One-off termination costs inflate Air Malta’s compound losses

Air Malta's net loss for the financial year ended March 2013 is expected to total €28 million, however up to €10 million is attributable to one-time restructuring costs, such as termination payments to its employees.

Tourism minister Karmenu Vella has told MaltaToday that the global figure includes operational costs of around €15 million as well as non-operational costs, including the restructuring. The latter was part of the restructuring agreement reached last year with the European Commission.

Vella explained that the results should not be taken out of context and highlighted the negative financial results in the last few years.

"The 2013 financial result is negative if taken at face value, however when compared to the airline's financial results in previous years it's a good result," Vella said. He added that the airline's audited report would be published by the beginning of this summer.

Air Malta registered a €30 million operating loss at the end of its March 2012 financial year, an improvement of €4.3 million compared to 2011. The net loss for 2012 was €38.4 million.

Having been somewhat off the mark, the airline predicted an operational loss for 2013 of €14.8 million, while its projected net loss was €25.7 million.

As part of its restructuring programme, approved by the European Commission in 2012, Air Malta had to reduce its flight capacity and route network by 10% in 2011 and by another 10% this year. The airline's plans are to break even by 2015.

The airline shed 470 employees in the restructuring process, which also saw the government invest €230 million through an increase of €128 million in the company's share capital. The rest of the funds were raised through the sale of the company's assets and bank loans.

The restructuring plan prohibits the airline from receiving further state funding, and Vella noted that the government, Air Malta's majority shareholder, "expects the airline management to reach the financial targets set by the restructuring plan."

In comments to MaltaToday, the airline's chairman, Louis Farrugia, who will be replaced by Tumas Group director Ray Fenech in May, said that Air Malta publishes its operating and net results every quarter, in line with good corporate governance.

He added that the distinction between the operational and non-operational costs was made in all reports published by Air Malta, including the quarterly and yearly audited results.

"There is no increase in projected operating or net losses, as these are in line with the airline's budget as reported in the restructuring plan approved by the EU Commission," Farrugia said.

The departing chairman said that he had forecasted these losses and, on numerous occasions, explained that the anticipated operating loss for the year ending in March 2013 would be around €16 million, "an improvement of €14 million over the results of the previous year."

He added that the net loss includes around €10 million in restructuring and interest, consisting of pilots' termination costs and other one-time fees for terminating other onerous supply contracts.

 "There are no surprises in these figures, as the expected net loss for year ended March 2013 will be around €28 million. Air Malta reassures its stakeholders, including its employees and the general public, that it remains on track to achieve the milestones set in its restructuring plan," Farrugia said.

The restructuring plan contemplates that the airline will break even operationally in the next financial year, starting 1 April 2013.

A European Commission spokesperson told MaltaToday that the Commission is monitoring the implementation of Air Malta's restructuring plan and last received a report on it from the Maltese authorities in January 2013.

"However, the Commission has not yet been informed about the current financial situation apparently reported yesterday. The Commission is assessing the situation and it is too early to speculate about any consequences," the spokesperson said.