MIA gives its version

Malta International Airport said yesterday it felt it owed the general public some clarification in order to avoid them being misled by articles appearing in the media.

The Times yesterday reported that Government Investments Minister Austin Gatt had told MIA's board of directors that the government would review an agreement to rotate the company's chairman between the two major shareholders "if it considers that ethical principles no longer motivate the management of MIA".

Dr Gatt's strongly-worded letter was the government's reaction to the controversy over the award of a concession at MIA to Franks Travel Retail Limited and the exclusion of the current occupant, Salvo Grima Group of Companies.

Sources close to the government had said Leaders Ltd, a Salvo Grima subsidiary which has operated Skincare & Cosmetics at the airport since it opened in 1992, had submitted a much better offer but FTR's lower offer had been accepted instead.

The MIA yesterday recorded what it termed as the course of events and salient facts pertaining to the matter:

The incumbent service provider is Leaders Ltd and the relative service provider agreement was meant to expire on March 31, 2003. This agreement was extended to June 30, 2003.

On October 28, 2002, MIA wrote to Leaders requesting the latter to make a presentation on November 19, 2002. The presentation took place as scheduled but no mention was made as to whether the contract was to proceed with Leaders.

As the contract for most of the concessionaires was reaching an end, the MIA board of directors resolved that the management was to negotiate with the incumbent concessionaires in the best interest of the company according to an approved time schedule.

On December 23, 2002, MIA wrote to Leaders saying that MIA intended to continue negotiating.

On January 7, 2003, MIA received an unsolicited, albeit detailed, proposal from Franks Travel Retail Ltd. Nonetheless, on January 23, 2003, MIA met Leaders to discuss the grant of the contract to Leaders. On January 28, 2003, Leaders made a proposal.

On March 7, 2003, a meeting was held between MIA and Leaders whereupon Leaders were informed of the interest shown by other parties.

On March 10, 2003 MIA's chief executive officer received a letter/fax from Leaders expressing appreciation for the professional manner in which he handled the matter and requesting a further meeting.

On March 25, 2003 MIA proposed a further three-month extension to the agreement which was due to expire on March 31 in view of the fact that negotiations were still underway.

Legal advice was sought by MIA on May 6, 2003 and legal counsel advised that, given that the agreement gave no right of first refusal to Leaders, there was no obligation on MIA's part to renegotiate another contract with Leaders.

Nevertheless, in the circumstances, it was advised that the granting of an opportunity to Leaders to submit a revised proposal, even if MIA was not legally bound to do so, would be in order. MIA received this proposal on May 19, 2003.

On May 23, 2003, after having carefully considered all the proposals at hand, it was decided that the proposal submitted by Franks was the most favourable offer. On this basis, it was decided to award the service provider agreement to Franks and terminate with Leaders.

"In view of these facts, it is evident that if MIA did err, it erred in favour of Leaders and nobody else. As a matter of fact, it was Leaders that was given the opportunity to submit a revised proposal. However, even the fresh proposal was not good enough and still not as good as Franks," MIA said.

It said it is clear that though MIA was convinced it was legally and commercially correct in its actions, it did not refrain from seeking a rapprochement with respect to Leaders.

This decision is supported by professional advice sought by MIA and is based on the principle that on a discounted cash-flow basis, the offer by Franks is the better one since a proper evaluation does not depend only on a matter of guaranteed minimum or percentages of sales but, more importantly, on the substance of the business plans submitted, MIA said.

Increasing the minimum guarantee does not constitute the bottom line of a successful offer but is merely one of several criteria used when assessing an offer, it added.

To further ensure that its decision was also financially sound, MIA said it engaged two certified public accountants to analyse the proposals submitted. On the most crucial aspect of the two offers, both accountants confirmed that the revenue streams to MIA throughout the full duration of the five-year contract were higher in Franks' offer than in that by Leaders.

The test was also carried out on a discounted cash flow basis, and again, even if the two accountants used different discount rates, both resulted that Franks' offer was better by Lm6,000 and Lm30,000 respectively, MIA insisted.

Moreover, in evaluating the two proposals, the company said it looked at the business plan attached to each offer and gave a significant weighting to the approach both companies took towards business for the next five years particularly when the sale of tax-free goods to EU countries ends in May 2004.

"Needless to say, these considerations do not have strict monetary values attached to them but they are certainly of considerable importance to the company.

"Leaders seemed to have rested on its laurels to be awarded another five years as MIA's service provider. In retrospect, this is seen to have been bad business acumen but MIA bears no fault in this and Leaders alone should be made to bear the brunt," the company that runs the airport said.

MIA said its directors entrusted the CEO to direct management to negotiate in the best interest of the company. There is nothing to suggest that this discretion was not exercised, was exercised in any improper manner, or for wrong or irrelevant reasons, it said.

"On the contrary, it is evident that this discretion was exercised correctly after having given all due consideration to all relevant circumstances of the case."

With regard to the accusation that MIA has acted in preference or nepotism towards the Bianchi family who hold minimum shares in the Malta Mediterranean Link Consortium Ltd, another MIA minority shareholder, because of the relationship with members of the Apap Bologna family who are partners in Franks Travel Retail Ltd, MIA said that "it is naive to insinuate that family relationships should be an obstruction to do business, as it is an acknowledged fact that in Malta such relationships are common and unavoidable".

What is important is that such relationships are not abused, MIA commented.

"All notwithstanding, it is most significant that despite all the issues addressed in what has transpired as a mud-slinging exercise, the issue on which Leaders has taken MIA to court relates solely to whether the outlet operated by Leaders was let on a concession or lease agreement.

"This, however, is at present sub judice and precludes further comment. MIA has no problem to submitting these facts in court but the fact remains that the lease with Leaders has now run out.

"Indeed, MIA has proved itself with its shareholders, as shown in its recent general meeting despite the aura of international crises which prevails; the worst ever that have hit the aviation world.

"All notwithstanding, MIA has produced positive results even beyond expectations, and there is no reason why it should lose any trust at this juncture," MIA said.