The article on the Avro RJs (The Sunday Times, August 12) contains some inaccuracies and misleading information which need to be addressed. Contrary to what was written in the article, it is simply not true I ‘admitted’ that on taking office, my board aborted the RJs inquiry. The facts are the following:
No one was interested in buying the RJs- Louis Grech
In a written reply to the journalist’s questions, I wrote that “the high trip cost was one of the many serious problems related to the RJs. My board concluded that, in addition to the trip cost issue, it would make more sense to inquire into the broader aspects of the Avro aircraft.”
As I recall, this is also reflected in the minutes of a board meeting held in April 1997, where the directors agreed that, apart from the inquiry into the trip cost guarantee issue, Air Malta should also inquire into the procurement process of the RJ85s and the RJ70s.
My board had no interest in aborting this inquiry. In fact, during a board meeting held in September 1997, the board felt the trip cost guarantee inquiry was not making the necessary progress and we agreed that the chairman of the inquiry should be given an extension to finalise his inquiry.
For my board appointed in March 1997, it was abundantly obvious that all the terms and conditions guaranteeing the purchase agreement of the four RJ70s (including trip cost guarantee) were ultimately the responsibility of the 1994 Air Malta board. Neither my board nor the new Labour administration had any reason or interest to cover up anything or for anyone, as the main protagonists of this saga formed part of the board of Air Malta under the Nationalist administration of 1994.
Even if 15 years have elapsed since these events occurred, I recall that the inquiry was not making sufficient progress.
The inquiry did not have legal standing, which meant that it was difficult for the inquiring board to call on witnesses and gather evidence especially from overseas, perhaps this being the main contributing factor for the non-conclusion of the inquiry.
While the inquiry on the trip cost guarantee was being conducted, my board felt that an additional, more comprehensive examination was needed on the issues emanating from the procurement of the Avro aircraft. We, therefore, commissioned Air Claims, a foreign international company, to inquire into the whole acquisition process of the RJs.
In mid-1997, Air Claims, an independent provider of professional airline consultation services, were commissioned to examine and investigate various aspects of the Avro RJ fleet. In February 1998, they presented their findings to the board and, among other things, concluded the following:
In 1994, Air Malta chose the highest risk option i.e. a new expensive and inflexible fleet (RJs) in spite of the fact that it already operated an obvious alternative; the decision to opt for the RJ70s was flawed because there were insufficient economic studies while also being extremely risky; overall the whole purchase of the RJs had been a serious blunder.
The Air Claims report was preceded by a study by consultants from Coopers and Lybrand (now known as PwC). It presented its findings on the RJs issues to the Air Malta board in April 1997 and stated:
There had not been enough evidence to support the purchase of the 4 RJ 70s and the forecasts made by the company were too optimistic; back in 1993, another consulting firm OC&C had already cautioned Air Malta that the purchase of the RJs would be excessive and a robust strategic plan was required; the purchase of the RJ 70s and 85s constituted the bulk of the borrowing exposure of Air Malta which amounted to about Lm85 million (€198 million) in 1996.
The consultants warned the board that, unless the company returned to profitability, it would not be able to service its loans and other commitments, especially since the cash reserves were being depleted rapidly.
The statement made by Anthony Paris, the executive director of Air Malta that the“new board could have stopped the purchase of the RJs and simply lost the deposit” is misleading since:
The purchase agreement and the aircraft option agreement were both concluded in mid-1996 when a hefty deposit was paid. This option agreement was exercised by Air Malta in July 1996;
The change in government came in late 1996, while my board was constituted on May 7, 1997. The new board as well as the new administration were therefore faced with a fait accompli;
There should be no doubt in anyone’s mind that, considering the liabilities that the RJs were inflicting on Air Malta, the new board would, if at all possible, have opted not to have these aircraft in the fleet. Besides being inefficient and expensive to operate, the RJs compromised the image of Air Malta and passenger comfort, had very limited cargo capability, and suffered from a high incidence of engineering problems, including scores of engine shutdowns. However, potential legal implications for non-compliance would have cost the company additional millions in compensation, damages and legal fees;
As former Finance Minister Lino Spiteri said in his incisive article in The Times, upon taking office the British government through its High Commissioner forced him to abandon the option of rescinding the contract for the RJs, signed by the old board.
Mr Spiteri stated: “The British High Commissioner came to see me. He told me that the RJ purchase was a done deal and if the government did not effect payments the British government would blast Malta’s credit-worthiness”.
There was no alternative but to comply with the terms of the contract as the consequences of not doing so would have amounted to much more than what Paris termed as simply “a loss of deposit”.
Despite all attempts to sell the aircraft, no one was interested in buying the RJs, particularly the RJ70s that were no longer being produced just a couple of years after the old board bought them. The value of the RJs depreciated so heavily that in one year alone, Air Malta had to carry losses (impairment charges) on these aircraft amounting to circa Lm20 million (€47 million).
These were the realities that the board appointed in 1997 had to confront with regard the RJs.
Louis Grech is a Labour MEP and former Air Malta chairman.