Air Malta pays millions to MIA for ‘heftiest passenger tariffs’

Air Malta has been paying Malta International Airport €21 on each passenger it brings to the islands, but no mention is made of the millions Air Malta has been paying in the restructuring programme that has now been taken back to the drawing board.

The criticism being levied at Finance Minister Tonio Fenech by airline employees and industry observers is that the government has ignored “disadvantageous conditions” Air Malta suffers at the hands of MIA – owned by Vienna International Airport, the Canadian engineering group SNC-Lavalin, and the Bianchi Group.

“Fenech is scared to take on MIA,” one of a group of middle-management officials told MaltaToday this week, after a restructuring programme for Air Malta drawn up by Ernst & Young was found to have incorrect headline figures and is now being redrawn.

The same report contains comments by the Ernst & Young consultants on the exaggeratedly high tariffs MIA has imposed on Air Malta, at €21 per passenger the highest rate amongst European airports.

“In spite of the high costs, Fenech and Air Malta chairman Sonny Portelli have steered clear of engaging MIA,” one source told MaltaToday.

The charges are set by the airport charges regulatory board, which includes 3 members from the MIA board, a representative from the largest carrier and one representing the other carriers, and an officer from Transport Malta’s civil aviation directorate.

A former EasyJet official who had been earmarked for the role of Air Malta chief executive, Cor Vrieswijk, also tendered his resignation this week after stepping in at the airline in December.

Unions have indicated they will not allow any downsizing without serious contractual changes with Malta International Airport. One union has promised to ground the Air Malta fleet if the government runs roughshod with their restructuring. “The MIA and others have fleeced Air Malta and the government has decided to look the other way. They talk of over-staffing but they forget that they loaded with the company with so many employees,” another source in the airline said.

Union officials who spoke to MaltaToday say that management at the national airline frequently complain of the subsidies that low-cost airlines Ryanair and Easyjet get through the route support scheme – €4.5 million from the Malta Tourism Authority’s budget to subsidise airport and landing charges for airlines flying ‘under-served’ routes.

They also say MIA ‘penalises’ the airline because of the extra time incurred to handle club-class flyers embarking and disembarking from aircraft.

Even officials at the Malta Tourism Authority are privately worried about the situation at Air Malta. Low fares airlines, which the MTA supports, get airport charges heavily subsidised by tax money so that they can push down their fares.

“The restructuring plan shifts the onus of the airline’s overhaul on management and employees, but nothing is said of MIA and much of the business it generates directly through Air Malta,” one authority official said.

“Everything gets sub-contracted to third parties, and the impression is that Air Malta needs MIA when it is the airport that needs the national airline to generate its enormous profits,” the official said.

In 2009, MIA registered net profits of €8.84 million from a total income of €46 million, 20% of which is generation from non-aviation activities.

As revealed by MaltaToday, Air Malta has also been led by people with ‘shared’ loyalties such as Lawrence Zammit, a former chairman of MIA who was then made Air Malta chairman. During his tenure, Air Malta deputy chairman Joe Fenech Conti also sat on the supervisory board of SITA, a global provider of air transport IT solutions. In 2006 Air Malta outsourced its entire information and communication technology network to SITA.

“At Air Malta we do not even own a printer, everything is owned by SITA,” one manager told the newspaper in describing the way the ICT network works.

Even MIA board member Michael Bianchi, who owns the duty-free retail section through his business interest in MIA, saw off Boeing to win a crucial contract as Malta representative of Airbus Industrie to lease Air Malta its fleet of 12 Airbus.

The unions also complain about Air Malta chairman Sonny Portelli and finance minister Tonio Fenech’s low profile in the discussions. Instead it’s Fenech’s right-hand man Alan Caruana who handles the discussions.

Even Labour has angered unions by putting MEP Louis Grech – the former Air Malta chairman who negotiated the skeleton lease of the Airbus – as its representative on the Air Malta steering committee that will discuss the restructuring programme.

“We’re surprised at Labour’s choice. Grech finalised the lease contract with Bianchi for the 12 Airbus airliners and the costs have been enormous: too many planes with a capacity far too big for the routes. And under Grech, Air Malta lost the Dubai route to Emirates.”

But in comments to this newspaper, Grech defended his performance as executive chairman, calling the Airbus deal “the best possible deal at the time” and that staffing remained constant under his chairmanship.

“The government made it clear that the terms of reference of the committee should exclude any review of past performance of the company because this would have been time consuming and counterproductive,” Grech said.

“If the terms of reference were to include a review of Air Malta’s past performance and thereby creating a possible conflict of interest, I would have had no hesitation to refuse my nomination as a substitute member (with an observer status) as nominated by the PL.”

Grech however says it is the government that has a conflict of interest. “As shareholder it was involved and participated in most major decisions taken by Air Malta throughout its history. So, if one were to argue that my participation could constitute a possible conflict of interest, the same would apply – even more so – to the representatives of government on the Steering Committee.”

Air Malta staff complain however that maintenance costs for Airbus are too high and that the airline could use smaller aircraft.

They also say that Air Malta’s call centre, of which 50% is owned by a former Air Malta employee, is sub-contracted to a private company at a cost of some €1.2 million.

Adding insult to injury is the news that government has floated the idea of ‘renegotiating’ the call centre for a cost of €600,000 to Air Malta.

“What a sham… why haven’t they already taken up the cheaper deal? And what’s the big deal about an airline running its own call centre?” a manager said.

Unions also hint at a possible reappearance by former Air Malta chief executive Ernst Funk, who is now an aviation advisor for the law firm Fenech Farrugia Fiott Legal: one of whose partners is Christian Farrugia, the company secretary of several Bianchi Group firms.

Funk previously worked for Swissport ground handlers, one of the largest handlers in the world. But it is not known whether Swissport is interested in taking over ground handling at Air Malta.