Maltese government close to pulling plug on Alitalia talks for Air Malta deal

Prime Minister Joseph Muscat is very close to terminating the Memorandum of Understanding signed with Alitalia in April which had to lead to the acquisition of 49% of the ailing Air Malta by the Italian airline.

On Friday, Muscat said that he would consider alternatives to Alitalia if talks for the acquisition of a 49% stake in Air Malta are not advantageous.

MaltaToday understands that Muscat is ready to pull the plug on the Alitalia deal as there are serious doubts on whether it will benefit the country and Air Malta’s employees.

Air Malta has been undergoing a restructuring process costing some €230 million ever since it was given the green light for state aid under strict European Commission rules.

With low cost giant Ryanair close to taking the majority market share of the incoming passenger market to Malta and Air Malta’s financial sustainability in serious doubt, the part-privatisation of Air Malta is a priority for Muscat’s government.

MaltaToday is informed that Alitalia are due to take a final decision on the acquisition of Air Malta this month following a rigorous due diligence exercise.

On Sunday, Prime Minister Joseph Muscat insisted that all options were on the table, and no deal would be signed with Alitalia if it would not give Air Malta the ultimate benefits. “We’ve been consistent in what we’ve said and we won’t exclude anything to bring forth the best deal for Air Malta,” he told a political activity in Hal Ghaxaq.

Muscat said the government would not sign a deal that would not favour Air Malta and ruled out floating the airline on the stock exchange – as suggested by the Opposition leader Simon Busuttil – but that he would be open to consider direct investment from local investors.

He however warned that a financial injection was not enough to make Air Malta competitive enough to fight the much bigger international airlines. “A sole company cannot compete with an international network… competitiveness is affected by the best deal obtained from other airports and the price by which fuel is bought. Air Malta needs to find a way to tap into the international markets and this can only be achieved through a strategic partner,” he said.

In May, Alitalia’s president, Luca Cordero di Montezemolo, had underlined the advantages the Air Malta stake would offer to Alitalia in Sicily, confirming suspicions that Alitalia’s strategic vision for a feeder airline does not match Air Malta’s expectations of expanding its routes to transcontinental hubs.

“If it goes forward, it would be a zero-risk operation – sub-zero, indeed – for Alitalia. It is an investment that would not cost a euro, and would open up interesting connections with Sicily. Let us work on it, let’s carry out a management and economic due diligence,” he had said.

Alitalia’s potential acquisition of Air Malta would definitely lead to downsizing in the national airline but would not necessarily bring new investment. Alitalia itself is 49% owned by the Abu Dhabi airline, Etihad.

On Friday, Muscat told the Malta Hotels and Restaurants Association, whose president, Tony Zahra, said he was worried that the national airline would not be carrying the most passengers in the coming year, that “there are no ties… if a better offer comes through or if negotiations are not to our advantage, we will go for another alternative.”

The Nationalist Party has in the past proposed selling shares in the airline, later proposing that local investors should contribute to improve the airline’s situation.

Opposition leader Simon Busuttil this week reiterated that the government should reconsider accepting local investment for Air Malta instead of only considering selling 49% of the airline to Alitalia.

Although tourism minister Edward Zammit Lewis did not rule out the latter option, MaltaToday understands that the government favours a strategic partnership.

Prior to the initial agreement signed with Alitalia, the government was in talks with a number of airlines, including Turkish Airlines.

Expert advice by legal firm Camilleri Preziosi showed that Air Malta could not be floated on the stock exchange due to its financial predicament. Air Malta’s financial situation means that the carrier cannot even qualify for a listing of its shares on the stock exchange.

The latest financial reports show that Air Malta posted a loss of €16.4 million for the year ending March 2015 and was set to reduce its losses to €4 million by 2016.

Now in its fifth year of the European Commission’s restructuring plan, the company was supposed to break even and return to profitability by this year.

In what was a turbulent summer for Air Malta, the airline was locked in protracted talks with various unions in which new agreements were reached over employment conditions and early retirement schemes.