Air Malta: landing rights ‘sale’ gives government strategic control

Air Malta has insisted that its strategy to transfer the airline’s landing rights to a government company is to give the State sole control of the strategic slots at all times – and not just a way of pumping government cash into the airline. 

The transfer of Air Malta’s landing and take-off slots at the Heathrow and Gatwick airports to Malta Air Travel Limited (MATL), a government company which leases the slots back to the national airline, has allowed Air Malta to receive €33 million in cash for its summer slots alone in 2018. 

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. And 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, even though a loss is expected for this financial year. 

“Through this transaction, Air Malta has realised fair value of these slots, whereas the government (through MATL) acquired an asset representing a low-risk capital investment with an immediate secured return on investment for an indefinite duration and the possibility of profit through a disposal on the open market in the future,” an airline spokesperson said. 

Air Malta’s accounts for the financial year ended 2018, filed earlier last week, shows the airline is suffering 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 MATL. “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.  

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”. 

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.” 

A spokesperson for the airline last week took issue with various press reports on the financial statements, claiming they were intended at undermining the airline. “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,” 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.”