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MT 8 May 2016

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Page 13 of 55

14 THERE is a certain inevitable sense of déjà vu when writing about Air Malta. On paper, the financial state of the national air- line has been the topic of intense discussion for at least 15 years. For most of that time, however, every news item on the subject seemed to always echo the news of the day before. Early last year, for instance, the airline's CEO, Maria Micallef, an- nounced that Air Malta would miss an EU-imposed deadline to reach break-even point by 2015. This year, a deadline which had already been extended by a year was missed again, and has now been put forward to March 2017. And all along, the same difficulties seem to have hampered the restruc- turing plan. Former CEO Peter Da- vis had complained of union resist- ance to certain pivotal reforms – in particular, concerning work prac- tices – while his successor Micallef would go on to declare that progress would not be possible at all, unless the business model was radically overhauled. Like many ministers before him, Edward Zammit Lewis – and the government he represents – must now somehow wrestle this un- manageable monster into shape. This week he announced what he describes as a 'milestone' break- through in the fortunes of Air Malta: a memorandum of understanding with Alitalia, whereby the Italian airline (now part of the satellite of airlines owned by Abu Dhabi based Etihad Airways) would acquire a 49% percent stake. This settles the age-old question of which 'strategic partner' the govern- ment would choose for Air Malta… but it also resuscitates fears of the thin end of the wedge: that this rep- resents the first step towards com- plete privatisation, which would rob Malta of a valuable strategic asset. "First of all, no, there is absolutely no intention to privatise the national airline," Zammit Lewis begins. "The government will remain the major- ity shareholder, controlling 51%. We have always argued that there are two basic principles at stake here: one, that the brand of 'Air Malta' has to be retained. This is impor- tant to us: Air Malta must remain Air Malta. Secondly, we have always made it clear that the Maltese gov- ernment must remain the majority shareholder. None of this changes with the MOU…" Before turning to the agreement itself – which, it must be said, does not actually seal the transaction… but only opens the possibility of a future acquisition by Alitalia – a small question about why it was deemed necessary to seek a strategic partner in the first place. At present, indications are that successive Mal- tese governments have struggled to meet the conditions imposed by the European Commission. As already pointed out, the airline's all-impor- tant break-even point has come to resemble the classic 'Free drinks to- morrow' sign in a pub. It just never materialises. How does Zammit Lewis account for the elusiveness of this deadline? Why has it always proved impossi- ble, to date, to actually turn the air- line around financially? "This administration found itself in a situation where the preced- ing government had a restructur- ing plan agreed with the European Commission. We have no problem with this: we are ready and willing to honour the agreement… and to be honest, I don't think we have any real choice in the matter anyway. We have made a lot of progress… we reached several targets, especially in 2015. That year was crucial. Mean- while, we send regular reports about our progress to the European Com- mission, as part of our obligations according to the restructuring plan. If I may say so myself, the European Commission is satisfied with our performance. They have informed us that they are pleased to see that the financial year ending March 2017 will be a break-even point…" But how can we be sure? The same thing has been said every year for the past three years at least… "Yes, these were not the original targets. We missed the 2016 dead- line, no doubt about that. But the Commission is still satisfied with our progress; it understands the difficulties. And the underlying principle always remains the same, regardless of deadlines: it is one of the basic principles of the EU, that a private enterprise must be able to withstand competition on its own. The bottom line for the EU is that the company must be able to stand on its own two feet. We did a lot of work in that direction: we cut down on a lot of overheads, we changed the commercial model of the airline, and how its operations function… and the results can already be seen. Air Malta is more conspicuous, more aggressive on the market… it is coming up with different offers, etc. Of course this is not enough. There is a lot more work to be done: I was among the first to state that the status quo, insofar as business model was concerned, is not tenable. It has to change; in my humble opinion, it should have been changed 15 years ago. It is not acceptable to continue working with the business model as it is, when you have other inter- national airlines streamlining their operations, reducing overheads…" But those are in the main private airlines. The difference here – as Zammit Lewis himself confirmed earlier – is that Air Malta is not pri- vate: government retains a majority shareholding, and the airline itself also provides a national service that commercial airlines would certainly consider extravagant… "What I mean is that Air Malta is a private company in the sense that it is operated along private sector lines. Let me give another example: Malta Air Traffic Services also falls under my ministerial portfolio. It is a com- pany in which the government is the absolute shareholder. But I don't re- gard it as a government department: I regard it as a company which must make a profit. And today, Malta Air Traffic Services doesn't receive any funding from the finance ministry… on the contrary, it pays a dividend to the national exchequer. This is the direction we need to move in for Air Malta, too…" Isn't it also the case, however, that the EU-imposed conditions run di- rectly counter to the national inter- est? In the past there was discussion concerning whether Malta qualifies for an exemption from EU directives on account of its unique attributes. Has this been abandoned? "The fact is we are an EU member State, and that is how the EU wants its airlines to be. Without excep- tion, and whether we like it or not. It is true there is disagreement about this: we could argue until late at night that Malta is an island state; that 98% of our traffic is air traffic, and therefore we qualify for some kind of special exemption. But this exemption simply doesn't exist. We have to accept this, and abide by the rules as they are…" Fair enough, but this doesn't an- swer the question about Air Malta's national strategic value. Time and again we have seen Air Malta pro- vide emergency services that other commercial airlines would not in- clude in their list of priorities – the recent evacuations from Libya are a case in point. How much of this role can we expect to be diminished by the restructuring process? "Let me be clear: I am proud of that role that you mention. But the status quo isn't a solution, either. We have to find a way so that Air Malta can provide the same service while also operating along commercial lines. If, for instance, the government wants Air Malta to continue playing a so- cial role, it must be ready to pay for the services. There is no other way: if we don't go in that direction, we will not have an airline any longer. I don't think I can be clearer than that…" Air Malta's actual situation, he continues, is more complex than the sum total of its business models and work practices. The aviation indus- try the world over is going through an intensely difficult moment, and smaller airlines are more vulnerable. "Even airlines which we might re- gard as 'iconic' – British Airways, Lufthansa, etc. – are going through restructuring processes. Just imag- ine, then, an airline which has only seven aircraft on lease hold in win- ter, and nine aircraft in summer. On lease hold, I repeat, to stress that they are not even ours. Let us be realistic about what we have, but let us also be adventurous… let us give Air Malta a roadmap, a sense of di- rection. The direction we are giving it is twofold: one, it has to operate completely as a private commercial enterprise; two, it has to be part of a bigger group. A group that would give air Malta relevance in Europe and the world. That's the only way we can guarantee growth… and also new career opportunities, not just for Air Malta's existing staff, but also youths who are interested in avia- tion." This all sounds very promising, but what we haven't really discussed is the nature of the restructuring pro- cess itself. By his own admission, Zammit Lewis is bound by condi- tions pre-negotiated by another gov- ernment. So while he would clearly very much like to go in the direction he outlines… it is by no means cer- tain that his efforts will be any more successful that the Nationalists be- fore him… especially considering that he is operating within the same rules and parameters. What is he doing that is any differ- ent from what has been done before? "Let me put it to you bluntly: to use football terminology, I am not ready to do what preceding administra- tions have always done, and just boot the ball into the distance in the hope that it never comes back. I wouldn't do it in principle, but also because Interview By Raphael Vassallo maltatoday, SUNDAY, 8 MAY 2016 To use football terminology, I am not ready to do what preceding administrations have always done, and just boot the ball into the distance in the hope that it never comes back There is no other way: if we don't go in that direction, we will not have an airline any longer. I don't think I can be clearer than that… ACTION RESTRUCTURING Time for 'tough decisions'

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