Fenech welcomes green light for Air Malta aid, 'new beginning to viability'

Updated with comments from Labour MP Gavin Gulia, Air Malta chairman Louis Farrugia, and MHRA president Tony Zahra.

Updated with comments from Air Malta chief executive Peter Davies.

Updated with comments from Labour MEP Edward Scicluna.

Finance Minister Tonio Fenech lauded the European Commission's approval of Air Malta's restructuring plan after just five months of investigations, saying the positive report had "burst Labour MEP Edward Scicluna's bubble" in a reference to the MEP's statement this week claiming a lack of information from government had delayed the EC's approval, citing EU Commissioner Joaquin Almunia.

"This is a new beginning for the airline towards viability. The European Commission has accepted the restructuring programme through which government will be injecting €130 million in State into the national airline," Fenech told a press conference.

He explained that a number of restructuring plans for other national airlines had been refused by the EC, including Malev, Hungary's national airline. "This was not the same for Malta. It was not an easy process and was incredibly complex. The plan had to be viable and open to scrutiny for months by the public and competitors. It was a complex and very legal process," Fenech said.

The European Commission has declared the multi-million state aid injection for Air Malta's restructuring is in conformity with European state aid rules, and that mitigating measures to reduce the airline's capacity and sell off assets, would ensure long-term viability for the national airline.

The Commission's go-ahead sanctions the restructuring programme that had already started back in 2011 to bring Air Malta back to profitability by 2016.

In November 2010, the EC authorised a €52 million government loan to Air Malta, and then was notified in May 2011 of an increased share capital of €130 million to assist the company in recouping losses and make a turnaround.

The EC's investigation into whether this aid did not distort free market competition rules found that the national airline's five-year turnaround programme "was based on realistic assumptions and would allow Air Malta to become viable in a reasonable amount of time."

The EC also said it was satisfied with mitigating measures to adjust Air Malta's position in the market, with the reduction in routes and aircraft capacity, as well as other cost-cutting measures.

Addressing the press at 2pm Wednesday, Fenech said various challenges had been faced by the airline. "The economic crisis, instability of the British pound, increasing fuel costs, the recurrent effects of the 9/11 disaster and low-cost airlines, were all challenges which changed the face of the economy as we know it," Fenech explained.

Air Malta was facing the same fate as other national airlines in Europe, which ended in either their liquidation or mergers with other airlines, the minister said, who also took a swipe at Labour MEP Edward Scicluna who said in a statement last week that the Commission was not accepting the Maltese government's position on Air Malta.

Fenech charged that the Labour MP was simply "misinterpreting what was said by EC Commissioner Joachim Almunia... what Scicluna said was simply spinning Almunia's words, which in fact was not specifically related to Air Malta, but was simply explaining the process," Fenech said.

Scicluna accused Air Malta of not submitting necessary information to the Commission. "This was untrue as Air Malta was, on a weekly basis, efficiently provided responses to any queries regarding the plan," Fenech said. "The bubble has now been burst, because the Commission was satisfied and approved the programme," Fenech said.

In a reaction to Fenech's claims, MEP Edward Scicluna said there was "no doubt" that Commissioner Almunia specifically referred to the Air Malta case when he questioned him in the European Parliament last week. "He said, and I quote verbatim: 'We are looking at the restructuring of Air Malta (sic)... for a long time'. What minister Tonio Fenech should be admitting is that the public pressure which I applied to the EU Competition Commissioner Joaquin Almunia during last week's hearing in Parliament has clearly paid off. He should also explain to the Maltese people why it took a public embarrassment to finally get the government to do, in less than five working days, what it should have done months ago,  in producing the information demanded by the Commission."

Labour meanwhile also welcomed the news, with Opposition spokesman for tourism Gavin Gulia saying that government must now show transparency and reveal the details behind the plan.

Gulia said that it is important for one to know what Air Malta's new obligations are. "We should be told what routes the airline will be ceding, and by what levels will the airline be reducing its capacity," Gulia said.

The government will also finance the €66.2 million purchase of Air Malta's head office - which it devolved to the airline back in 2004 - from money raised through public loans. The divestment forms part of several measures the government has devised in a bid to save the loss-making national airline without straying from the European Commission's strict restructuring guidelines. Compensatory measures can take the form of divestiture of assets, a reduction in capacity or market presence or a reduction of entry barriers. Activities that would have been abandoned anyway are not assessed as compensatory measures.

The European Commission says governments cannot just subsidise their loss-making companies, which is why the jury is still out on green-lighting Malta's 'recapitalisation' of Air Malta.

Over five years, the government will have injected over €200 million which will not be paid back in cash, but by increasing the government's shareholding in Air Malta while the airline sets course for profitable skies.

The EC guidelines on restructuring state that any 'state aid' must include compensatory measures such as divestment of assets, and the reduction in capacity or market presence.

Meanwhile, Air Malta chairman Louis Farrugia also welcomed the decision but warned against taking the decision for granted, and that a number of guidelines must still be followed while the airline must continue to reduce expenses and increase revenue.

"We are still losing money, but we hope to reduce the loss this year and break even next year. We are on target and hope to publish audited records for the first quarter of this month shortly. When it comes to management decisions, we are succeeding. This is an enormous step. Everyone is happy with this decision," Farrugia said.

Air Malta expressed its confidence that the restructuring plan would restore the airline back to viability.

"This is good news for Air Malta and should instill courage in all the airline's stakeholders," Farrugia said. "It means that the airline can continue to trade in the knowledge that its balance sheet can be strengthened and investment in human resources and its operations can take place whilst the airline turns from its current loss making position into a profitable trading one."

Air Malta chief executive Peter Davies said the backing confirms the methodical and comprehensive process that the Maltese government and Air Malta followed in drafting and replying to all queries  from Brussels.

"This endorsement gives us the confidence that our plans and efforts have withstood the thorough scrutiny and tests of the European Commission."

The approval is also subject to the continued monitoring and review of performance by the EU Commission in-line with the submitted plan. "The Commission expects strict adherence to the commitments stated in the plan. We have still a lot of work to deliver to remain on the right track," Davies said.

The Malta Hotels and Restaurants Association (MHRA) welcomed the EC approval. "We had stressed that the recession had put immense pressure on the level of profitability of hotels and catering establishments, which would only be further exacerbated by any negative Commission decision in the Air Malta case," MHRA president Tony Zahra said of hoteliers' apprehension during the Commission investigation.

"The most important and challenging factors affecting the industry's sustainability and economic growth are accessibility and seat capacity.

"Consequently it must be ensured that the restructuring of Air Malta and the prospective establishment of new routes continue to ensure the sustainability of the tourism industry at a minimum to that registered in 2011 levels, for then to further aim for growth to make up for the naturally drop in the average length of stay," Zahra said.

"Air Malta must retain this pivotal role in the tourism industry, with a minimum 55% share of the incoming tourism market to Malta."