A partner for Air Malta, tourism, film industry
With Air Malta in its last year of a restructuring process Tourism Minister Edward Zammit Lewis tells Kurt Sansone the search for a strategic partner will go on even if the airline breaks even.
Turkish Airlines is one of a number of airlines the government is talking to as a possible strategic partner for Air Malta. Are talks also being held with the Chinese airline, Hainan?
I cannot deny or confirm the names because it is commercially sensitive information. We are examining all options for cooperation. A strategic partnership does not necessarily have to include an acquisition of equity. The government wants to remain in absolute control of Air Malta because it is not just a strategic asset for tourism but fulfils certain social obligations. Air Malta is experiencing difficulties like many other airlines in Europe and we are talking to various airlines.
So what type of partnership could this be?
There are different levels of cooperation and at this stage we are examining everything, including the proposal by the Malta Hotels and Restaurants Association to rope in Maltese investors similar to the Bank of Valletta model. This is being done within the context of a restructuring plan agreed with the EU and on which we have not given up. But Air Malta’s business model has to change irrespective of which direction we take.
What is Air Malta’s attraction to any strategic partner?
Malta’s geographic position close to the North African market could be an attraction for an alliance with a bigger airline. Also, Air Malta has good time slots in major European airports like Heathrow and Fiumicino, which are an attraction for potential investors interested in tapping the EU market. Many airlines do not have a significant presence in Europe and the EU.
Do Chinese carriers form part of the mix of airlines you are talking to?
At this stage I cannot say anything. There is a lot of useless speculation with names being bandied about. I am not trying to hide anything and at the point when it is clear that I will not be undermining Air Malta because of commercially sensitive information, I will divulge the details. But at this stage there is nothing concrete to report about.
What will determine when the decision is taken? Is it before or after March next year when the restructuring plan comes to an end?
The government is committed to the restructuring process agreed with the European Commission. The plan had a series of goals that had to be achieved and this government found a situation where not all targets were being met. Over the past year the airline started tackling those areas. We are determined to push through with the changes necessary to become a competitive airline. But March 2016 is not the apocalypse and the Commission will not be coming here with a checklist to determine what has been achieved or not.
The main target is for Air Malta to have enough cash flow to continue operating without government help. This is why we are focussing on achieving greater fleet efficiency, which created so much controversy. The baguette issue was another such decision. Under the terms of the restructuring process agreed by the previous administration, Air Malta was bound to remove onboard catering. Renegotiating the catering contract meant Air Malta saved €9 million in 27 months.
If Air Malta does break even or make a slight profit will the government still consider involving a strategic partner?
The status quo is nice but it will not make the company viable
Whatever we do Air Malta’s business model has to change. Air Malta is not a low cost airline and will not become one; it is not a big legacy airline that operates long haul routes, which can make up for losses sustained on short haul flights; it is unlike the big airlines outside the EU considered to be country flag bearers which operate as hubs without restrictions on State aid. Air Malta does not fall into any of these business models. Within this context, irrespective of what changes we make and whether we rope in Maltese investors it will make sense to be part of a larger alliance.
If I were to apply logic to your argument, by exclusion, the strategic partner has to be an airline from outside the EU that does not have a big presence in Europe and which would benefit from Air Malta’s strategic slots at key airports.
[After a short pause] Yes because it will benefit from the strategic links Air Malta has in the EU. This is how I see it but it does not mean I will exclude any other airline that may show interest.
You are adamant the government will retain majority shareholding.
The Prime Minister has gone on record saying the government will retain control at Air Malta and I am reconfirming our commitment. But we also want to safeguard workers’ jobs by opening up more opportunities for them with every step we take. We want to make Air Malta more relevant.
Do you anticipate political backlash against the Labour Party from workers at Air Malta as a result of these changes?
The situation is challenging and we have taken unpopular decisions... obviously, the status quo is nice but it will not make the company viable. Air Malta’s workers’ council [a grouping of the four unions represented at the airline] is meeting with management and I have also had talks with them. Workers are correct when they say we were not informing them enough on what was happening. We are now keeping open communication channels and they understand the situation.
No government likes taking hard decisions but I will not be accused of doing nothing to save the airline. If certain restructuring decisions were taken 15 years ago when legacy airlines started transforming, Air Malta could have been in a better state today. I acknowledge that the buck now rests with me and I have to solve it.
But if 15 years ago the government took hard decisions would it have found the support of the Labour Party, then in Opposition? Isn’t there always a political game involved?
If it was a diligent government that knew how to communicate, it would have found the Opposition’s support. Air Malta is so important that people will eventually understand the need to change things. Not everybody out there criticised certain decisions taken at Air Malta over the past few months.
Will you seek political consensus with the Opposition?
