Updated | Zammit Lewis insists talks with Alitalia still underway

The government has denied reports that talks with Alitalia have fallen through, insisting that talks are ‘still ongoing’. Informed sources have told MaltaToday that Abu Dhabi airline, Etihad – which owns 49% of Alitalia – has decided against investing in Air Malta, as it is dithering over its involvement in the Italian airline.

Etihad, the sources said, is having second thoughts on its investment in the airline because of the Italian government’s failure to honour a number of promises and it has so far refused to recapitilise its investment.

Italian newspaper Il Giornale, today also reported that the deal had ‘collapsed’.

In a statement, the government noted that various reports on the issue have been published in the media today, however none of these actually quoted official sources.

“It is on the contrary confirmed that talks are still ongoing,” read the statement.

The government also said that it will continue to address issues at Air Malta that had been left pending for years.

Etihad was expected to inject more capital by October but it has so far held out for further restructuring before recapitalising Alitalia.
Italian sources told MaltaToday that Etihad has decided to pull out of all new investments in Alitalia as it insists on a restructuring the Italian airline which is losing some €500,000 a day.

Moreover, Etihad is having second thoughts on the utility of investing money in Air Malta, which has its own financial problems and the Maltese government is reluctant to carry out further restructuring in the run up to the 2018 general election.

Earlier this year, Alitalia signed a Memorandum of Understanding with the Maltese government over the possible acquisition of 49% of Air Malta by the Italian airline.

However, Prime Minister Joseph Muscat has publicly warned that no agreement will be signed if the deal does not benefit the Air Malta.
Etihad want to reduce Alitalia’s fleet by some 20 Airbus 320s and cut some 2,000 jobs and is also insisting on introducing a ‘buy on board’ model which is already used by low-cost airlines and Air Malta itself.

Recently, Etihad’s chairman and CEO James Hogan said he was “disappointed” with the Italian government led by Matteo Renzi because “a number of the condition precedents haven’t been met.” 

Etihad are only willing to invest more money in new aircraft and expand its operations if it is allowed to use Italy as a hub for intercontinental flights and carry out a restructuring process. 

One of Etihad’s main bones of contention is the Italian government’s failure to allow the airline to use Linate airport in Milan as its base for intercontinental flights and link Milan to the US and the Middle East.

Etihad is also concerned with the strong presence of low-cost airlines, with Ryanair increasing its market share from 20% to 50% in the 18 months since it invested $2.4 billion in Alitalia. 

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. 

Alitalia was due to take a final decision on the acquisition of Air Malta in October following a rigorous due diligence exercise. 
If the deal falls through, Air Malta will seek other possible strategic partnerships and possibly look into the possibility of local investment.