Updated | Gonzi says Air Malta must be efficient to survive

Prime Minister Lawrence Gonzi said government "agrees with the European Commission on the Air Malta's restructuring plan. The plan must be viable and realistic."

He spoke to MaltaToday during a visit to Uniplast, a company which moulds, paints and packages plastic components for Playmobil and other companies.

A still unpublished 26-page letter from EU Competition Commissioner Joaquin Almunia to Air Malta leaked to The Times this week reported that Brussels "has doubts whether the optimistic forecasts are realistic to achieve."

Gonzi explained that he is confident that the early and voluntary retirement schemes and the other cost cutting measures undertaken by the airline will "finally lead to Air Malta to be more viable."

However, he added that "Air Malta's long-term sustainability depends on the efficiency of its operations."

Asked whether the sale of Air Malta is possible if the European Commission rejects the restructuring plan, Gonzi said "The commission is right in saying that the plan must be realistic. Government's intent is to make the airline feasible again. However the plan must be credible and sustainable."  

Meanwhile, Air Malta chairman Louis Farrugia is keeping his hopes high that the national airline's restructuring plan to return to profitability will be green-lit by the European Commission.

In his comments to MaltaToday, Farrugia said Air Malta was confident the €238 million restructuring plan "is viable and in line with EU regulations."

"The airline is on track with the implementation of the plan and what the Commission has said in statements is according to its state aid procedures. Air Malta is prepared and able to answer to all queries and requests for further information by the Commission," Farrugia said.

A particular revelation from the Commission's letter to Malta is that Air Malta's plan to reduce the current fleet of 12 to 10 planes and overhaul its route strategy - which are expected to generate €21 million in savings - will see the airline stop operations to various routes, and sell slots in major airports, including London.

Air Malta chief executive Peter Davies has previously told MaltaToday the sale of the airline's slots at London Heathrow were not part of the airline's restructuring, suggesting other London airports will be cut from Air Malta's network.

Air Malta will benefit from a state aid injection of €130 million, while another €108 million will come from the sale of land, engines, subsidiaries and bank loans.

Cost reductions will include the €21 million savings on reducing fleet and overhauling the route network, shedding some 500 workers costing the airline €11 million annually, and revisiting third-party contracts for further savings of €7 million.

The redundancies will cost some €30 million.

While reducing the fleet will impact capacity by 20.2%, Air Malta will increase load factor and its revenue per passenger through better offers, and introducing new baggage fees, seat reservation fees and paid catering services.

But the Commission has questioned whether increasingly price-conscious consumers will respond to these new offers, and if revising contract management will bring the millions in cost reductions Air Malta expects.

Air Malta must make its full turnaround by 2016 after breaking-even in 2014 and generate profits in 2015. But before that, the EU Commission has to grant its blessing of the 'one time, last time' state injection, or it's the end of the road for the company.