Books don’t lie: Government cash ‘saving’ Air Malta, as airline forecasts loss in 2019

Air Malta, the national airline, has suffered millions of accumulated losses and under state aid rules, can no longer take a cent more from the government after a €200 million restructuring programme five years ago.  

But as its accounts for the year ended March 2018 – filed just days ago on Monday 15 April – show, its profits are clearly being generated by clever book entries that allow the Maltese government to inject more cash in the airline.  

Already the company suffers from a negative equity of €33.9 million, because its accumulated losses are €223 million and have eaten into its equity and share premium. The situation would have been worse had Air Malta not revalued its properties that year, which gave it a €16 million boost with which to pad those losses.  

But the real money-spinner has been the millions of euro from the Maltese government to buy Air Malta’s landing rights at London Heathrow and Gatwick airports, through a new company that leases those slots back to the national airline.  

Just on the speculative value of those landing rights – €33.8 million for the summer slots only – Air Malta received a much-needed cash boost in a year where its selling and distribution costs climbed to €15 million and administration expenses increased to €17 million.  

But in the year ending March 2019 it will once again be a one-off €22.8 million boost from the London slots, this time for winter, that will keep the airline’s finances stable.  

“The agreement contemplates two separate transactions, one for the respective slots for the summer season and the other for the winter season... the summer slots were exchanged on 20 March 2018 [€33.9 million] which amount is fully reflected as a gain [in] financial year ended 31 March 2018...  

“The winter slots were exchanged on 12 July 2018 and accordingly, after the end of the current reporting period, the company recognised [a gain of] €22.8 million for the year ending 31 March 2019,” auditors noted in the financial accounts. 

Still, auditors PricewaterhouseCoopers noted that Air Malta as a group is forecasting losses from continuing operations in the 2019 financial year due to market and operational matters. However, it is “proposed transactions” mentioned in the company’s business plan that will “give rise to funding that meets liquidity requirements”.  

A financial expert who analysed the 2018 accounts with MaltaToday said the government will probably find new ways of boosting Air Malta’s cash flow, while tip-toeing around the restrictions on state aid from the EU.  

“Air Malta are using all the tricks in the book to keep the finances looking good: one assumes that using its special purpose vehicle, they are able to hive off landing slots at other airports, so that government keeps coughing up the millions every year needed to keep the airline afloat,” the expert said.  

Despite the triumphant note struck by the Labour government on Air Malta, its own auditors have highlighted major conditions relating to the company as a going concern: “the underlying assumption [is] that the business plan 2019-2021 can be successfully implemented... and [that] the confidence that the government has expressed, on the basis of the legal advice obtained, that the proposed arrangements do not give rise to any form of state aid and that all restructuring actions are pursued within the framework set by the European Commission.”  

Air Malta currently has €47 million out of €74 million in bank balances which are ‘frozen’ – that is, pledged in favour of bankers – even though they are considered to be “an integral part” of the group’s cash management. That is almost double what was pledged back in 2017 (€28.4 million).  

One way the airline has realised new profits is by recognising the sales value of unused tickets as profit, after 12 months rather than 18 months. The effect of this change increased the company’s revenue by €3.1 million.

Air Malta reaction

A spokesperson for the airline took issue with various press reports on the financial statements, claiming they were intended at undermining the airline. “In actual fact they purposely ignored the external auditors report incorporated within the financial statements in order to insinuate that ‘potentially creative accounting techniques’ and ‘clever book entries’ were adopted by the company and approved by its external auditors, PricewaterhouseCoopers, a world renowned audit firm,” the spokesperson said.

“The external Auditors' statement on page 19 paragraph one of the financial statements [says], ‘During the financial year ended 31st March 2018 the Group reported operating profits from continuing operation prior to restructuring costs and non-recurring items amounting to 1.2 million euros [2017; operating losses from continuing operations prior to re-structuring costs and non-recurring items amounting to euros 10.8 million]’. The company ended its statement by showing its appreciation at the professionalism and integrity as well as the guidance of its external auditors.”