Issue link: https://maltatoday.uberflip.com/i/1312945
8 OPINION 26.11.2020 T he announcement of a change in minister of tourism last week brought a sigh of relief from the sector given that the Clay- ton Bartolo can bring a fresh outlook to the insurmountable problem of the tourism sector. Another important change in the recent cabinet reshuffle was the transfer of responsi- bility for Air Malta from the economics ministry to the minister of finance. The im- portance of the tourism in- dustry to Malta's economy is a well-known fact and the large multiplier effect across the entire economy will prob- ably be better understood in these trying times when the tourism sector is almost at a complete standstill. It is widely accepted that Air Malta has played a crucial role to the social and economic development of its home state since its inception so this ar- ticle will briefly comment on the drastic changes that hit tourism in general and the airline industry in particular. The new tourism minister will face a tough task un- ravelling the dire situation which he inherited upon ap- pointment. One wonders why things have gone sour with the pilots' association such that government had threatened to fire all pilots who resisted drastic job cuts. We shall dis- cuss this later. The commer- cial atmosphere hitting the industry can be summarized by the prediction of the Inter- national Air Transportation Association (IATA) which ex- pects traffic to go down by 66 per cent for 2020 as a whole. It believes the traffic won't return to its 2019 level before 2024 – an estimation based on the expectation of a vac- cine becoming available in mid-2021. Other large lega- cy airlines have hit the dust and had to sack large number of workers while registering massive losses. For example, the Dutch government was forced to grant a multi-billion euro bailout for struggling air- line KLM after pilots agreed a five-year pay cut deal. At first, the unions would not play ball and risked suspension of state aid but sense prevailed and the government said it was now ready to sign off on the €3.4 billion state aid injection. KLM chief Elbers admitted that the coronavirus pandem- ic meant the airline was "ask- ing a lot from all colleagues". KLM is not an isolated ex- ample since Air France-KLM posted a net loss of €1.7 bil- lion for the third quarter, compared with a €363 million profit over the same peri- odlast year while Lufthansa posted a third quarter net loss of €2.0 billion. Lufthansa's board says it aims to find agreements to "limit the number of redundancies re- quired" initially 30,000 down to 28,000 using short-time working and pay cuts. Europe had a fair share of notable airline collapses. UK has seen Monarch, Thom- as Cook and recently Flybe, all significant names in their own segments. Air Berlin and Germania have disappeared in Germany, and France saw Aigle Azur and XL Airways meeting the same fate. This background gives a pointer of how negotiations with unions by the government to cut Air Malta's payroll had ended in disaster. Undoubtedly, one can never understate the importance of Air Malta as a national airline to buttress tourism and Hon Bartolo will need nerves of steel to calm down existing staff discontent after most of them were reduced to work on €1200 a month. As a quick guide, Airmalta lost about €30 million in ticket refunds, while another €100 million will be direct losses from ex- tra COVID-19 costs. This is a massive burden to an air- line using only three of its ten leased aircraft. Malta's cash crisis goes be- yond the advent of COV- ID-19. In these trying times all airlines are in the same boat but with the difference that Air Malta does not sit on billions in cash as do some of its competitors. Many argued that if the cost reductions needed cannot be agreed to, it is laudable for the man- agement and government to downsize the airline to what- ever size necessary and the economy minister took the unprecedented step to make 108 pilots from its staff of 134 redundant, after the Airline Pilots Association (ALPA) re- fused to take a radical pay cut of €1,200 a month. ALPA demands a level play- ing field - management sala- ries must also be cut propor- tionately to ensure fairness across the board and insists that management should lead by example. In anoth- er stance, ALPA argued that an early retirement scheme would be a high cost amount- ing to an average payout of €700,000 for every pilot. Pi- lots were refusing to accede to the pay cuts, claiming their salaries had already been cut by 30% due to reduced flying hours affecting their perfor- mance-based pay. Pilots' average gross sal- aries are €140,000 for cap- tains, and €80,000 for first officers. In practice, one finds that the real salaries paid are lower as per the collective agreement. In fact, new- ly appointed junior first of- ficers are paid €24,000 while first officers start at €34,000 and captains' take-home pay starts at €66,000 and can reach €109,000. These scales exclude performance-based payments for hours spent fly- ing, layover allowances, and denied days of duty. As can be expected the government stood its ground, saying the union's demands were unrea- sonable given the effects of the COVID-19 pandemic on air travel. The plot thickens when one reads between the lines. Back in 2016, pilots were given a signed guarantee by the La- bour government that they would be kept on the state payroll with the same take- home pay, in the absence of a voluntary retirement scheme to 'right-size' the airline. Locked in this contractual cul-de-sac, the government acceded to re-employ 69 pi- lots in a public sector job at the equivalent take-home pay of 2018. Many in the com- mercial circles called this madness. At a time when the country is facing a €1,220 million an- nual deficit, it is easy to con- clude that taxpayers' money is being used to honour a prom- ise made by a rogue minis- ter to pilots – in the form of a side letter to a collective agreement – to provide pilots with belt and braces protec- tion against career uncertain- ty. One notices that other ma- jor tourism operators were hit. To start with, Malta In- ternational Airport (MIA) faced a temporary ban of all inbound commercial flights to and from Malta as from March 21, 2020. It suffered a 64.5% decline in passenger movements at the commencement of the March lockdown. Earlier this year, MIA had unveiled a €100 mil- lion investment in a major terminal expansion project which was then suspended in April in view of COVID-19. Nostalgically, we recall how in 2009, Air Malta was given state aid amounting to over €220 million with the ap- proval of Brussels. Again, this year Government has filed a formal state aid application with the European Commis- sion in order to provide Air Malta with a second tranche. The chances are this will be approved within a reasonable amount. In conclusion, one augurs that the drive and stamina of the new tourism minister will succeed to turn around the fate of the tourism sec- tor once the availability of a COVID vaccine will be fully tested and approved. Tourism - a challenge for Clayton Bartolo George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island Clayton Bartolo