Time for ‘tough decisions’ on Air Malta | Edward Zammit Lewis

There is a certain inevitable sense of déjà vu when writing about Air Malta. On paper, the financial state of the national airline has been the topic of intense discussion for at least 15 years. For most of that time, however, every news item on the subject seemed to always echo the news of the day before. 

Early last year, for instance, the airline’s CEO, Maria Micallef, announced that Air Malta would miss an EU-imposed deadline to reach break-even point by 2015. This year, a deadline which had already been extended by a year was missed again, and has now been put forward to March 2017. 

And all along, the same difficulties seem to have hampered the restructuring plan. Former CEO Peter Davis had complained of union resistance to certain pivotal reforms – in particular, concerning work practices – while his successor Micallef would go on to declare that progress would not be possible at all, unless the business model was radically overhauled.

Like many ministers before him, Edward Zammit Lewis – and the government he represents – must now somehow wrestle this unmanageable monster into shape. This week he announced what he describes as a ‘milestone’ breakthrough in the fortunes of Air Malta: a memorandum of understanding with Alitalia, whereby the Italian airline (now part of the satellite of airlines owned by Abu Dhabi based Etihad Airways) would acquire a 49% percent stake.

This settles the age-old question of which ‘strategic partner’ the government would choose for Air Malta… but it also resuscitates fears of the thin end of the wedge: that this represents the first step towards complete privatisation, which would rob Malta of a valuable strategic asset.

“First of all, no, there is absolutely no intention to privatise the national airline,” Zammit Lewis begins. “The government will remain the majority shareholder, controlling 51%. We have always argued that there are two basic principles at stake here: one, that the brand of ‘Air Malta’ has to be retained. This is important to us: Air Malta must remain Air Malta. Secondly, we have always made it clear that the Maltese government must remain the majority shareholder. None of this changes with the MOU…”

Before turning to the agreement itself – which, it must be said, does not actually seal the transaction… but only opens the possibility of a future acquisition by Alitalia – a small question about why it was deemed necessary to seek a strategic partner in the first place. At present, indications are that successive Maltese governments have struggled to meet the conditions imposed by the European Commission. As already pointed out, the airline’s all-important break-even point has come to resemble the classic ‘Free drinks tomorrow’ sign in a pub. It just never materialises.

How does Zammit Lewis account for the elusiveness of this deadline? Why has it always proved impossible, to date, to actually turn the airline around financially?

“This administration found itself in a situation where the preceding government had a restructuring plan agreed with the European Commission. We have no problem with this: we are ready and willing to honour the agreement… and to be honest, I don’t think we have any real choice in the matter anyway. We have made a lot of progress… we reached several targets, especially in 2015. That year was crucial. Meanwhile, we send regular reports about our progress to the European Commission, as part of our obligations according to the restructuring plan. If I may say so myself, the European Commission is satisfied with our performance. They have informed us that they are pleased to see that the financial year ending March 2017 will be a break-even point…”

But how can we be sure? The same thing has been said every year for the past three years at least…

“Yes, these were not the original targets. We missed the 2016 deadline, no doubt about that. But the Commission is still satisfied with our progress; it understands the difficulties. And the underlying principle always remains the same, regardless of deadlines: it is one of the basic principles of the EU, that a private enterprise must be able to withstand competition on its own. The bottom line for the EU is that the company must be able to stand on its own two feet. We did a lot of work in that direction: we cut down on a lot of overheads, we changed the commercial model of the airline, and how its operations function… and the results can already be seen. Air Malta is more conspicuous, more aggressive on the market… it is coming up with different offers, etc. Of course this is not enough. There is a lot more work to be done: I was among the first to state that the status quo, insofar as business model was concerned, is not tenable. It has to change; in my humble opinion, it should have been changed 15 years ago. It is not acceptable to continue working with the business model as it is, when you have other international airlines streamlining their operations, reducing overheads…”

But those are in the main private airlines. The difference here – as Zammit Lewis himself confirmed earlier – is that Air Malta is not private: government retains a majority shareholding, and the airline itself also provides a national service that commercial airlines would certainly consider extravagant…

“What I mean is that Air Malta is a private company in the sense that it is operated along private sector lines. Let me give another example: Malta Air Traffic Services also falls under my ministerial portfolio. It is a company in which the government is the absolute shareholder. But I don’t regard it as a government department: I regard it as a company which must make a profit. And today, Malta Air Traffic Services doesn’t receive any funding from the finance ministry… on the contrary, it pays a dividend to the national exchequer. This is the direction we need to move in for Air Malta, too…”

Isn’t it also the case, however, that the EU-imposed conditions run directly counter to the national interest? In the past there was discussion concerning whether Malta qualifies for an exemption from EU directives on account of its unique attributes. Has this been abandoned?

“The fact is we are an EU member State, and that is how the EU wants its airlines to be. Without exception, and whether we like it or not. It is true there is disagreement about this: we could argue until late at night that Malta is an island state; that 98% of our traffic is air traffic, and therefore we qualify for some kind of special exemption. But this exemption simply doesn’t exist. We have to accept this, and abide by the rules as they are…”

Fair enough, but this doesn’t answer the question about Air Malta’s national strategic value. Time and again we have seen Air Malta provide emergency services that other commercial airlines would not include in their list of priorities – the recent evacuations from Libya are a case in point. How much of this role can we expect to be diminished by the restructuring process?

“Let me be clear: I am proud of that role that you mention. But the status quo isn’t a solution, either. We have to find a way so that Air Malta can provide the same service while also operating along commercial lines. If, for instance, the government wants Air Malta to continue playing a social role, it must be ready to pay for the services. There is no other way: if we don’t go in that direction, we will not have an airline any longer. I don’t think I can be clearer than that…”

Air Malta’s actual situation, he continues, is more complex than the sum total of its business models and work practices. The aviation industry the world over is going through an intensely difficult moment, and smaller airlines are more vulnerable.  

