Gatt outlines strategy for change in Air Malta

Public Investments Minister Austin Gatt yesterday outlined the government's strategy to return Air Malta to profitability and expressed confidence that that would happen in a short time if the airline and the trade unions worked together on the measures that had to be taken.

Winding up the debate in parliament on a motion to raise the airline's share capital, Dr Gatt stressed that Air Malta would not become a low cost airline. The airline was also leaning against forging alliances with other airlines, but would seek partnerships and code-sharing arrangements as appropriate.

He said the airline would seek to exploit all the opportunities available through Third Package rights to fly between EU airports. Indeed, it was already successfully operating services out of Manchester to several destinations.

Dr Gatt said there was no doubt that Air Malta was an important element in Malta's tourism industry, but the airline needed to rationalise its route network. Could it continue operating loss making routes for ever, as it had done, in some cases, for 10 years?

And should it continue to depend so much on tour operators, as was the case at present?

One saw what happened when (German tour operator) Frosch collapsed and how the tour operators off loaded unsold seats just two weeks before the flights.

The airline, he said, would seek to develop the market of individual traffic through aggressive marketing on the internet. This involved a different attitude to service and customer care but there was clearly a market which could be exploited.

Dr Gatt said Air Malta was aiming for vertical integration of Holiday Malta, a group of companies in various countries which it had set up with several other companies and served as Air Malta's tour operator. The airline would buy out the other companies so that Holiday Malta would be better integrated in the airline, reducing costs and bringing about greater efficiency.

Another strategy was for Air Malta to focus on its core business. The hotel business was not viewed as a core business, and, indeed, all three of the hotels owned by Air Malta were losing money.

A decision had also been taken for drastic management changes. There could no longer be 138 executives including 24 group heads, deficient reporting systems and a situation where people did not speak to each other.

In the revenue area, the airline needed to raise seat factor and average yield per passenger.

It also needed to make better use of its aircraft. Aircraft which were not needed, particularly in the shoulder months, should, if possible, be leased out.

Dr Gatt said that at a meeting with the airline and trade unions yesterday he had explained the situation at Air Malta and proposed a pact to bring about a turnaround. His feeling was that the outcome of the meeting was positive and there was a willingness for change to come about. He had assured the unions that the reforms would be from top to bottom and not for certain categories only. New group heads, for example, would have three-year performance related contracts.

He augured that there would not be an element of confrontation in the talks which were due to start in earnest on Tuesday and would hopefully end by Easter. If everyone worked together, even with small sacrifices until the airline returned to profitability, there would not be problems. There should be mutual confidence in this process, making it a transparent one.

Air Malta was essentially strong and profitable. It had done the country proud. That it was going through a rough patch was common to other airlines and the way it would recover would be different from other airlines in that it would not dismiss workers or reduce their salaries, but change work practices, introduce a moratorium on wage increases and control costs.

Earlier in his speech Dr Gatt paid tribute to all past chairmen of Air Malta. Albert Mizzi, who had headed the company for its first 20 years without accepting a penny in remuneration, deserved a monument for his service. Both Joseph N. Tabone and Louis Grech had taken a lot of good decisions, but that did not necessarily mean all their decisions had been good.

The leader of the opposition had spoken about the mistakes by the government's appointees at Air Malta, yet for most of the years of Air Malta's existence, the chairmen were appointed by Labour governments or there had been agreement over their appointments.

Dr Sant had spoken about somebody having received commissions but had mentioned no names, despite the parliamentary privilege he enjoyed. Should Dr Sant mention names, he would order an inquiry, Dr Gatt said.

Turning to the purchase of the RJ aircraft, Dr Gatt said there had been reasons for Air Malta to opt for the hubbing concept. At the time some had advocated the purchase of Fokker aircraft. Others preferred the Avro RJs and others preferred Boeing 737s. Everyone knew what had happened to Avro since then. Fokker had also closed down and the Boeing 737s would have been scrapped by now. He was not justifying the purchase of the Avros, but it was worth pointing out that Air Malta had recovered half of their purchase price through their lease to AzzurraAir, and it would recover more funds through their sale.

The Air Malta board under Louis Grech at the time of the Labour government had engaged Dr Godwin Muscat Azzopardi to investigate the purchase of the RJ aircraft. No report was ever found on this inquiry, and Dr Muscat Azzopardi said when contacted that while he had initially been asked to conduct the inquiry he was later told that the inquiry had been called off. Perhaps somebody would explain why the board had ordered an inquiry and then called it off. Did it want to protect somebody?

Why had nobody from the opposition spoken about AzzurraAir? Was it because flights started under the Labour government and no one in the two years of that government had decided to back out?

It was worth pointing out that AzzurraAir initially had a profitable agreement with Swissair but this was terminated and AzzurraAir started operating under the Alitalia banner, losing Lm22 million as a result. So could he conclude, using the opposition's yardstick, that the fact that no one had mentioned these facts amounted to protecting friends of friends? He would not like to think so.

Dr Gatt said he agreed with an Air Malta internal report in 2001 on the reasons for Air Malta's current financial situation and recommendations for its improvement. That report was prepared under the chairmanship of Louis Grech and presented to then minister Josef Bonnici. Dr Charles Mangion, deputy leader of the opposition, had said he agreed with it.

The document said the strategy for Air Malta's survival, with which the government also agreed, included making the best of Third Package rights, modernising the fleet and making better use of the financial resources. The report called for a rationalisation of routes, renegotiation of the price for services, a freeze on non-operational expenditure, employment only where absolutely necessary, a drastic cut and tight rein on overtime, greater discipline, a crackdown on malpractice, a moratorium on wage increases, flexible rosters and changes in work practices.

That was largely what the government intended to do, but the opposition would now be expected to keep to its word of being in favour of the document.

Dr Gatt remarked that the document Dr Mangion was in possession of was very confidential. There was no doubt that other confidential reports were also in various other hands. It was this kind of employees, who leaked such reports, that Air Malta should really beware of.

Highlighting some problems, Dr Gatt said shift workers at Air Malta worked 37.5 hours a week, 2.5 hours less than their day colleagues. If everyone worked 40 hours Air Malta would save Lm500,000 outright.

Rosters were drawn up according to workers' convenience and bore no relation to aircraft schedules.

Non-shift workers were getting Lm1 a day extra just for working 40 hours a week.

Just working 30 minutes of overtime meant payment for six hours overtime. All this made for a potential saving of Lm1.4 million annually.

The system of vehicle leasing had been changed, with a saving of Lm70,000 a year. An additional Lm100,000 had been saved in the leasing of office space.

Dr Gatt said the imbalances in Air Malta were shown by the fact that the airline had a ratio of one executive for every 18 employees.

The minister said that outstation managers had salaries which were double what the government paid a senior counsellor in an embassy. In certain instances some managers abroad were paid more than ambassadors.

In discussing the future, Dr Gatt said Air Malta could never become a low cost carrier because it was a scheduled airline with a mission towards tourism in Malta. Low cost carriers were based on low cost operations and employed very few people while scheduled airlines had so many costs and administrative overheads that even setting up subsidiary low cost airlines would fail.

However Air Malta could not ignore the fact that it would face competition from low cost carriers and had therefore introduced some low cost services itself.

The motion was unanimously approved.