Issue link: https://maltatoday.uberflip.com/i/621909
maltatoday, SUNDAY, 3 JANUARY 2016 4 News Etihad sales agent 'takes' Alitalia, as Air Malta comes closer to equity sale NEWS of the appointment of a new general sales agent in Malta for Alitalia – now a sub- sidiary of UAE airline Etihad – has fuelled speculation of an imminent deal for a take- over of a substantial part of Air Malta. World Aviation Group (WAG), which started in 1989 as a joint venture between Air Malta and Cassar Aviation Services, an- nounced in December that it was extending its GSA representation of the Etihad Equity Partners Group, which also includes Air Berlin, Niki, and Air Serbia, and now Alita- lia since a 49% equity acquisition by Etihad back in 2014. WAG's portfolio includes Aviation On- line, which represents airlines in new mar- kets, BPO Services, which provides back- office support for the airline industry, and Centrecom for customer care services. An announcement that the Abu Dhabi airline, through Alitalia, will be taking over equity in the ailing Air Malta could be ex- pected within the first quarter of 2016, when the airline announces its results for its year-end in March. Negotiations were being conducted by airline chairman Maria Micallef and senior officials from the Office of the Prime Min- ister. Under EU rules, Etihad can only acquire up to 49.9 per cent of Air Malta's sharehold- ing if the Maltese airline is to continue op- erating under a European licence. Air Malta is in the final year of a five-year restructuring plan that the previous govern- ment had agreed with the European Com- mission in 2012 in return for its approval of around €130 million in state aid. Audited figures announced during the October meeting show that the airline post- ed a loss of €16.4 million for the year ending March 2015 and is set to reduce its losses to €4 million by 2016. Over the past five years, the carrier was forced to trim its staff, reduce its number of operating planes, and cut capacity. The plan should have seen the company return to profitability in 2015 but it has fallen way short of its restructuring targets. Apart from code sharing, a partnership agreement could see Air Malta gain from flying to Etihad's Abu Dhabi hub, where the company can then transfer passengers to and from a range of destinations to which it has not previously had convenient access. Etihad is not new to such agreements as last year it saved Alitalia from bankruptcy, reinforcing the Gulf airline's reputation as a "rescue investor" for troubled airlines. In December 2014, it bought 49% of loss-mak- ing Alitalia in a €1.76 billion rescue plan, but demanded cuts for 2,250 jobs. High collateral means banks slow to write off non-performing loans MATTHEW VELLA A revitalised property market has led to a decrease in the ratio of non-performing loans (NPL), after the global recession of 2008 and 2009 started a trend of construction loans being called in by banks. While banks are being ex- tremely cautious in lending policies under new rules to im- prove asset quality, during the first half of 2015 the NPL ratio for core domestic banks fell by €23.9 million (2.7%) – effective- ly reversing the upward trend seen after the start of the global financial crisis. "This resulted from a recovery in sectors which have, over the past years, posed a higher level of credit risk compared with other industries. In particular, this concerned the construction and real estate sector, in which credit worthiness seems to have improved on the back of a recov- ery in the property market. This is supported by property prices, which have recovered from their pre-crisis levels without having had an adverse impact on housing affordability," the Central Bank's interim financial stability report announced. However, while corporate NPLs fell by €50 million (7%), this drop was offset by higher domestic NPLs on mortgages and consumer credit, up by €16.1 million (11%), and finan- cial and insurance sector NPLs (€6.5 million) and non-resi- dent NPLs (€3.1 million, up by 11.6%). The positive signs came from the accommodation and food service sectors, as well as the construction and real estate sectors, which improved corpo- rate NPL ratios with respective drops of 4.1 and 2.2 percentage points. This was especially important for property, which was one of the main contributors in the rise of non-performing loans since 2008. But reporting higher NPLs were manufacturing, the whole- sale and retail sector and fi- nancial and insurance activities (mainly holding companies), whose ratios went up by 1.8, 0.8 and 1.1 percentage points, re- spectively. The Central Bank noted that collateral is an important credit risk-mitigating factor for core domestic banks, because it cov- ers 64.5% of NPLs. "Should this be considered, the full coverage of NPLs would reach 112.3%. The presence of collateral is, indeed, one of the factors which make banks reluc- tant to write off NPLs. In fact, considering that most NPLs are legacy loans, which have been non-performing for over a year, the value of write-offs is rather limited, amounting to just 1.2% of NPLs as at June 2015." A survey conducted by the Central Bank among the larger core domestic banks showed that banks generally seek to de- crease their NPLs through out- of-court settlements prior to initiating legal proceedings. And core domestic banks en- gage in prudent lending practic- es, as indicated by the relatively conservative loan-to-value ratios which are estimated at 76.9% for residential loans and 62% for commercial property- backed loans. Despite improved profits, there has been slow credit growth for businesses amid record low in- terest rates. With banks enjoy- ing high liquidity from custom- er deposits, which finance 80% of their assets, they do not seem to be aggressively searching for opportunities that would give higher yields but also raise their risk profile. Etihad equity group: Air Berlin, Air Seychelles, Virgin Atlantic, Aer Lingus, Jet Airways, Air Serbia and Eithad