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No plane sailing reform

Finance Minister Tonio Fenech tells Herman Grech Air Malta has a viable future if...

Why did a reputable firm like Ernst and Young, who presumably prepared a professional audit on Air Malta, leave – only to return after having been told they did their homework badly?

Ernst and Young never left. It’s that we’re tackling this issue through a public debate. Even if the claim that Ernst and Young’s plan was flawed were true, we are doing a big disservice to Air Malta.

The European Commission will think the revised plan we present them is going to be flawed. It’s going to make negotiations with the Commission more difficult, because it’s going to expect more.

Unfortunately, the workers will be impacted. What the opposition has done through its press conference is highly irresponsible and a big disservice to Air Malta. It is based on blatant lies and misinformation.

It will cost Air Malta dearly.

The Labour Party is reluctant to sign the non-disclosure clause because it’s not confident about the rescue plan. Can you blame them?

Of course I blame them. The opposition hasn’t had the decency to come and see the plan. It has attended the steering committee, it has seen an overview presentation but it hasn’t seen the detailed document like all the other stakeholders.

The opposition leader should be asked whether he’s got Air Malta or the Labour Party at heart. He only has one agenda – to see Air Malta ruined, blame the Nationalist Party and win the next election – and this will harm the 1,300 employees.

The Labour Party mentioned specific issues like the cargo department...

The Labour Party copied the General Workers’ Union and pilots’ union statements. When we had the first meeting with the President it was clear that the government would open the door to the opposition to participate in the restructuring committee if it respected confidentiality. It hasn’t done so.

Labour is saying the plan ignores important sectors such as the carriage of cargo and major expenses like the cost of fuel. Is this correct?

It’s completely incorrect because they didn’t read the document. At about €5 million, cargo is a very minor revenue component for Air Malta. The turnaround plan for Air Malta is €70 million, a substantial part of which are cost reduction measures and added revenue.

Saying the plan is flawed because it doesn’t give sufficient importance to cargo is highly irresponsible.

The government opted for a reputable firm which had carried a similar restructuring process for BMI.

Ernst and Young was present in the first meeting with the PL leader. Did the Labour leader expect us to hold a meeting every day?

Ernst and Young carried out a detailed review of the company. We didn’t meet the January deadline because the consultants needed more time. We even disagreed on some aspects...

But can you highlight what changes have been made to the original plan.

There were two aspects the government wanted the consultants to take a second look at. The government was presented with the first draft plan a day before it was presented to the committee.

We agreed on a two-week window to review the detailed plan to identify areas which had to be challenged or clarified.

The opposition didn’t contribute. It just made one suggestion – that Malta should have an aviation strategy like Fiji’s.

On the other hand, some of the unions made valid contributions and they’re now in meetings with Ernst and Young.

I’m informed Ernst and Young had said that 240 back-office staff would have to be sacked and now has been told to come up with a figure of 135. Is this correct?

It’s completely incorrect. The only issue still pending where the number of workers is concerned is linked to the size of the fleet.

One issue the government asked Ernst and Young to reconsider is the outsourcing of ground operations because the GWU insisted that ideally it shouldn’t be outsourced.

The government argued that as long as we have the target savings emphasised in the plan, it would prefer to retain the operations.

The second issue concerns the size of the airline, though I can’t go into details. That doesn’t make the plan flawed; it’s based on strategy.

Can you confirm 600 workers are going to be shed?

The numbers have been mentioned in the press because they have been divulged to the unions. In my opinion it was early to leak that information. I will continue respecting the process.

I always said there is a significant number of workers at Air Malta and the number needs to be reduced because we can only compete if we run a leaner organisation.

Is the 600 figure close to the truth?

Yes. Unions have said it. Yes, I can confirm it’s close to the truth.

The steering committee is meeting once a fortnight. Shouldn’t there be more urgency considering you have to submit the rescue plan to the European Commission by May?

The committee is there to decide on the aspects of the finalised plan. Some aspects were dealt with directly with the union. One-on-one meetings are currently taking place with the stakeholders.

If we thought Ernst and Young was going to come up with a perfect plan straight away we must be dreaming. The plan it gave us will not be the one going to the Commission; the one we will send to the Commission will very likely be finalised within a week or two.

The consultants are of course at the centre of this restructuring process. How much are they being paid for this exercise?

