It’s all about earning your own living | Louis Farrugia

I remember Louis Farrugia from the days I worked in the brewery at Farsons. That was over 25 years ago, and he had just taken over the captaincy of Simonds Farsons as we knew it. 

He was always a soft-spoken man, and well mannered. But he is not without conviction, and neither is he politically independent. A long-time Europhile, Farrugia has been very close to this current administration.

I asked him what had led him to take accept the impossible task of reforming Air Malta. “When the Prime Minister of your country calls you because he believes that you could help the country – and when you yourself believe so too – it is difficult to say no. I have also reached the age of retirement and I think I understand the politics of the country – I saw the invitation as a challenge.

“I would agree, if the chances of success are not guaranteed, but my experience at MTA helped. Those were the motivations behind my decision.”

I remind him of the time that Air Malta was sailing with a tail wind and ask him: what went wrong?

“I was once walking through a commercial department and somebody showed me an Air Malta poster of a flight to London offered at a price of Lm168 (€380). That was a time when competition was not what it is now… this was before the EU, when Air Malta could influence government to block competitors.

“There are airlines which are competing with Air Malta, and they are not receiving any government help. Air Malta was structured in a way then when revenue streams per passenger were positive. Since there were no competitive effects, staff complement increased, and working practices were reflective of that reality.”

I wonder why nobody saw the writing on the wall.

“There was resistance in Air Malta management and in government to subsidise low cost airlines – there was an attempt to face the problem that way. But that was clearly not in Malta’s best interest. As a result of low cost the spending of tourism has gone up by 30%.”

He emphasised that people do not change in a hurry.

“It is very difficult to get management to accept change. I am not surprised that it has taken long. It could also happen in the private sector, but there the companies have no option but to accept change.

“Now, nobody has any choice – no government, no opposition, no board of directors. The solution to Air Malta’s problems can only be commercial. The changes that are currently taking place are our last chance, and this is the last chance that we have the possibility of having restructuring at Air Malta.

“Our target is increasing revenue by €30 million and decreasing cost by €30 million. Incidentally, at the end of July and the beginning of August we submitted our response to the EU on time. We are expecting the EU to respond to our restructuring plan in detail and move ahead of the share capital increase.”

I quiz him over the nature of the discussions with the unions.

“We are at a very crucial phase. As we speak, discussions with unions are taking place and within the next week, final discussions will be held with all the four unions on voluntary retirement scheme and early retirement schemes.

“Before they make a decision, most employees want to know about the organisation they are leaving behind. We are at the stage, were organisational charts have been finalised and being presented.”

He gives an example of what is happening in ground handling, which is a key area. 

“Here, Air Malta wants to increase productivity. We will be presenting the productivity level we expect in this sector.”

What are Air Malta’s plans for staff reduction?

“I cannot tell you, exactly, but the numbers would have to go down by around 500. If we look at our finance division, we are currently operating at 58 and we are going down to 28. These employees have already been given a presentation.”

How will Air Malta stop valuable employees from taking up retirement schemes?

“It is clear that the early retirement scheme is the important one. If we get the right numbers at that level, it would help. We want to reserve the right to keep employees.”

The whole retirement scheme will cost €20 million, or more.

What was the present state of negotiations? “Next week is very important for negotiations. The offers are presently being explained to the employees. By the end of September, the answers will be submitted, but the retirements will be phased over a period of time.”

I comment about the enrolment of Peter Davies and Philip Saunders and consultants who are being paid exorbitant fees, when compared to the Maltese salary regime. Why was it important to rope in foreigners?

“I come from a company where we have a 100% Maltese complement, but the task we have here is to change the culture. Here in Malta, everyone believes that they have a right – the right to an upgrade or the right to a free ticket. Most Maltese felt that Air Malta was part of them. To change this, I think that the foreign executives bring expertise which we do not have… they bring their own experiences, which they can then implement without any baggage.

“We have the CEO and the commercial manager which are permanent, and then we have consultants – Australians – and at the moment they are looking at the best practice for ground handling.”

But he also says that the airline is interested in hiring locals.

“I mention specifically the financial officer Nicholas Xuereb – he will be a valid member of the team. And we have also had a vacancy for the HR. And of course, all flight operations, pilots and engineering staff are Maltese. We want to be able to increase the role of Maltese in the financial sector.”

His final quip on the subject was that you would have to be an exceptionally good local manager to step up to the challenge.

“We can learn from foreigners – and the Maltese are very competent – but it has nothing to do with not believing in the Maltese.”

So what are the plans for growth?

“We have to increase our revenue per passenger. Between 1 January and the end of July, we had 8% less flights, but more passengers. Roughly over a million passengers showed that the seat factor was up by 8% less… which translates into less planes flying, as fuel went up 29%. We flew less planes, so our fuel bill went down. In spite of the fuel increase, we saved money.”

Farrugia insists that Air Malta cannot fly to routes that do not provide these figures. He insisted that Air Malta has to look at its product.

“We are starting to study it. We are going to organise marketing workshops… it is all a question of looking at the different routes and trying to differentiate, and what we can offer that they cannot. Which can also be translated into better service and customer satisfaction. We are trying to increase €30 million extra revenue over the next three years, and that is a 12% increase.”

I recall the time when Albert Mizzi – Air Malta’s longest serving chairman – returned from Lourdes (of all places) and proposed that the French region could potentially be a profitable destination for Air Malta.

I asked him who in the organisation is going to suss out the right destination?

“Yes, we are following this. Two new destinations are Israel and Russia. It is not just Europe, but other markets. One has to have good commercial people, so that we can increase our revenue and customer satisfaction. But we also need retraining… even the in-flight meals we offer have got to be unique. And all this, with less aircraft.”

So what about the pilots complement?

“Less pilots means less aircraft. There are some ideas being floated around. My appeal to the pilots, their main grievance is that the airline has not been managed well. I think that the message we need to bring across is that we have to get everything right. We have subsidiaries that were not working right. They have to have an understanding that we have the right management. I believe that good decisions come after good discussions. I want them to accept these realities.

“The pilots should understand that two wrongs do not make a right.”

How does he reconcile this way of thinking with Lawrence Gonzi’s decision to buckle in and reinstate the trainee pilots that were terminated?

“Yes, the trainee pilots were extended by five months but we are floating the idea of seconding pilots to other airlines. But we also need to agree that we need so many pilots for 10 aircraft.”

How many pilots does Air Malta need?

“I know the figure and so does Dominic [Azzopardi – the president of the pilots’ union].”

What are some other potential growth areas for Air Malta?

“Cargo is a definite revenue stream, and we hope to increase this. This is fundamental because we service many local industries.”

What about the silver?

“There are subsidiaries and other assets – property… we are looking at every possibility. One of things that we have spoken about is that we must satisfy banks. We cannot depend on government guarantees because that would essentially be State aid. 

“And in the meantime, we are talking to EU, to unions, to stakeholders, to shareholders and to the banks. All of them have one theme – how we are going to make this airline earn its own living.

“We have to find commercial answers.”