The European Commission is expected to turn down the government’s proposal to inject €100 million into Air Malta’s shareholding capital, The Sunday Times has learnt.
The government now has no option but to go for a restructuring and rescue plan in order the secure the airline’s long-term future, sources close to the EU Commission said.
Changes at Air Malta will have to be fast-tracked after the national airline registered its first summer losses, while the deficit is expected to be much worse than the €31 million losses posted for the year ending March 2009.
Although the government only mentioned the €100 million figure in last Monday’s Budget speech, The Sunday Times is informed that the basis of this request to the European Commission was made back in April.
EU rules permit the granting of state aid to Air Malta as long as this is just a one-time opportunity and is tied to a restructuring programme aimed at putting the airline on a sound financial footing.
Air Malta’s problems are similar to those faced by other national carriers in Europe, especially with the increasing penetration of low-cost carriers, compounded by the rising cost of fuel.
Finance Minister Tonio Fenech has argued that adapting to a new permanent market scenario is the solution, and that banning lowcost carriers from Malta would solve nothing since air fare price perceptions are now essentially critical in the tourist’s choice of travel.
Talks with unions, PL, soon
Sources who spoke to The Sunday Times warned that unless Air Malta’s cost structures are brought down drastically, “it doesn’t really stand a chance in the foreseeable environment”.
It is not yet known which strategy the government intends to adopt.
The government is expected to start holding discussions with trade unions and the opposition in the coming days to try to underline the importance of starting to carry out wide-ranging reforms, probably before the end of this year.
Speaking to The Times on Friday, Prime Minister Lawrence Gonzi said: “We are determined to take bold decisions and we hope we find the cooperation of all those involved, particularly the unions.”
The airline sector has suffered a series of blows since the September 11 terrorist attacks in 2001, followed by intense competition from low-cost carriers such as Ryanair and Easyjet and those emulating their business model.
In Europe, high-speed train networks represent another growing external source of competition. The impacts of these pressures has been felt acutely, in particular by the large, traditional incumbent operators whose cost and pricing structures makes them especially vulnerable to budget competitors.
Airlines like Sabena and Swiss Air have declared bankruptcy while several others embarked on major restructuring. The International Air Transport Association puts losses for 2010 at $2.8 billion (€2 billion) in 2010.
Airline turbulence and restructuring
British Airways announced plans in October 2009 to cut 1,000 jobs and reduce the working hours of 3,000 more workers in addition to imposing a two-year pay freeze. This was followed by an announcement in November 2009 that it would cut a further 1,200 jobs.
Last November, British Airways confirmed it had reached a preliminary agreement to merge with Iberia.
The deal is set to become operational by the end of 2010 and is expected to save British Airways €644 million every year once all the cost-overlaps between the companies have been eliminated.
Air France cut its costs, adapted its workforce and capacity on the long-haul network, transformed its medium-haul offer and restructured its cargo business.
The airline is optimising the use of passenger aircraft with large-capacity holds, which represent low operating costs and meet most requirements. With the freeze on hiring, professional mobility, the trend to not replace retiring staff, along with the implementation of the voluntary redundancy plan, workforce numbers fell by 10 per cent in a year.
The fuel hedging strategy had a positive impact for Air France-KLM between 2004 and 2009, generating a €3 billion saving over this period.
Alitalia is considering cutting as many as 1,400 jobs by the end of the year. After risking bankruptcy, Alitalia was taken over in 2009 by a group of prominent Italian business leaders and merged with Italy’s number two carrier Air One, as Air France-KLM acquired 25 per cent of the company.
Scandinavian Airlines (SAS) said last February it planned to slash 650 jobs in additions to the thousands already shed, as part of a programme aimed at cutting costs by 20 per cent.
Aer Lingus announced the latest of several major restructuring efforts in October 2009. On a phased basis, 676 voluntary redundancies will be made by the end of 2011, with pay cuts also in store for some employees.
Lufthansa gave internal notice in October 2009 of a cost-saving programme to compensate for a decline in passenger numbers. It is believed there will be around 400 job cuts by 2012 and will be accompanied by cuts in some salary components.
Last January the company said it would accelerate its cost-saving programme in Europe and was intending to ground 19 out of 34 planes at its Eurowing subsidiary.