It's official: Alitalia deal falls through

The plug has been pulled on talks between Air Malta and Alitalia for the sale of 49% of the national airline’s share to the Italian airline, with informed sources confirming to MaltaToday that the deal has fallen through.

Speculation that the Maltese government was very close to terminating the Memorandum of Understanding signed in April 2016 has been going on for months, with Prime Minister Joseph Muscat and Tourism Minister Edward Zammit Lewis repeatedly insisting that nothing was cast in stone and alternatives would be considered if the Alitalia deal was not advantageous.

Doubts on the deal always focused on whether the agreement would ultimately benefit Air Malta’s employees and the country.

“The government has repeatedly stated that no deal will be signed unless it is beneficial to the airline, tourism industry and the Maltese economy at large,” Zammit Lewis told MaltaToday on Saturday, when reached for a comment.

The minister went on to add that the best option which the government sees for Air Malta still remains “a strategic partnership” with another bigger airline.

Air Malta was hoping that Alitalia, a subsidiary of Etihad, would acquire a stake in the ailing airline in a bid to remain afloat after a massive €260 million restructuring package negotiated under strict EU state aid rules.

But Etihad Airways, hit by slowing growth, announced a few weeks ago that it would be eliminating jobs across several units whilst undertaking organisational reviews and restructuring to reduce costs and improve productivity and revenue. 

International media reported that the Gulf airline also planned on firing James Hogan as its CEO, over his failed spree of acquisitions in Europe. 

Hogan sought to expand Etihad’s presence in Europe, buying a 29% stake in Air Berlin in 2011, and then Air Serbia in 2013 and finally the stake in Alitalia three months later. Hogan would later express his disappointment over Italy’s failure to meet a number of conditions that had been set out in the partnership.

The long-term investment programme to take equity stakes in these airlines proved to be loss-making for Etihad, after the acquisitions failed to turn a profit. Etihad lost €2.5 billion on these investments, €477 million alone with Air Berlin as of 2015. 

Eithad is now performing a volte-face on its European expansion, with supervisory board chairman Ahmed Ali Al Sayegh leading the roll-back, with plans to sell European holdings.

Speculation has been mounting on a possible Etihad withdrawal from Alitalia: in 2014, Etihad invested €560 million in the Italian airline and pledged to return it to profit by 2017 by slashing costs, turning Rome into an intercontinental hub and adding more lucrative long-haul connections.

But the positive figures failed to transpire and Alitalia – which in 2015 registered a net loss of €199 million – has now chased, and secured, a two-month breather from its creditors on the condition that it agrees an overhaul plan with its stakeholders in two months. Job redundancies are expected.

Despite the Maltese government’s denial, Alitalia’s president Luca Cordero di Montezemolo had hinted in May that Air Malta would potentially be used as a feeder airline – a move which would definitely go against the government’s vision for Air Malta.

Alitalia’s acquisition would have also definitely meant downsizing human resources at Air Malta – a move which the Maltese government opposed strongly.

Zammit Lewis told MaltaToday that, until any announcements are made, “the airline will continue taking the important commercial decisions to ensure its long-term sustainability”.

Last month, Air Malta’s board of directors moved to axe two routes – Frankfurt and Manchester – that they insisted were performing weakly. Instead, Air Malta will be increasing frequencies next summer to Munich, Amsterdam, Brussels, Vienna, Zurich, Rome, Catania, Lyon, Palermo, Prague and Moscow. Air Malta also plans to double daily flights in peak summer to Munich, Rome and Catania.

The national airline – whose first flights were in 1974 with scheduled services to London, Birmingham, Manchester, Rome, Frankfurt, Paris and Tripoli – continues to face stiff competition from low cost airlines, especially Ryaniar, which is close to taking the majority market share of the incoming passenger market.

For the Maltese government, the key to solve Air Malta’s financial woes and compete in an ever-highly challenging market, is for the airline to join a strategic partner. 

Air Malta went through a massive restructuring imposed by the EU after the government saved it from bankruptcy in 2010 with a €52 million loan. Two years later, the EU approved €130 million in State aid on condition that the airline was restructured. Under Peter Davies, roped in by the then Nationalist government to effect the necessary changes being demanded by the European Union, Air Malta almost halved its workforce, reduced the number of jets in operation and cut capacity.

During the summer months, it was revealed that Air Malta was €66 million in the red. At the end of the 2015 financial year, Air Malta lost €4.2 million, after losing €16.9 million the previous year. In 2012, the first year of the restructuring plan, the airline suffered €38.5 million in losses.