There is no doubt about that. Recently, PN deputy leader Mario de Marco expressed the Opposition’s willingness to be involved. I want to include the Opposition because when in government they were responsible for the problem and they will be with us now to solve it.
There are increasing numbers of foreigners employed in hotels and restaurants and workers with few skills. Is it because the Institute of Tourism Studies is not satisfying industry demand or is it a question of hotels and restaurants paying peanuts and pushing away skilled people?
It is both. The problem is complex. ITS Students have an absorption rate of 98 per cent in the tourism industry, which shows it is doing something right. But the industry has grown so much that irrespective of how many students graduate from ITS it cannot cope with the demand. It is a catch 22 situation: industry says it cannot find workers while employees say they do not want to work in the sector because conditions are not attractive.
The government cannot intervene with legislation but we lowered electricity tariffs and this has enabled some hotels to continue operating in January and February at a profit. We are gradually eradicating seasonality, which is important because young people cannot be expected to work only between April and September.
There have been rumours that the building housing ITS in St George’s Bay was to be sold to a private entrepreneur. What is happening?
We will not be Dubai because we are not Dubai
ITS is still there for the time being. I am not saying we will not explore trying to find a better location. We have a situation in Gozo where a state-of-the-art building developed through EU funds by the previous administration is empty because there are no students. We are still studying whether the current ITS building is adequate but what we will definitely do is increase the relevance of the institute and improve collaboration with industry. I also do not exclude cooperation agreements with foreign hospitality schools. In this way we could attract more foreign students to ITS.
You have refused to publish the conclusions of an inquiry by the Internal Audit and Investigation Department (IAID) on former ITS chief Henry Mifsud. Why?
I have no problem to publish the inquiry but the IAID law prohibits me from doing so. Soon after I received the report of the investigation Henry Mifsud formally resigned and I accepted it immediately.
The Prime Minister has insisted he will publish the IAID report on the Gaffarena case. Why the difference?
The Prime Minister has made a political commitment.
Does it mean the Prime Minister doesn’t know what he is saying?
I am not saying that. The Prime Minister is saying that he has absolutely no problem with the inquiry and from a political perspective he would publish the report.
All the while, Henry Mifsud has returned back to his lecturing post at ITS.
You are not being fair. His contract for the post of executive director stipulated that he would return back to his former post. Am I here to publicly execute people? I took the decision as soon as the report reached me.
Until today we do not know why you accepted his resignation because the report is still hidden.
The law bars me from publishing it. I took note of certain shortcomings unrelated to Mr Mifsud and we started to address them.
In tourism should we aim for quantity or quality?
They go hand in hand. We can speak of quality because we have quantity. The important thing is to manage the numbers over the whole year. In the first four months we registered higher arrivals in the off-peak period but more importantly they also spent more money. But we also need to have a geographical spread of where tourists reside in Malta. We have great potential in many localities, including the south, to accommodate tourists in small residences.
There has been tension on the issue between Corinthia’s Alfred Pisani, who has called for more quality, and Fortina’s Michael Zammit Tabona, who insisted that quantity formed the bedrock of tourism in Malta.
They are both correct. Mr Zammit Tabona has adopted a model based on attracting quantity that has been working well for long and continues to do well. Mr Pisani started in Malta, branched out abroad and wants to invest in something different. Managing numbers well does not mean quality comes at the expense of quantity. Existing hotels are upgrading their product, increasing bed stock and fine-tuning their offering to attract quality. This is a gradual shift.
The government aspires to make Malta the Dubai of the Mediterranean. But tourists come here to see Malta. Does it make sense to follow the Dubai model?
Malta is not Dubai. We have a different product to offer but there are certain aspects, which are not being exploited enough such as culture and heritage. We will not be Dubai because we are not Dubai.
The film industry is expected to leave some €80 million this year. How come such a boom?
We have revised the financial incentives and payments are issued very quickly to film producers. Bureaucracy has been simplified. But Malta and Gozo are attractive destinations because they can be duplicated to reflect other locations. This enables producers to stay here for longer and cut travelling costs. The Rinella tanks are another major attraction.
What will happen to the Rinella film facilities?
We are currently evaluating what formula to use to attract investment at Rinella. We are analysing whether the facilities should remain government-run or whether the private sector should be roped in. But we are also evaluating the role of the Malta Film Commission, to split its regulatory function from the marketing side given the growth of the industry.
The private sector had been involved in the past at the Rinella facility but that model did not work.
It did not and the conditions imposed in the concession agreement were vague so much so that at one point the operator had applied to turn the tanks into fish farms. The permit was refused but it shows there was no vision for the industry. Having a regulator would ensure that an agreed business plan tied with any concession is fulfilled.
Watch excerpts of the interview.