New boss: we can save this airline
Air Malta is experiencing heavy turbulence again and is at risk of failing the EU-mandated profit target for 2016. The airline’s first chairwoman, Maria Micallef, says she is confident she can still make it happen.
Maria Micallef is a rare breed in Malta. Unfortunately, many would add. She is a woman with an enviable business career, built from the ground up.
A chemist by training, she stepped into the Mizzi Group management shortly after doing an MBA in 1999. She has had virtually no public profile before being appointed to Air Malta’s top job in July. But she is well known in business circles as a no-nonsense operator who has been responsible for some remarkable turnarounds.
The breakthrough for her came when she was appointed general manager at General Soft Drinks. The company was losing money when she took over, but on her watch, Malta’s Coca-Cola producer overhauled its production process, moved its factory to a new €27 million plant in Marsa (built in just two years) and was comfortably back in the black again.
She did the trick again in the retail sector, with Arkadia supermarkets, in the English language tourism sector, with IELS, and the hotel industry, with the Waterfront Hotel. All of them saw their fortunes turning within a relatively short period of time.
That in itself would suggest she has the credentials to be heading the national airline, which has been chasing an elusive turnaround for more than 20 years now.
However, she readily admits, as she sits down for her first proper interview since she has taken charge of the airline, that this is by far her biggest challenge.
“Around 30 per cent of the country’s economy comes from tourism and Air Malta brings to Malta about half the tourists visiting the island so you could say the airline is responsible for 15 per cent of our GDP. There is no question in my mind that this is the biggest responsibility I have been given so far,” she says.
And it is no easy ride. The airline has slipped back on the five-year restructuring plan agreed with the EU in 2012 and will not be breaking even this year – the airline’s financial year ends in March 2015.
On the contrary, it is struggling to keep the losses at this year’s level, around €16 million, only a year from the deadline within which the airline was meant to start making a profit.
“It was a tough year,” she says, explaining the slip. “Everyone heard about the Libya crisis which escalated in May. And Libya was a very profitable route for Air Malta, contributing about €1 million per month.”
That was compounded during the summer months by increased competition from the likes of British Airways, Turkish Airlines and a few other players, which together increased seat capacity to Malta by a whopping 20 per cent during the period.
Basically, I found a depleted structure
“October’s AGM will be revealing that for year ending March 2014, Air Malta will lose €16 million,” she points out. “And the outlook for the year ending March 2015 at this moment in time looks like we are struggling to achieve the same bottom line we have seen this year. We are aiming as a board and management to close at (a loss of) €16 million.”
That places the airline in very dangerous territory. When the European Commission gave its green light to the €230 million rescue package in 2012 (State aid is not allowed under EU rules) it did so with the clear proviso this was the last chance.
When this point is put to her, she underscores that although the losses are not good news, the airline still managed to improve on the previous year for the year ending March 2014.
“If you compare like with like, last year saw a loss of €31 million, so even though we are away from the restructuring plan because we should be breaking even, we actually halved the losses for this year, which is quite a good achievement in its own right,” she says.
But that will still not cut it with the Commission.
She returns to the bigger picture: “We need to put things in perspective,” she says, arguing that though losses of €16 million are not negligible, the airline has come a long way – in 2011 the airline lost a staggering €78 million.
She insists that with the right organisational structure, revenue can be increased and costs decreased in a way that will close this final gap by 2016.
It sounds easy enough but it is not like this has not been tried before. “I was brought in to put in the right organisational structure to bring this airline in a position to make a profit and I am working hard to achieve that and I believe that I can do it,” she insists.
But what was wrong with the organisational structure before her time? “Basically, I found a depleted structure,” she says matter-of-factly.
When the previous administration negotiated the restructuring plan with the European Commission, it appointed Welsh airline guru Peter Davies as CEO and with him came a number of foreign officials.
But their contracts expired in 2014 and a new team was ushered in – the new administration made it amply clear it was not keen on renewing Mr Davies’s contract anyway.
“Shockingly,” she says, “there was there was no succession planning”. Louis Giordimaina was meant to receive a proper handover from Mr Davies and so were other officers further down the line.
However, there was nothing of the sort, she insists. “I inherited a structure with no management... Yes, I know, it is shocking but I cannot answer for the past. What I can do is look at the future.”
However, even on her watch, brief as it may be, she has seen the departure of Mr Giordimaina after only eight months in the position. Sources have suggested that the two had differences of opinion. “I learnt from Times of Malta that there were issues between me and Louis Giordimaina because he assured me that he resigned for personal reasons,” she rebuts.
“It came as a shock to me. Imagine, I took over on July 2 and by September 2 I lost my CEO... As a non-executive chairman, you rely a lot on your CEO. He assured me more than once that he was stepping down for personal reasons so I have no reason to believe otherwise.”
Nonetheless, the same sources say that the she is contemplating suing him for breach of contract. On this point, there is no denial but a carefully couched statement: “Basically, the airline, through the board of directors will make sure that what is contractually due to the airline will be safeguarded.”
Does that mean it is being actively looked into?
“Basically, I want to make sure that contracts are honoured... My job might not an easy one at times but I am there to safeguard the interests of the company,” she reiterates.
Despite the instability in the management structure, she dismisses the idea that these changes at the top could have been responsible for the slip.
“I would be trying to fool you if I said that they did not have an impact but I don’t think that they are the main cause. The management was not responsible for the Libya crisis,” she says.
Libya was a very profitable route, contributing about €1m a month
Looking ahead, Ms Micallef says things on the management front are already in a much better place. A new CEO, Philip Micallef, outgoing CEO of the Bermuda Communications Regulatory Authority, has been appointed and a plan has been put in place to hire a chief commercial officer and a chief financial officer with airline expertise on a three-year contract.
They in turn will be responsible for mentoring two deputies, who will take over their positions following this three-year period. “In this way, we we’ll make sure they will have proper exposure and pipeline training. I am working very hard to make sure the organisational structure is sound even beneath the deputy CCO because there is a lot of talent and passion within Air Malta,” she says.
The commercial arm is vital because the airline needs to be venturing out of its present framework to make up for losing the Tripoli route.
“On that front, I’m pleased to say that the new route we started to Tunis is offering some interesting contributions. We made €100,000 in our first month in August. I think that is very encouraging.”
The airline has also started a new scheduled service to Algiers, having moved the staff who previously worked in Tripoli, there.
On the cost-cutting side, there is a forthcoming review of the fleet, which, she says, could lead to substantial savings of about €4 million a year. Asked if this means that the airline could reduce the current fleet, she is cautious but argues that these savings can be made even by retaining 10 planes on Air Malta routes.
“First we need to study the route development and understand how we need the routes to be in the next three to four years,” she says.
She also aims to tackle some €30 million worth of service contracts that the airline has with a host of suppliers from cleaning, to security, IT and catering. This has also been done in the past. However, she insists that the review she has made in the past two months suggests there is more fat that can be trimmed.
She points out that the catering contract, for instance, gives the airline the possibility to impose penalties if the contractor does not perform. There have been issues, she says, and yet, these penalties have never been enforced.
“There is the good product and the bad product and I am making sure that when we get the latter Air Malta gets what it deserves,” she says.
The same applies to the IT area, where some “interesting hundreds of thousands” could be saved, she says confidently.
The changes will be tied together in a plan that she plans to have in place by next March.
“My job for the next six months, I would say, will be to make sure I have a solid plan so that by 2016 we will bring this airline into profit making area as committed with the EU.”
Only time will tell if her confidence is well placed, what is for sure is that her knack for turnaround will be tested on a whole new level come 2016.