“Even airlines which we might regard as ‘iconic’ – British Airways, Lufthansa, etc. – are going through restructuring processes. Just imagine, then, an airline which has only seven aircraft on lease hold in winter, and nine aircraft in summer. On lease hold, I repeat, to stress that they are not even ours. Let us be realistic about what we have, but let us also be adventurous… let us give Air Malta a roadmap, a sense of direction. The direction we are giving it is twofold: one, it has to operate completely as a private commercial enterprise; two, it has to be part of a bigger group. A group that would give air Malta relevance in Europe and the world. That’s the only way we can guarantee growth… and also new career opportunities, not just for Air Malta’s existing staff, but also youths who are interested in aviation.”

This all sounds very promising, but what we haven’t really discussed is the nature of the restructuring process itself. By his own admission, Zammit Lewis is bound by conditions pre-negotiated by another government. So while he would clearly very much like to go in the direction he outlines… it is by no means certain that his efforts will be any more successful that the Nationalists before him… especially considering that he is operating within the same rules and parameters.

What is he doing that is any different from what has been done before?

“Let me put it to you bluntly: to use football terminology, I am not ready to do what preceding administrations have always done, and just boot the ball into the distance in the hope that it never comes back. I wouldn’t do it in principle, but also because of the financial consequences. If you look at the figures, it is clear that this airline needs a break: it needs a future. It needs someone who can take decisions that appear difficult today, but which in the near future would allow Air Malta to increase its fleet to 12 or 13 aircraft… to open new routes, to increase employment where it is really needed… and ultimately, to have an airline which needs no assistance from anybody.”

What are these decisions, though? Which work practices will be phased out? One example concerns annual flight hours: Air Malta pilots currently fly an average of 600 hours a year… when the European maximum is 900. Is resistance to this sort of change holding back the restructuring process (as evidenced by the umpteenth missed deadline)?

“Like I said, they are difficult decisions. We have spoken to the employees… we announced the MOU to the workforce before revealing it even to the press. We explained to them, with the intervention of former President George Abela – whom I felt I had to rope in, for his competence and stature – that the job of saving the airline has to be a collective effort. It is not always easy to convince the unions… though to be fair: the unions have behaved very responsibly in the time I’ve been minister. We experienced none of the problems you sometimes see with other European airlines.

“But this is a critical moment, and there is no time to waste. Last Wednesday we sent a delegation to Rome, led by [chairperson] Maria Micallef, to begin discussing the technical details [of the Alitalia acquisition]. At present we have a generic MOU, which I shall be tabling in parliament on 25 May – because from the start I insisted the process would be transparent. We have nothing to hide: this is an area where I expect even the Opposition to do its bit. I plan to involve it more, in fact. This is not an initiative of the Labour government; this has to be a national effort…”

Again, Zammit Lewis sounds upbeat and optimistic… but the practical difficulties remain. Take the Opposition, for instance. He expects support on Air Malta, when ‘support from the Opposition’ is the one thing this government has never had on any issue. Isn’t his expectation slightly unrealistic? And has he made any overtures to the Opposition to try and secure the desired support?

“I am not too keen on getting bogged down in arguments with the Opposition; let’s just say that before announcing the MOU this week, I informed MP Claudio Grech, who seemed disposed to discuss it further. But to be honest, I receive mixed messages from the opposition. When I read certain articles about Air Malta in the Nazzjon or Mument, I ask myself what sort of direction they have in mind. Often it seems to veer towards mediocrity.

“But then, I also see signals that the Opposition is ready to behave responsibly on this issue. Personally, I believe it is the role of the opposition to be part of this process; but I won’t get into a pointless debate about all the mistakes of the past. I could if I wanted to: I could debate them all for hours, and I’d have a lot to say. But that’s not a way forward. We need a mature debate, in which we approach sensitive issues from a common front. I don’t mind that the Opposition questions things: that is its job. But it should also be responsible in its criticism.”

To return to the MOU with Alitalia: so far we have only looked at it from the perspective of the airline itself. What about consumers? What sort of benefits is this partial privatisation expected to bring about?

“The consumer will win for sure. Why? Because the consumer always wins when you have centralisation of procurement. I am a politician, not a technical expert, but I have delved into this issue. There are advantages in consolidation with a larger group: take Alitalia itself, for instance. It is widely known that the airline went through difficulties in the past; but since the acquisition by Etihad, things have moved forward, and Alitalia is on its way to becoming a premium airline. Etihad is known the world over as being at the forefront when it comes to work practices; it is one of the most sophisticated airlines in the world. It invests a lot in human resources. So yes, I do expect the consumers to benefit…. from lower fares, from an improved product, from a very strong network of affiliated airlines that has a presence all over the world. The consumer definitely emerges from this situation as an absolute winner...”

Speaking of investment… so far there are no indications of actual figures anywhere in the MOU, and negotiations are still under way. The figure of 400 million has been cited in the press. Can he confirm that? 

“What I can say is this: from a historical point of view, when we threw only money at the problem, without effecting any real restructuring, we never got results. In 2004, Minister Austin Gatt already faced problems at Air Malta. He threw money into the airline, yes, but kept the same business model. What actually happened? The money lasted six years… then, in 2010-11, Minister Tonio Fenech found himself in the same situation. 132 million were invested in the airline in all. It wasn’t all for nothing, I’ll admit: there were improvements. But at the end of the day, it was a policy of containment…”

The bottom line is that investment, on its own, cannot solve Air Malta’s problems, if not accompanied by a thorough reform of work practices. “As for precise figures, I will be able to give you an answer in a few months’ time… but not now.”