Talks between Air Malta and Alitalia have led to an agreement in principle to set up a new company in a bid to free the Maltese national carrier from all current debts, the Times of Malta is informed.

During a hearing on its ongoing dispute with the pilots, Air Malta admitted in court last week that, despite the five-year restructuring programme, it still had about €66 million in outstanding debts.

Civil aviation industry sources said the Maltese government had already made it clear during the talks with the Italian airline, which is interested in buying a 49 per cent stake in Air Malta, it was willing to absorb all outstanding debts so the new partnership could start with a clean balance sheet.

“Alitalia and the Maltese government have already agreed that a new airline company will be created which will be freed of debt. The excess loans would be absorbed by the government,” the sources said.

Although such an arrangement was very much a done deal, the sources noted that, if the green light of the European Commission would be required before proceeding to formalise the agreement, problems might arise in view of strict EU State aid rules.

The two sides are studying various options on how to present such an arrangement to avoid having problems with Brussels

“At this stage, the two sides are studying various options on how to present such an arrangement to avoid having problems with Brussels,” the sources said.

These developments are in line with public comments made by the chairman of Alitalia a few weeks ago. Luca Cordero de Montezemolo said Alitalia would not be investing a single euro in Air Malta, adding that the Italian carrier’s risk in such merger would be “sotto zero” (less than zero).

The deal being negotiated with Alitalia contemplates that, while reducing significantly Air Malta’s current workforce to make it a leaner organisation, none of the employees on its books will be losing their job. Excess workers will be transferred to a government-owned company, as had happened to Enemalta employees.

Certain non-core operations of the airline, including the engineering and ground handling departments, will be hived off from the new company and will then be contracted according to its exigencies, which vary because of seasonality.

Both parties are also working on a new route network, which will include more frequent flights between Malta and Italian major airports from where passengers can then be transferred onto other flights in the Alitalia/Etihad global networks. However, the new Air Malta will still keep flying to key airports, although frequency might be reduced.

Since the start of the restructuring programme in 2011, the government has pumped about €200 million into the airline to put it back into the black. During the last year of the programme, Air Malta had to register a loss of below €4 million.

The airline’s latest financial results have not been published yet.