Updated | Air Malta faces €30 million in operational losses

Updated at 12:00 pm with Air Malta reaction

Air Malta’s journey to sustainable finances will once again be hampered by a year in which operational losses will be as much as €30 million, this newspaper has learnt.

Despite various structural reforms inside the national airline, with new acquisitions for both aircraft as well as flight management software, sources said Air Malta had suffered the brunt of reduced air travel to Mediterranean destinations like Tunisia, as well as from the price of oil.

“The losses are what they are – this remains a small airline, even though staffing practices have improved, and management today is more nimble when it comes to flying new routes or stopping loss-making ones,” a source with knowledge of the airline’s financial state said.

The airline was previously under the remit of former tourism minister Konrad Mizzi; the national company now passes under the purview of economy minister Silvio Schembri.

The airline will present its accounts for the year ended March 2019 later on this year, at around April.

Last year, auditors PricewaterhouseCoopers noted that Air Malta was forecasting losses from continuing operations in the 2019 financial year due to market and operational matters. However, it said that “proposed transactions” mentioned in the company’s business plan would “give rise to funding that meets liquidity requirements”.

During the financial year ended 31 March 2018, Air Malta reported operating profits from continuing operations prior to restructuring costs and non-recurring items amounting to €1.2 million, over 2017’s operating losses of €10.8 million.

Indeed last year, when Konrad Mizzi was claiming that the airline had affected a turnaround by registering a small profit, the accounts had shown Air Malta’s profits were generated by clever book entries that allow the Maltese government to inject more cash in the airline.

Under state aid rules, Air Malta can no longer take a cent more from the government after a €200 million restructuring programme six years ago.  

In 2018, the airline revalued its properties to get a €16 million boost to pad €223 million in accumulated losses from previous years.

The real money-spinner for Air Malta were millions paid by the Maltese government to buy the airline’s landing rights at London Heathrow and Gatwick airports. To do this it created a government company which acquired the slots from Air Malta, but ‘leases’ them back to the airline.

Those landing rights were given a speculative value of €33.8 million just for the summer slots alone, giving Air Malta a much-needed cash boost in a year where its selling and distribution costs climbed to €15 million and administration expenses increased to €17 million.  

By the end of March 2019, it will once again be a one-off €22.8 million boost from the London slots, this time for winter, that will keep the airline’s finances stable.

“The agreement contemplates two separate transactions, one for the respective slots for the summer season and the other for the winter season... the summer slots were exchanged on 20 March 2018 [€33.9 million] which amount is fully reflected as a gain [in] financial year ended 31 March 2018... 

“The winter slots were exchanged on 12 July 2018 and accordingly, after the end of the current reporting period, the company recognised [a gain of] €22.8 million for the year ending 31 March 2019,” auditors noted in the financial accounts. 

Despite the triumphant note struck by the Labour government on Air Malta, its own auditors have highlighted major conditions relating to the company as a going concern: “the underlying assumption [is] that the business plan 2019-2021 can be successfully implemented... and [that] the confidence that the government has expressed, on the basis of the legal advice obtained, that the proposed arrangements do not give rise to any form of state aid and that all restructuring actions are pursued within the framework set by the European Commission.”

Air Malta currently has €47 million out of €74 million in bank balances which are ‘frozen’ – that is, pledged in favour of bankers – even though they are considered to be “an integral part” of the group’s cash management. That is almost double what was pledged back in 2017 (€28.4 million).  

One way the airline has realised new profits is by recognising the sales value of unused tickets as profit, after 12 months rather than 18 months. The effect of this change increased the company’s revenue by €3.1 million.

Air Malta reaction

Air Malta has said that said figures quoted are not based on audited statements, which are yet to be published, and so media reports “could contain some speculative elements.”

“Whilst endorsing the media right to comment, Air Malta would appreciate that in future similar opinion is based on the financial audited statements which will reflect accurately the operative and overall situation of the company as a going concern,” the statement read.

The airline said that financial statement will be audited by the same international audit firm that has examined the company’s statements for more than a decade.

“It is felt that in the interest of the Company any comments ought to be based solely on such Audited reports,” the statement read.

While recognizing that the airline is a going concern for many years to come, Air Malta insisted that it must continue its reorganization programme.

“Air Malta feels that reducing the company to a political ball will only harm the Company and undermine the national interest which Air Malta has served so well for the last 45 years,” the statement concluded.