Air Malta, beer and sauerkraut
Source: Malta Today, Published 25th July 2014
By George M. Mangion, PKF Malta
The illustrious leaders who have piloted Air Malta throughout its tempestuous business cycle of 37 years have all expressed their sincere wishes for the company to attain a speedy recovery.
Past leaders had shared a common destiny. Starting from Albert Mizzi who nursed the airline through its difficult first decades, and others such as Joe N. Tabone (mostly remembered for his brain-child ie …launching the “prop-engined Avro-airliners), to the current incumbent, they all owe their appointment to allegiance to the party in power.
It is true to say that the company has seen better days and throughout its existence managed to foster multiple job opportunities for specialised staff which otherwise would never have been created.
Today it is on its knees scraping though the intravenous intervention of a massive rescue operation. The sad truth is that during its chequered history it faced political pressure and interference by the government navigating in the cockpit. Over the years it was shamelessly used as a job centre for unemployed constituents, therefore it comes as no surprise that the company was top heavy with employees.
In the early nineties the government boasted a feel good factor, culminating in a money-no-problem mantra. It is no mirage that profits were pouring into Air Malta’s coffers. The unions took the cue and paraded their members through the streets clamouring for a larger share of the cake. There was a time when governments ceded to excessive union demands in order to buy industrial peace and thus riddled the company with escalating financial obligations.
Now that the company has reported heavy losses, some unsavoury news items are coming to the fore. The media has reported how pampered were the senior management, and privileges and perks were extended to political masters such as ministers, MPs as well as former parliamentarians, who are also privy to a number of subsidised tickets.
Some contend that the brunt of Air Malta’s woes is placed fairly and squarely on past directors who conceded, against better technical advice, to embark on an adventure to turn the island into a hub, aka the Avro Liners debacle.
The choice of the aircraft and the subsequent sale of the RJ70’s, as well as the creation and dissolution of the subsidiary airline Azzurrair, are reported to have cost the airline €150 million in losses. No heads rolled.
This adventure eroded past profits earned in the golden years. It is no secret that the chairman and his coterie of directors were accused by the GWU of losses when in 1992 the company invested with much aplomb in the British designed Avro RJ70’s.
The story is well known and fully documented by various technical reports commissioned by the board which gave the Avro Liners choice a second best. Such advice was not heeded. Now that the days of plenty have receded it is easy to criticise the airline for being everything to everyone. In short it is trying to pose as a legacy airline, a low cost airline, a national airline and a tour operator all at once.
Some may throw water over the fire, saying the board was not to blame when choosing the wrong aircraft since orders from the top made them invest. This ploy is alleged to arise from a political decision by former Prime Minister Eddie Fenech Adami when lobbying the British government for support for its EU accession bid in 1992.
With hindsight we know that if this was true the bouquet of flowers did not do the trick since Malta had to wait another 12 years to go through the pearly gates in Brussels. Another blow to the company’s viability was the introduction in 2007 of low cost carriers (LCCs).
Again this time consultants PriceWaterHouse Coopers were commissioned directly by the minister of finance to evaluate the impact on the national airline from such competition. In 2006, the confidential report painted a devastatingly negative scenario for the national airline should LCCs be allowed to start operating to Malta.
Naturally there was a strong lobby from various sectors that LCCs would more than double the number of tourist arrivals within a year of commencement. Hoteliers were complaining that the dwindling arrivals figures were threatening the future of massive investment. In the end the government yielded to pressure and opened the floodgates to low cost tourists who merrily filled our beaches and promenades.
Ever since that day we see how LCCs are continuously demanding to have more subsidised routes. For example we note that now Liverpool is a new route, and it is only 30 miles away from the Air Malta-operated Manchester. Similarly Trapani in Sicily is just a few miles from Palermo, another established Air Malta route; not to mention Luton, when Air Malta operates from Heathrow and Gatwick.
All these routes were a godsend for the LCCs but sounded the death knell for the Air Malta fleet of just 12 leased aircraft. Each of the 12 aircraft has to earn enough to feed 890 employees, in other words it must be the most expensive fleet in Europe.
All this did not help when fuel costs skyrocketed. Yet, when everything else is said and done, we note how Tourism Minister Edward Zammit Lewis was ebullient on the recent increase in arrivals.
The arrivals showed a healthy increase of about 12% yet nothing points out that the subsidies paid to LCCs yielded the spectacular results promised, although one has to be thankful for the improved traffic, particularly from airports not serviced by the national airline.
In seven years, the growing reality of LCCs has turned Air Malta’s concerns from costs to revenue, and observers point out that this is where the real problem lies. It is unnerving to contemplate that in a short period the LCCs’ market share rose to over 35%.
Still there is no free lunch and this boost in arrivals did not come without a cost and we notice how in budget one finds a hefty allocation of record proportions to market the island. Over €35 million is allocated to the Malta Tourism Authority, including a spectacular sum directly earmarked for LCCs.
Some can argue that Air Malta did benefit indirectly from this handsome allocation to MTA and should be thankful for the government to create a level playing field for airlines operating in Malta. Others contend that such competition from LCCs is not fair for a legacy airline which always supported the business and national community interest through rain or shine.
Travellers sympathetic to Air Malta say that it always honoured its social commitment by for example transporting patients overseas for treatment, while continuously sponsoring local sports associations. Under the previous administration more consultants arrived on the scene.
Three years ago we welcomed the arrival of international auditors Ernst & Young, sending two of their brightest to salvage the situation. PN apologists were calming the waters, saying E & Y face a monumental task to implement the urgent restructuring needed to save Air Malta from the fate of airlines much bigger than it, such as Belgium’s Sabena and Geneva’s Swiss Air… but perhaps the solution may lie elsewhere.
We cannot forget how the ailing and loss making Austrian Airlines (much loved by its patrons) was taken over by Deutsche Lufthansa AG in 2009. Similarly withstanding the loss of business due to the Icelandic ash cloud, the Lufthansa group had boldly announced the creation of 4,000 new jobs despite a programme of cost cutting.
At the time of the start of Air Malta’s restructuring it posted an operating profit of €159 million for the second quarter of 2010, more than tripling the figure for the second quarter in 2009. Its recovery in demand, particularly in cargo and intercontinental traffic, and the efforts to reduce costs in all areas of the group during the past months played decisive roles in recording the positive result.
Lufthansa got a boost last year from recovery in air travel as its group of airlines reported a 17.2% rise in traffic to 90.2 million people carried. Lufthansa, the German miracle, has mirrored the recent triumph in world football league and many agree this will augur well for the beer drinkers and sauerkraut lovers.
Here in Malta, who knows, perhaps the cosy relationship that currently exists between our government and the Chinese government – lately brandishing a fat cheque book ready for European investment – can lead to buying a share of the national airline and thus save the bird with the eight pointed tail.