An effective ownership model for Air Malta

The presentation of the Deloitte’s fourth quarter tourism results report provided an interesting forum for hoteliers to discuss their concerns about the possible privatisation of Air Malta that seems to be one option being considered by the European Commission to approve the national airline’s restructuring plan. Tony Zahra, president of the Malta Hotels and Restaurants Association, suggested the idea that perhaps there is a solution to the dilemma of Air Malta’s ownership: why not use the Bank of Valletta model whereby the government will hold a minority stake in the company with the majority of shares being held by small investors?

Mr Zahra’s proposal is based on the assumption that such an arrangement should ensure that “the company operates independently of political pressure”. In BOV the government appoints the chairman and another director. So in theory the government representatives in the board are outnumbered by the other directors representing small investors. Those who know how the non-government directors of BOV are elected in the annual general meeting will tell you that some of these directors are in fact elected with the proxies that the chairman receives from the private shareholders many of whom have no particular interest in who represents them. So the government could still have de facto control of this bank even if it may choose not to exert this control.

If the BOV model with thousands of small shareholders and with government as the largest shareholder were to be applied to Air Malta, it may still not satisfy the European Commission’s desire to insulate the airline form “political pressure” that could blunt its commercial and economic effectiveness. Another flaw in this model is that there would still not be a strong private strategic investor that could ensure that the company’s strategy is indeed economically viable.

The concern of the MHRA about the possible effects of a straightforward privatisation of Air Malta on the infrastructure of the tourism industry is very real. Hoteliers fret about the consequences on their businesses if suddenly seat capacity on airlines flying to Malta were slashed to improve the airline’s profitability. An airline’s financial budgets understandably focus on the microeconomic dynamics of the company’s operations. But Air Malta is also an important enabler for our tourism industry and indeed our whole economy.

Surely the government’s negotiators discussing the Air Malta restructuring plan with the EC should doggedly insist that a straightforward privatisation of Air Malta could in the longer term destroy one of the infrastructural elements of Malta’s economy. If this were to happen, we may end up with having a national airline that may not be a burden on the economy but an economy that is a burden not only on the Maltese but possibly also on the euro-zone.

Undoubtedly Air Malta needs to update its strategy and operations to bring it in line with best practice adopted by other successful airlines operating in this difficult industry. But the role of our national airline to support an important industry in our small island economy needs to be taken in consideration when defining the changes that the company needs to undertake to improve its performance.

Possibly the best ownership model for Air Malta would be one where a strategic investor with a substantial minority interest will buy part of the airline’s equity and help to balance the national interest with the purely commercial interests of the airline. The search for such a partner should go on.