New airline planned over fears EC will not give Air Malta aid

The Maltese government is planning to set up an alternative national airline that could be set to replace Air Malta.

In a turn of events forced by negotiations in Brussels over the prospects of future state aid for the ailing national airline, the alternative company is in the works as part of a contingency plan to retain Malta’s connectivity with the rest of Europe.

A high-ranking government source told MaltaToday the administration was not hopeful about talks with the European Commission for yet more capital injections to keep Air Malta afloat.

“The reality is that the government is in the final stages of setting up an alternative national airline to replace Air Malta,” the source said.

The new airline would be rebuilt from scratch. “The plan will mean a more streamlined and efficient company run on strictly commercial lines,” the source said, suggesting a more cut-throat approach to the business of running the government-owned airline.

It would also mean new conditions of employment in which employees, most notably airline pilots, will be expected to mirror the same conditions as in rival and competing airlines in terms of flying hours.

“The blunt fact of the matter is that any new company set up by the government will no longer be a legacy airline, and unlike Air Malta in the recent past, will have to be run entirely without state subsidies,” said the source. “It also will not be able to retain Air Malta’s original role as providing alternative routes that might have been not entirely commercial but very convenient for Maltese passengers.”

Finance minister Clyde Caruana in 2022 had already said that Air Malta required a capital injection “but when and how this will happen depends on the decision the European Commission will make.”

A year earlier, he warned that without the green light from Brussels, “Air Malta will not live. It will just have weeks to live.”

‘Courageous reforms’

Whether Air Malta would close down and be replaced by a new national airline has so far not been answered, but Caruana did entertain the possibility when harping on the need for “courageous reforms”.

“My remit is to ensure that the reform plan is implemented. What happens to the company depends on Brussels and I will do nothing at the airline that does not enjoy the European Commission’s support.”

Caruana has previously said that certain collective agreement work practices were costing the airline hundreds of thousands of euros and that these had to change.                   “I cannot understand how a company has workers who leave at 55 and continues to pay them wages until they reach retirement age at 65. This makes no sense,” Caruana said.

For example, Air Malta forks out thousands in payments to pilots who retire in line with a collective agreement clause that government may ‘buy out’. The collective agreement clause states that individuals aged 55 or more, who have been pilots with the national airline for more than 25 years, would be paid two-thirds of their salary each month until they retire.

Air Malta has been passing through a painful restructuring process as government seeks the European Commission’s green light to shore up the airline. Caruana had announced a voluntary employee transfer scheme in a bid to cut Air Malta’s workforce by half and save €15 million per year in wages. Pilots were excluded from this latest exercise since Air Malta had sacked 69 pilots in the summer of 2020 after talks with the Airline Pilots Association broke down.

The move came after a protracted stand-off between the airline’s management and pilots after the latter refused to accept a social wage of €1,200 per month in the wake of the COVID-19 crisis.

“Good sense must prevail,” Caruana had said in November 2022, saying Malta could not afford a national airline that loses €40 million annually, and that over the years had burnt through €400 million. “We cannot have an airline that flies to Brussels, Charles de Gaulle and Heathrow and loses money. Many will criticise our decisions but practices that make no business sense cannot continue,” Caruana said.

2020 request for state aid

Government filed a formal state aid application in October 2020 in order to provide Air Malta with financial assistance after suffering a major hit during the pandemic. Air Malta benefited from a state aid injection of €200 million back in 2012, and further capital injections from strategic asset sales to the government. Even Air Malta’s slots in major airports were hived off to a separate government company, which leases them back to the airline as a way of safeguarding these slots should the company be shuttered.

In 2021, Clyde Caruana said Air Malta was facing as much as €62 million in losses for the entire year due to the effects of the pandemic. “Air Malta is in a pitiful state,” Caruana said. “If before the pandemic the airline was already in a state of unhappiness, as it were, now it is has become pitiful.”