The information will be divulged in due course. But in the process of a contract being executed we shouldn’t be going into such details.

Even if they’re being paid from public funds?

Yes, but Air Malta is a commercial company, so financial information is commercially sensitive. I’m not the person who engaged Ernst and Young, Air Malta did – and it has to protect its own interests.

How much does Air Malta stand to lose in this financial year?

Air Malta stands to lose significant millions. Initially, the losses could have reached €50 million. With the work done by Ernst and Young we have significantly reduced expenditure outflows, so I expect the losses to be less, but still significantly high.

Significantly less than €50m?

Significantly high in terms of the losses in any case. I don’t have the precise figures because the year hasn’t been closed. It’s lower (than €50 million) but still a high loss.

This plan is fundamental. Malta will have one shot with the Commission, which will come back asking us to reconsider certain aspects. They’ve done this before so we cannot fool them.

I can appreciate that some stakeholders want to take a softer approach, but the Commission will see through it. We need to go with a realistic plan even if we don’t like it and find it difficult to implement.

The government has the ultimate responsibility. In the absence of an agreement, the government has to go to the Commission with a plan in Air Malta’s interests. The country needs Air Malta. We need to put it before personal or political interests.

The government’s giving the impression this issue came out of the blue and we’re about to hit a brick wall when some people would describe it as a car crash in slow motion. The warning signs were there and until a year ago the airline was still employing people.

I think it would be unfair to say nobody was looking at the warning signs. In 2004, a restructuring plan was put in place, it took significant decisions, costs were reduced, but new realities came into play – low-cost airlines provided competition, fuel prices increased, tourism patterns changed...

This made Air Malta financially bankrupt. The government had to intervene with a €52 million loan.

Why were workers still being engaged until last year?

Last year 18 cabin crew workers were employed – against the direction given by the board and the government, which had said there should be no new employment.

This was a technical mistake by the human resources (department), which didn’t realise it had to stop employment since those taken on board would be permanently engaged and legally the situation couldn’t be rectified.

Three years ago, Prime Minister Lawrence Gonzi told the airline workers the carrier had a bright future. Wasn’t the writing already on the wall?

Three years ago, the carrier was meeting a lot of its targets. It had come close to breaking even. Since then there’s been a spike in oil prices and immense competition from other carriers.

Three years ago, oil prices were already spiking to an all-time high.

That was the start of the problems for Air Malta.

There are some issues which matter at perception level as well as financially. Does the restructure plan address the fact that directors are entitled to free travel?

Free travel is the norm in all airlines in accordance with IATA principles. What was wrong was the way it was being put into practice. You shouldn’t be allowed to pre-book seats weeks ahead but you should hop on if there are free seats available.

We will keep giving the benefits due to the workers and directors; however, within the proper framework and not to the detriment of the airline.

I can’t have a plane which is half-full with Air Malta employees who haven’t paid for a ticket and leave people stranded.

Is this what happened?

Yes, the way the flights were being booked was not in line with proper procedures. That’s not the way things should be done.

The government is being accused of subsidising Air Malta’s competitors in the form of low-cost airlines. Why is it doing so when it is the major shareholder in Air Malta?

Low-cost carriers have had a direct impact on the airline. The reality is that if the government didn’t open routes to low-cost carriers the only sufferer would have been Malta. Tourists would have chosen a different destination.

Trying to blame low-cost airlines, hoping they will disappear, is obviously a dream. Low-cost carriers will only become more aggressive.

We tried to strike a balance. Although we support low-cost carriers we don’t support them on routes which are in direct competition with Air Malta.

We need to continue with the policy of safeguarding routes which are important for Air Malta’s viability.

The policy with low-cost airlines will therefore not change.

In my opinion some routes introduced by low-cost airlines in the past had an impact on our airline. If there are areas in doubt, the doubt has to favour Air Malta. Unfortunately in the past it wasn’t the case.

Why did consultant Cor Vrieswijk leave?

I’m not aware he left. I needed experts on board to challenge Ernst and Young’s views. Nobody said Mr Vrieswijk left. The papers have been misinforming people, the same way they reported Muammar Gaddafi wanted to buy Air Malta.

Mr Vrieswijk is still involved in his consulting role, nobody advised me otherwise.

I’m not an aviation expert and neither is (PL spokesman for Air Malta) Marie Louise Coleiro.

