Air Malta will have to surrender some profitable routes and reduce its capacity by 20 per cent as compensation for possible competition distortion caused by the multimillion state aid package it expects to receive.
Major concerns on whether the optimistic forecasts on long-term viability are realistic to achieve
In a report made public yesterday, the European Commission names a number of airports where the airline is expected to give up routes or slots, although it withholds information that identifies the specific routes. Nor does it supply data on slots.
The airports mentioned are Gatwick and Heathrow in London as well as Manchester, Amsterdam, Frankfurt, Geneva, Catania, Stuttgart and Munich.
In a reaction last night, Air Malta said it was committed to its Heathrow and Gatwick routes. It said it had already released a limited number of slots in line with its commitment to reduce capacity but had no intention of letting go of any more to either airport.
The Commission’s report gives an overview of the government’s restructuring plan intended to shore up the national carrier.
On the basis of the report, the Commission has invited interested parties, such as competing carriers, to make submissions before a final decision is taken on whether to give the green light for state aid.
In its reaction to the plan, the Commission said it had “major concerns” on whether the “optimistic forecasts on long-term viability are realistic to achieve”.
It feels the assumption that Air Malta will experience market growth of 5.9 per cent is unrealistic and questions whether the compensatory measures – the route reductions – are genuine.
In its statement, the airline said it was encouraged by the report, adding it was normal for assumptions made in the plan to be challenged in this manner.
It explained that a number of initiatives mentioned by Brusssels had already been put in place and it had already started to reduce its flight schedules in line with the plan.
The airline expressed confidence that its positions were realistic and revenues would continue to grow steadily, and said its cost cutting measures were producing benefits.
Brussels is insisting the aid violates the “one time, last time” principle under which state aid is allowed in view of the capital injection carried out by the government in 2004.
However, the government has always argued that the restructuring exercise in 2004 happened before Malta officially joined the EU on May 1 that same year.
The plan, which was finalised and presented to the Commission by Air Malta and the government in November last year, covers a five year period until 2016 and is expected to cost €238 million.
The government is expected to make a capital injection of €130 million, which includes the conversion into equity of a €52 million rescue loan made to the airline in 2010.
‘Realistic plan that will yield results’
State funds will also be used to buy back Air Malta’s airport-side property to the tune of €66.6 million.
The plan includes a reduction in the workforce and new revenue generating mechanisms that include passengers paying for carrying more than one luggage and the introduction of a paid catering service.
Speaking during a video conference from Brussels, where he attended a meeting of eurozone finance ministers, Mr Fenech said the government was “confident” the plan was a realistic exercise that would yield the desired results. He said the six-month results for the financial year ending in March were encouraging and showed a turnaround was possible.
Labour spokesman Gavin Gulia said the government had to come clean on what was actually discussed with the Commission regarding the crucial airport slots and routes. “The Opposition was not consulted, it does not know what the restructuring plan contains and so the government has to shoulder the responsibility on its own,” he said.
While hoping that the Commission would give the go-ahead for the restructuring plan to be implemented, Dr Gulia insisted Mr Fenech should have committed himself to address the concerns raised by Brussels rather than simply expressing confidence.
Interested parties have until March 21 to submit their comments to the Commission and under normal circumstances Brussels should take the final decision by May or June.
ksansone@timesofmalta.com