforce its security on the property.

Selmun Palace Hotel Co. Ltd, which ran the 154-room, four-star hotel, is a wholly-owned Air Malta subsidiary. All 58 workers employed there have been made redundant and the government has said it wants to sell the property to be used as a hotel.

Ernst and Young say the hotel lost money for “a number of years”, suffice to say that, in the financial year 2009, losses amounted to €882,000. This was followed by a loss of €879,000 in the financial year ended March 2010. In the first 10 months of the financial year that ended in March 2011, the company had already lost €462,000.

The hotel company has net liabilities of €9 million and outstanding debts to Air Malta of €10.8 million, which, according to the report, it will not be able to repay. Selmun Palace also has bank borrowings amounting to €1.8 million and other trade liabilities amounting to €735,000.

Selmun is not the only Air Malta subsidiary company in the red.

Ernst and Young say that Holiday Malta Co. Ltd, another wholly-owned subsidiary, which acts as the airline’s tour operator arranging holiday packages to Malta, depends on the airline to maintain liquidity.

Holiday Malta is primarily based in the UK but is also active in Greece and Russia. The report says that the Air Malta board has authorised its advisers to start work on a possible sales process but Ernst and Young assume no value will be reaped from the sale because of the company’s liabilities.

The company incurred losses of £2.7 million (€3 million) in 2009; £1.1 million (€1.2 million) in 2010 and was forecasting a loss of £200,000 (€223,000) this year.

A non-core asset is Air Malta’s eight per cent shareholding in Lufthansa Technik Malta, which runs aircraft maintenance and repair operations. Ernst and Young say that given the size of the company’s stake in the business, the only likely bidder for the shareholding is Lufthansa Technik and the value of the shareholding is not expected to be significant. However, the report also says “the existing holding in Lufthansa Technik may enable the company achieve better maintenance rates” with the company.

It recommends a more detailed market analysis before deciding on the final strategy for disposal of the existing holding.

The report refers to Air Malta’s joint ownership with Maltese-Australian group Cassar Aviation Services of World Aviation Group, which is the call centre that acts as a sales agent for the company and other airlines.

The strategy suggested by Ernst and Young is for the group to renegotiate more favourable terms for its contracts with a number of companies, which will contribute to cost savings.