We have three options for the next CEO of Air Malta.

What we do know is that CEO Joe Cappello is out on long leave and we haven’t heard anything since. What’s his position?

I discussed the future of Air Malta with Mr Cappello and I feel at this stage we need a fresh rethink. We need a person who has already restructured a company effectively. I believe Mr Cappello has made his contribution.

The problem is that unfortunately Air Malta was a bit stuck in the past. It wasn’t rapid enough to acknowledge the challenges probably encountered by every legacy carrier.

A significant part of the restructuring is based on new revenue.

Was Mr Cappello sidelined because you considered him responsible for the situation?

The realities out there make it difficult to blame one person for the weaknesses. We’ve removed practically all chief officers and appointed a new team.

It’s not just about cost cutting. I can’t tell workers to make sacrifices without really giving them hope that this will succeed.

There’s clearly frustration and anger among the staff. I’m informed no staff assessment has been carried out. How will people forming a restructured Air Malta be chosen in the absence of this assessment?

This is being discussed with the unions. My preference is to go through a process of evaluation and retain the best people in the company.

This doesn’t mean we’re throwing away the rest – we will come up with solutions.

We could apply the last-in-first-out principle but this unfortunately could mean we will lose some of our best people.

Once we agree on a system, we will undertake the assessment with the unions on board.

Why haven’t the consultants spoken to the staff?

The consultants won’t speak to every individual in the company. They undertook a review of the processes, the management structure, the key functions of the company and operations, the marketing strategy, the business plan, the size of the company, the contracts...

But who are they talking to?

They’re talking to the different levels of management. There have been meetings with workers but I’m not here to dictate who they should speak to. They can’t interview every employee or it would cost us millions.

Fine, but you hear claims that the commercial staff have only been updated once about the situation since December. Someone said it is now being managed via Blackberry because the top official managing it is only in the office three to four days a week. There doesn’t seem to be urgency where staff are concerned.

At this stage we haven’t engaged the chief commercial officer, and that is critical. That role is being carried out by a consultant. Yes, he’s here for four days of the five-day week.

We need to find the key commercial person who will find the time. Once the CEO is identified, we need to make sure he is happy with the team.

Will voluntary retirement be one of the options for workers?

There will be various options, one of which is a voluntary retirement scheme. We need to have other alternatives, such as redeployment opportunities.

Like every restructuring pro­cess, we will take care of the workers. We need everyone on board to make it work. If we make it work the solutions are available. If the process fails, I don’t have any solutions.

Can you give the workers a guarantee that they will know about their future in the coming days? Or do they have to wait until May?

It’s very likely that in some aspects we’re going to have to wait until May. I don’t know how discussions with the Commission will develop. We need to conclude the process, not undermine it.

Let’s not lose patience. I appeal to all players not to be used for political gain.

If there’s one thing the Libya crisis has taught us is the need for a national airline. Can you give a guarantee that Air Malta will fly well into the future?

The government is convinced of the strategic need for Air Malta. If this wasn’t the case we could have privatised the airline.

But privatising it means Malta would lose Air Malta’s vocation. The airline can be a very successful carrier if it operates only to lucrative routes, without flying to Malta.

The Commission will understand the strategic value of Air Malta but will not accept subsidies for expensive cost structures.

If we can do with less administrative employees, if the cargo operation is bloated, if we have excess capacity in engineering, if we have too many pilots, it would simply tell us we’re not allowed to use taxpayers’ money to subsidise the airline.

Has the government considered teaming up Air Malta with other airlines?

It is a strategic option Air Malta should consider. We are open to discussions but clearly an airline wouldn’t team up with Air Malta if it was a loss-making company.

It would want to see an opportunity. And today, Air Malta is not an opportunity.

Have you been approached by any airlines?

We had some expressions of interest but they did not pursue them.

Is it because they see no future for Air Malta?

There are issues of a strategic nature. And they would prefer to see us first solve the problems before coming in. People want to see our house in order.

And are you optimistic that we will put our house in order?

If we stop undermining the process, we are optimistic. But with the attitude taken particularly by the opposition, it’s going to make life difficult for everyone.

We want the opposition to contribute, but to also respect confidentiality because Air Malta is a commercial enterprise.

Watch excerpts of the interview on www.timesofmalta.com

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