Air Malta loan increased public debt by €37 million in 2011

A €130 million loan granted by government to Air Malta has increased public debt by over €30 million in just one year.

"The effects of the loan to Air Malta on public debt amounted to €37 million in 2011," Finance Minister Tonio Fenech said yesterday evening in parliament.

Fenech was replying to a parliamentary question raised by Labour MP Charles Mangion over the effects of the loan on public debt.

The news comes just a week after the European Commission expressed its doubts concerning the compliance of some €130 million in state aid for Air Malta, with the conditions of its rescue and restructuring guidelines.

Specifically, the EC is doubtful as to how realistic estimates are for Air Malta's new 'low-fares style' charges for pre-flight and in-flight services, which should generate as much as €11 million; whether renegotiating contracts with third parties will bring in the savings the airline expects; and how realistic its assumed 5.9% market growth is.

Additionally, the EC has pointed out that Malta has not provided an overall analysis of the overall impact on the profit and loss situation for both best and worst-case scenarios.

The restructuring of Air Malta commenced in November 2010 when the EC granted government temporary permission to lend Air Malta €52 million.

For this year's Budget, government allocated €20 million to the restructuring of Air Malta, which will increase in the following years according to the restructuring plan.

Key restructuring milestones since November 2010 have included the: appointment of a new management team with specific airline turnaround experience; preparation and lodgement of a Restructuring Plan with the European Commission; sale of property assets; a financing plan with the government and the banks; union agreement to change work practices and redundancies of 500 employees; disposal of loss-making operations; and over 160 internal projects.