Updated at 2.50pm, adds Air Malta statement

The national airline is expecting to register an operating loss in the financial year ending March 2019.

The airline’s board of directors is forecasting another loss-making year despite continued efforts to increase revenue and lower costs, according to the full financial statements for year ending March 2018 deposited last week with the registry of companies.

The airline recently declared a profit of nearly €1.2 million. This represents the operating profit before restructuring costs and non-recurring items. Tourism Minister Konrad Mizzi, whose portfolio includes Air Malta, touted this as a “success story” coming after nearly two decades of yearly losses. He did not give the financial statements to the press.

The figures just published, however, show that were it not for a nearly €34 million in revenue from the disposal of landing rights in 2018, the airline would have registered a loss of €17 million (after restructuring costs and non-recurring items). This would have been larger than the loss recorded in the previous year, which had reached nearly €14 million.

Citing the most recent data available to the company up until its AGM held last month, the airline said it “will most likely register operating losses from continuing operations during the 2019 financial year”.

According to the airline, the losses will be due to “start-up investment in new routes, operational disruptions emanating from industrial relations issues, market volatility in respect of fuel prices, developments in the outcome of the fleet renewal process and long outstanding technology upgrades”.

The one-time gain of €33.9 million in 2018 came from the selling of the so-called “summer slots” at Heathrow and Gatwick airports. The company will be using another €22.8 million gain from the sale of more landing rights – described as ‘winter slots’ – to boost its accounts in the next financial reporting period (March 2019).

Dr Mizzi did not reply to a specific question from The Sunday Times of Malta asking him to explain how Air Malta was now predicting further losses in 2019 when he had declared the airline had “turned the page” under his stewardship.

Revenue up, but question marks remain

The March 2018 accounts show a marked general improvement in revenue generated by the airline, particularly through the reversal of a previous policy under which Air Malta’s operations were shrunk during the first Labour administration. The airline has instead carried more passengers, flown more routes and re-opened others.

However, industry experts have pointed to a number of technical aspects from the latest set of accounts which they suspect were the result of “potentially creative accounting techniques”.

The company’s accounts, for example, show that it spent less on fuel and maintenance costs on its planes. But industry sources pointed out that these cost decreases included in the accounts raised eyebrows because “it is quite difficult to fly more and reduce your fuel costs”.

It is quite difficult to fly more and reduce your fuel costs

The accounts also show savings were made through favourable foreign exchange rates. However, although this is not normally considered an operational item, it was included as such in the accounts.

Also, despite having undergone a restructuring exercise that included shedding staff through voluntary early retirement schemes, the size of the payroll remained nearly the same as in the previous year.

One industry source remarked that since Air Malta’s fleet is now quite old, “logic dictates that costs on maintenance should be higher and not €6 million lower as indicated in the accounts.

“However, some foreign exchange and playing with the window when maintenance is carried out on planes to shift costs to another year could have played a part,” the source said.

Air Malta has been struggling for several years, particularly due to cut-throat competition from low-cost airlines which have changed the way airlines conduct their business globally. The government had injected a total of €130 million into the airline during a five-year restructuring programme between 2011 and 2016, yet more losses appear to be on the horizon.

Questions sent to Tourism Minster Konrad Mizzi on the financial results:

1. Can you explain how despite the significant impact of over €18m in restructuring costs, the payroll cost to Air Malta remained practically unchanged? How has the airline’s staff decreased only by a mere 12 members?

2. If the airline has effected more flights and opened new routes, how can you explain that it had a lower fuel bill?

3. Can you explain why the company has spent less on aircraft maintenance, particularly in the light of the age of the fleet?

4. You had indicated that the company was on track towards a profitable future. How come the financial statements indicate that Air Malta will once again register operational losses in the financial year ending March 2019? Doesn’t this indicate a misleading assessment from your end of the 2018 results?

5. Can you explain why directors’ fees have doubled from €53,000 to €113,000?

Reply from Minister Mizzi:

“As at March 2018, the restructuring process was in the initial stages and the staff turnover was expected to start in the subsequent financial year. As at March 2018 the company raised a valid expectation in employees in carrying a restructuring and recognised the non-recurring cost in the profit and loss during the reporting period.

The restructuring cost is a non-recurring event and will reap benefits in the subsequent years. The underlying business for the reporting period generated €1.2m profit.

With respect to fuel costs, for the corresponding year (FY ending 2017) the outcome of hedge contracts that were contracted in the previous year left a negative impact. For the reporting financial year, the company managed to successfully exploit the fuel market.

For the reporting year the company managed to leverage better contract terms with suppliers and exploited the forex market. It was thus able to save more on maintenance costs.

During this year, the company pursued a growth strategy to take advantage of economies of scale, add value of the airline’s brand and support the Maltese economy. We managed to carry over 2 million passengers over the previous period, an increase of over 300k passengers. The strategy included investment in new routes that the management is confident that will reap benefits in the forthcoming years. The company is expected to continue realising profits.”

Air Malta's reaction

In a statement on Sunday, Air Malta said the report ignored the external auditors report incorporated within the financial statements.

The external auditors' statement stated that  during the financial year ended March 31 2018, the group reported operating profits from continuing operation prior to restructuring costs and non-recurring items amounting to €1.2 million euros (2017; operating losses from continuing operations prior to re-structuring costs and non-recurring items amounting to €10.8 million).

The company expressed its appreciation at the professionalism, integrity and guidance of its external auditors and rejected in the most forceful manner the allegation that in its audited accounts it or its auditors made recourse to “potentially creative accounting techniques” or “clever book entries”.