The downsizing made by Air Malta during the Labour government’s first term in office led to the loss of millions in revenue and reversed the benefits of the five-year restructuring plan agreed with the European Union in 2012, airline sources have said.

The decisions taken by then tourism minister, Edward Zammit Lewis, and chairperson Maria Micallef to shrink the airline by reducing the number of planes, cutting routes and trying to sell the airline to Alitalia, led to a haemorrhage in revenue.

“The result is now out for everyone to see,” one source said.

According to the latest accounts, not yet deposited at the MFSA’s registry for companies as prescribed by law, Air Malta’s revenue was down approximately €25 million during the financial year ending March 2017, from the year before. That meant ending the year with a loss of more than €13 million, a figure three times higher than the €4 million in the red posted in March 2016.

Airline industry sources told this newspaper that the reason given by the government – that the losses increased due to fuel hedging agreements entered into over previous years – did not make any financial sense.

The airline’s fuel bill actually went down and the fuel hedging agreements were already in place when the company was posting far-less-significant losses.

Partial figures made available by Air Malta show that while fuel savings increased by almost €10 million during the last financial year, the lower revenues wiped out about €17 million in savings made on operating costs during the same year.

“The real reason for such a huge loss is the substantial decline in revenue sustained particularly during the last financial year due to bad decisions taken by the government and the previous board,” the source said.

WATCH: Minister blames losses on fuel hedging agreement

The real reason for such a huge loss is the substantial decline in revenue due to bad decisions taken by the government and the previous board

Upon taking over from the previous administration, the new Tourism Minister, Konrad Mizzi, embarked on a new growth strategy, reversing all the major decisions taken by his predecessor and former cabinet colleague.

The airline reintroduced slashed routes such as Frankfurt and Manchester and introduced new routes such as Lisbon, Malaga and Casablanca, while boosting its fleet of aircraft.

Still, there is scepticism about the government’s commitment to turning the airline’s finances around by March 2018.

“It will be a very difficult to bring to zero the €13 million losses in just a year while at the same time experiencing higher operating costs through new routes and more planes,” the source argued.

“If the real losses are €13 million, as reported, the task is almost impossible. However, the growth strategy is still positive and one has to see how things develop.

“It may also be a marketing exercise to put more pressure on the unions to put ink on still outstanding collective agreements, particularly those related to pilots,” the source said.

Asked to explain his declaration that last year’s losses were the result of fuel hedging, when the company had saved on fuel costs compared to previous years, Dr Mizzi had not replied by the time of writing.

The minister was also asked to explain the increase of nearly €3 million in staff costs during the election year when the company was supposed to be in cost-cutting mode.

After finalising three outstanding collective agreements with ground handling, engineering and cabin crew staff, the airline is now working around the clock to try to settle outstanding issues around a new five-year deal with its pilots.

Dr Mizzi is insisting on closing the deal with cockpit staff by the end of the year, arguing that only then will the banks give more credit facilities to the ailing airline.

Meanwhile, the new staff salary packages on offer are expected to increase the airline’s payroll costs by some €16 million over a five-year term.

No further State subsidies are allowed to be given to the airline, according to strict EU rules, but it is planning to be able to fund the new costs based on added sales and turnover.

Air Malta’s figures

Air Malta is working to resolve its outstanding financial issues.