Air Malta management ‘stripped of authority’ as government announces start of Steering Committee meetings

MaltaToday is informed that even minor requests for expenditure, such as a petty purchase of €40 were referred to the Ernst & Young consultants for approval.

Asked to comment, a finance ministry spokesman told MaltaToday yesterday that  “decisions within the company are taken by the Executive Chairman and the Board of Directors,” adding that “Ernst & Young are consultants to the Board and that management follows the Chairman's and the Board's direction.”

The news follows the European Commission’s authorisation of a €52-million cash injection to Air Malta in a Rescue and Restructuring Plan through a government loan to help the national airline overcome cash flow problems.

The announcement from Brussels came after the Commission had previously rejected a government proposal to allow it to invest €100 million to enable the company to buy eight of its 12 leased aircraft, enhancing its profit and loss account by €7 million.

Speaking in parliament last Monday, Finance Minister Tonio Fenech said the loan, on which the company would have to pay commercial rates, would enable it to pay its suppliers in the next six months because the company did not have any liquidity.

If the rescue plan fails, government would not be able to intervene, with serious consequence of having Air Malta planes grounded.

Government has meanwhile engaged two international aviation experts, identified as Alan Hudson from Ernst & Young and Robert Palmer, former Chief Financial Officer with Easyjet, to make an in-depth analysis of the company’s structures, management and operations.

Both men have reportedly been in Malta for the last three weeks and have embarked on an in-depth re-assessment of the airline’s complex management structure and an analysis of the profitability of each route. They are also expected to propose other means of revenue for the company.

But a much awaited steering committee that was announced a week ago after talks between government and trade unions representative of the workforce at Air Malta, has still not met nor has an agenda been communicated to all parties involved.

Trade union representatives have expressed their frustration at the situation, as they lack information on the situation at the airline, and what the plans are on the 1,400 workers at the airline.

“All we know is what we have learnt through the media throughout these last days,” GWU secretary general Tony Zarb told MaltaToday, while admitting that informal contacts have been taking place with the other unions in the airline.

In 2004, under the mediation of George Abela – today President of the Republic - a rescue plan was agreed between Air Malta and unions representative of the airline pilots, the cabin crew, the engineers and the General Workers Union.

When the agreement expired in 2007, a proposal forwarded by the then chairman of the airline Lawrence Zammit to have all unions collectively negotiate a renewed agreement, all decided to have separate agreements. All reached an agreement, except for the GWU who till today remain without an agreement for its workers.

The talks launched last week, headed by President George Abela, that include government, opposition and trade unions, led to the establishment of a steering committee that has however not been formalized, much to the frustration of the unions and workers who complain of being kept in a limbo over the future of Air Malta.

Meanwhile government had not yet defined the awaited  restructuring plan.

Since 2003, the company has shed some 600 employees and the restructuring plan has left many within the company of how many more will have to leave once the restructuring plan is put into motion.

Last Wednesday, MaltaToday revealed how a request by government to inject €100 million into Air Malta in 2009 was refused by the European Commission as the contact was ‘informal’ and was not tied to any commitment on restructuring as had been hoped for by the airline’s management.

The request to invest €100 million into Air Malta to purchase eight of its 12 leased Airbus in a bid to save on leasing costs, was turned down by Brussels after it applied the so called ‘Market Investor’s Principle’ that compares the proposal to what a private investor would do in the circumstances.

While government defended the viability of such a move, Brussels insisted that it wouldn’t make any financial sense, unless a clear restructuring plan was in place.

However government hoped that Brussels would eventually back down on its position and kept contact with leasing company ILFC - a subsidiary of AIG - until just a few months ago.

Senior Air Malta sources expressed frustration that the crisis the airline was facing was seemingly shelved for too long while Low Cost Carrier’s (LCC’s) continued to bite into Air Malta’s market share through 2009 and 2010.

It was furthermore frustrating for them to see that the London based Ernst & Young consultants Robert Palmer and Alan Hudson - who were brought in to assist government in April - highlighted the same problems identified by Air Malta two years earlier.

The crisis that has escalated since the record losses incurred over the summer routes, estimated at €12 million alone, reportedly led government to hit the panic button and formally request the European Commission to allow an emergency loan of €52 million to salvage the airline.

Palmer and Hudson who are former EasyJet and British Midlands International (BMI) executives, are reported to have clearly identified the problem that too many routes were competing with Air Malta’s core catchment markets, causing a dramatic drop in revenues.

One of the findings spelt to government was the opening of the Eindoven route in the Netherlands  to Ryanair, basically attacking Amsterdam, Brussels and Dusseldorf which are Air Malta’s main catchment routes in Europe at one single go.

The initial findings by the foreign experts consolidated the fears expressed by Air Malta in 2006, whereby a PricewaterhouseCoopers report had clearly stated the impact LCC’s would have had on the national airline.

According to the 2006 PwC report, Air Malta stood to lose €50 million by around this time, should LCC’s be granted ‘commercial influence far higher than that ever enjoyed by the largest tour operator.’

While LCC market share has this year increased to 30%, Ryanair alone holds a 20% share of capacity to Malta, and may today be considered to enjoy a dominant position.

Coupled with all this, is the workers’ frustration at the granting of bonuses to senior managers in 2009.

An average €2,000 per head were distributed in bonuses to around 30 managers in the financial year 2009/2010 when the financial situation was already become dire.

In 2009, government seemingly shelved the proposal by Air Malta management to absorb 150 extra employees, and has so far discarded as “speculation” reports about possible lay-offs.