With negotiations unofficially over on the possibility of Alitalia taking over nearly half of Air Malta’s stake, the government and the airline’s board are now contemplating new pastures. Ivan Camilleri, who has been closely following the saga, explains the current situation and the possible way forward.

What went wrong with Air Malta?

The national airline has been facing financial difficulties for the past several years for a number of reasons. Increased competition, particularly by low-cost airlines, has dealt the national carrier a big blow. Compounded by years of mismanagement, wrong investment decisions, high fuel costs and a bulging payroll and administrative costs, Air Malta needed a State injection to keep on flying.

What was the agreement with Brussels?

In 2011, following talks with the European Commission, a five-year restructuring plan was agreed, aimed at putting the airline’s finances in the black by March 2016. In exchange, a €130 million injection from taxpayer money was invested in the airline’s capital base. According to EU rules, this was the last time the airline could receive State aid.

Were the plan’s targets reached?

No, at least not exactly as planned. For the first two years, the airline managed to stay within the parameters of the plan, reducing its operating losses significantly. However, with the airline having to stop flying to Libya and continuing high fuel costs, in 2013 the airline veered significantly from its targets and did not manage to break even as planned.

What is the airline’s current situation?

Although Air Malta had to post a profit by March 2016, the latest projections show a loss of €4 million. For the Commission this would be quite acceptable as it means that Air Malta can now stand on its own two feet. But airline lawyers last summer warned that the company might have to fold after this month if no strategic partner is found. This is because the company cannot sustain €66 million in liabilities.

What is the government’s plan?

The government has been trying to find a strategic partner for Air Malta for the last two years, but without success. Last May it announced the signing of a Memorandum of Understanding to conclude a deal with Alitalia to buy a 49.9 per cent stake in Air Malta. The government is hoping that through this alliance it can start a fresh page.

What is the state of play with Alitalia?

The government is still hoping that Alitalia will accept its offer and is bending over backwards to force the Italians into a deal. However, realistically, the deal does not look as if it is going to materialise as the entity calling the shots is Abu Dhabi’s Etihad, which has lost enthusiasm for the deal. Etihad is a minority shareholder in Alitalia although it controls its management. To complicate matters, Alitalia is not really in a healthy financial position as it is in a restructuring programme itself and is losing some €500,000 a day.

So what now?

With the government expected to announce shortly that it’s all over with Alitalia, government officials are trying to come up with a Plan B. The overall aim remains to find an airline to partner with Air Malta in return for a stake in it. However, no one is queuing up, particularly as Air Malta is not exactly a giant in the airline industry. Some small airline companies and individuals from the Middle East seem to be interested in talking to the government, however, these might not be the real strategic partner that Air Malta is looking for.

Any other options?

The suggestion floated by the Opposition of keeping the airline entirely Maltese – possibly through a public offering similar to what happened with Bank of Valletta – is gaining ground. However, the government may not be keen to take up a Nationalist proposal so close to a general election. Still, with the Malta Hotels and Restaurants Association making a similar proposal, the chances of rerouting the airline in this direction is becoming more of a possibility.

Is the timing important?

This is another aspect the government must calculate if it wants to avoid political damage. With most of the airline’s employees having Labour tendencies, the government is aware that rocking the boat now might be risky. So it may choose to postpone making any further decisions until the election is over.

ivan.camilleri@timesofmalta.com

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