Air Malta losses a déjà vu

Tough and politically unpopular decisions have to be taken to safeguard an airline that is, at the end of the day, one of Malta’s most strategically crucial national assets.

Cartoon for MaltaToday on Sunday by Mark Scicluna
Cartoon for MaltaToday on Sunday by Mark Scicluna

There is a distinct sensation of déjà vu in the recent announcement that Air Malta will once again face losses this year.

Air Malta chairperson Maria Micallef recently stated that the airline has slipped back on the EU’s five-year restructuring plan, and instead of breaking even by March 2015 – as the restructuring plan had envisaged – it will close the financial year with a €16 million loss.

There was an attempt to put a positive spin on this announcement: explaining that the figure of €16.2 million represents half the originally projected loss, which would have amounted to around €30 million. This reduction in losses was achieved by ‘timely decisions’ taken earlier this year under new management: including the sale of the Selmun Palace Hotel.

Nonetheless, this measured optimism seems to contradict the general mood emanating from Air Malta at the moment. This year’s losses may have been halved by ‘timely intervention’; but they remain losses, in a year which had been predicted as Air Malta’s breakeven year.

No amount of optimism can conceal the fact that Air Malta seems to be grounded in the same predicament… unable, despite various endeavours, to get off the ground.

Nor is it very encouraging that the lifeline thrown to the struggling airline has taken the form of divestiture of the Selmun Palace Hotel. There has been talk of selling this hotel, as a means of recapitalising the airline, for almost 20 years. Past attempts have consistently failed, and that government has now stepped in to buy the hotel – effectively, from itself as majority shareholder in Air Malta – can only be viewed as a stop gap measure that merely postpones, rather than solves, the airline’s financial problems.

Air Malta will benefit from the recapitalisation, but at the expense of the national exchequer. In this respect, it is not very different from the previous government’s lifeline of a €54 million bank loan.

‘Turning the airline around’ was the main objective behind the European Commission’s five year €230 million plan, now in its fourth (penultimate) year. It would appear this will not have the desired effect, either.

In a television interview, Micallef found fault with the application of this restructuring plan at various levels: “The truth is that the restructuring plan for Air Malta was only once on target – in 2012,” she said. “The restructuring plan deviated on maintenance costs that should have stayed stable. Instead, maintenance costs on our ageing fleet increased by €15 million, and certain contract changes did not deliver the €9 million savings we expected but €6 million. Basically, restructuring costs that should have been €42 million, totalled €50 million.”

Elsewhere there were factors, such as the loss of the Tripoli route on account of the chaos and instability currently gripping Libya, that were clearly outside the airline’s control. Fluctuations in the price of oil – fuel accounts for 28% of Air Malta’s expenditure – are likewise an ongoing issue.

But other factors are not so easily explained. Micallef is the umpteenth Air Malta chairperson to warn that radical changes to the business model are needed if the airline is to compete in a fast-changing aviation sector.

“In the longer term, it remains clear to me that the realities of the industry are such that the airline’s profit margins will always remain wafer thin unless we rethink our business model to truly ensure viability. We need to get out of restructuring mode and start thinking of long-term sustainability beyond 2016. We will need the economies of scale that we can never achieve with our size,” she said.

This follows on from similar statements by all Air Malta chairpersons going back to the 1990s. In fact we have been hearing roughly the same complaints for at least 20 years. All of which raises the question: what is actually stopping successive governments from taking the bull by the horns, and effecting the necessary structural changes to ensure future viability?

Micallef appeared to hint where the main stumbling block lies. “If we are to make this work – and I am confident we will – we need everyone’s support. In some cases, this means holding back. That is my message to politicians, both Government and Opposition.”

Her warning that politicians should ‘hold back’ was interpreted by many to mean that governments should stop treating the national airline as an extension of their own departments. This prompted Air Malta to issue a ‘clarification’, to the effect that the chairperson’s comments did not infer that there was government interference.

Paradoxically this seems to confirm that there is – if not direct government interference, at least an undue political sensitivity when it comes to taking action to restructure the airline. We see this with every election, in which both parties woo Air Malta personnel with promises that are clearly unsustainable.

It would perhaps be better for the airline to stick to its chairperson’s original point. Evidently, tough and politically unpopular decisions have to be taken to safeguard an airline that is, at the end of the day, one of Malta’s most strategically crucial national assets. It is high time, then, that we put aside political considerations for the sake of the bigger picture.

More in Editorial