The government has started talks with the European Commission on support for Air Malta within state aid rules after the airline made a loss of €31 million in its last financial year, Finance Minister Tonio Fenech said this afternoon.

He also confirmed that Sonny Portelli has been nominated as chairman of the airline and will serve as deputy chairman for the coming three months during the transitory period.

Current chairman Lawrence Zammit had asked not to be reappointed.

Speaking at a press conference, Mr Fenech said the airline made its €31 million loss in the financial year ending March 31, 2009 owing to high fuel prices and the weak Sterling.

Fuel alone cost Air Malta losses of €18 million, and, Mr Fenech said, losses would have reached €27 million had oil purchases not been hedged. Sterling's decline cost Air Malta further losses of €12.8 million since the biggest number of its passengers are British.

Mr Fenech said the current situation was raising questions on the company's financial sustainability and the government was looking into drawing up a restructuring plan for the company. It was also considering recapitalisation.

He said that projections for this year still showed losses, although they would not be as serious as last year's.

The airline would be seeking to further reduce its costs and improve its efficiency.

Mr Zammit said he was satisfied with his achievements in the past six years. He said the targets of the 2004 restructuring plan had been achieved.

Further restructuring was needed to make the company sustainable. The current situation, he said, was not anyone's fault.

However, ground handling costs in Malta were 40 per cent higher than abroad, and talks about this had started with the trade unions with the aim of changing work practices in order to raise efficiency.