Auditors refused to sign off on Air Malta’s books

Auditors refused to sign off on Air Malta’s books because of serious concerns on the company’s ability to survive, airline executive chairman David Curmi said.

This was the reason why the company’s last audited accounts go back to 2018, he said on Friday when giving a breakdown of the airline’s financial state.

“Air Malta has generated a negative equity of €80 million over the years and this is the principle reason why auditors raised doubts on whether the company could remain a going concern,” Curmi said.

Curmi delivered an x-ray of the airline’s precarious state during a press conference with Finance Minister Clyde Caruana in which a restructuring plan was unveiled.

The plan includes around 460 job cuts, withdrawal from ground and baggage handling operations and a change in livery to save on costs.

Government has been seeking the European Commission’s permission to provide state aid to the airline. A decision on the size of state aid by Brussels is expected in the coming weeks.

Caruana said government’s restructuring plan will go ahead irrespective of the amount that will be approved by the commission.

Curmi said the airline made operational losses in every year since 2005.  Losses amounted to €258 million between 2005 and 2020.

Profits generated by Air Malta in 2018 and 2019 when the airline fell in the remit of Konrad Mizzi were the result of one-off asset sales.

The airline had sold its airport slots to a government company in 2018 and its brand name to another government company in 2019. Without these one-off transactions, Air Malta would have registered combined losses of €47 million in those two years.

The COVID years 2020 and 2021 made things worse but the airline was already in a bad state before the period.

Curmi said Air Malta made losses on almost every route it operated on and in February 2021 he took the decision to cut the routes from 42 to around 20.

Routes such as Malaga, Cagliari, Cairo, Ibiza, St Petersburg, Bucharest and others were permanently cancelled because they cost the airline dearly.

“You cannot simply open a new route because it requires a lot of marketing and investment and until it is established it will burn you a lot of money,” Curmi said.

A comparative exercise with other airlines shows that Air Malta operates at a cost disadvantage of between 17% and 47%.

Major expenses included Air Malta’s bloated workforce, including a very expensive ground handling operation and lack of flexibility.

Curmi gave a breakdown of the main changes required to turn the airline around, including a continuous review of the network to operate routes that make money and scrapping plans for long-haul flights.

Key changes:

• Air Malta livery will change again to a simpler version to save on costs.

• Air Malta will only operate routes if they make money.

• Fly between European airports, which requires company to set up bases in other countries.

• Plans for long-haul flights have been scrapped.

• Airline renegotiated with Airbus to change two long-haul XLR aircraft ordered previously with three A320NEOs more adapted to airline’s characteristics.

• By 2024 all aircraft will be greener, less polluting and produce less noise, enabling airline to save on some airport costs.

• To make up for lean shoulder months in Malta, Air Malta will enter charter business by offering services to football clubs, national teams and film companies. In 2021, this business generated increased revenues of €3.9 million.

• Workforce reduced from 890 to about 430, resulting in savings of €15 million.

• Voluntary employee transfer scheme opens on Monday 17 January and closes on 28 January. If it is not taken up, airline will invoke mandatory scheme.

• Baggage and passenger handling services will be outsourced.

• Increase cockpit and cabin crew productivity by increasing flying hours ceiling and change in work practices to align with other airlines.

• Six collective agreement negotiations to be concluded by June.

• Work practices in engineering should be revised to enable Air Malta to compete for third party engineering and maintenance business.