Air Malta’s rescue plan enters its most delicate phase as Brussels raises concerns on the aid the government plans to give to the beleaguered airline.
The forecasts on long-term viability may not be realistic enough
Following months of discussions with the Maltese authorities, the European Commission yesterday decided to launch what is known as an investigation into the draft restructuring plan submitted by the government in May. The aim of the exercise is to determine whether the €130 million aid package slated for Air Malta is in line with EU competition rules.
This is the last phase of a lengthy process that started in November 2010 when the Commission granted the government temporary permission to lend the national air carrier €52 million as rescue aid.
This last phase includes the publication of the plans in the EU’s official journal and a one-month time window in which interested parties, including airlines, can post their objections.
It will only be at the end of this process and the hearing of new submissions by the Maltese government that the Commission will make its final decision on this case, sometime in May.
Announcing the investigation yesterday, the Commission highlighted a number of issues that still seem to worry EU officials with regard to the effectiveness of the submitted plan.
These include doubts on whether the plan complies with the requirements of the EU’s state aid rules on airline restructuring, the 2004 EU Rescue and Restructuring Guidelines.
“In particular, the Commission is concerned that the forecasts on long-term viability may not be realistic enough and that the proposed capacity reduction may not be appropriate to compensate for the distortions of competition created by the state support,” the Commission said.
“The Commission also has doubts whether Air Malta’s own contribution to the restructuring cost is sufficient and more information is needed to determine whether Air Malta is eligible for restructuring aid in view of a capital injection carried out by Malta in 2004.”
Sources close to the Commission said the EU Executive had already argued with the Maltese authorities that a land transfer made in 2004 between the government and Air Malta to shore up the company’s capital might preclude the airline from having a “second-go” at state aid. Malta maintains that this transaction was made prior to EU accession.
Should the Commission decide against allowing state-aid, Air Malta would either have to fold or be sold and privatised.
The government – the sole shareholder of Air Malta – welcomed the Commis-sion’s decision.
Finance Minister Tonio Fenech, who is politically responsible for the airline, said that “the government is pleased that this important stage has been reached as it means that the approval process of Air Malta’s restructuring plan by the Commission is on schedule”.
The airline has been losing money for the past few years, particularly due to overdue restructuring, mismanagement, high fuel costs and stiffer competition.
In November 2010, after registering some €30 million in losses, the airline turned to the government for help. After obtaining temporary permission from Brussels, the government lent Air Malta €52 million to save it from bankruptcy.
The five-year restructuring plan, if approved, would, hopefully, return the national airline to the black by 2016. It involves a bold cost-cutting exercise, including the shedding of about 500 workers, and a multi-million euro injection in the company’s share capital in state aid.
The restructuring programme is expected to cost the taxpayer about €200 million.
The process
The process launched by the European Commission yesterday involves the following steps.
• A summary of the agreed restructuring plan is drawn up, translated into the 22 EU languages and published in the EU official journal.
• Through publication, the Commission issues a call for interested parties (anyone can act as an “interested party” if they can prove any interest in the case, like other member states, competitors, employers associations, etc.) to submit their comments on the plan within one month.
• Once these views are received and studied by the Commission, the EU Executive and the interested parties have to agree on which parts of the confidential and sensitive information contained in their submissions can be forwarded to the Maltese authorities for their views.
• Any views received will, if necessary, be translated and sent to the Maltese authorities for their views. Meanwhile Malta will have a month to react to the comments submitted by other parties.
• The Commission will then take all the views into consideration and make up its mind on whether to approve the plan or not.