The European Commission will forbid the government from pumping almost €300 million into Air Malta to save the airline, as months of painstaking negotiations begin to draw to a close, Times of Malta can confirm.

This means that the airline is likely to shut down to be replaced with a new one “right away”, potentially without disrupting the schedule.

Sources in Brussels said a final decision has not been taken yet and there is still one last round of meetings to be held in the next few weeks, but the Commission is set on refusing the government’s request for state aid injection and an official decision will be announced in a few weeks.

Contacted for a reaction, Finance Minister Clyde Caruana would not comment but confirmed that the government was involved in a long meeting with EU Commission representatives earlier this week. He reiterated that negotiations with the EU Commission are still ongoing and that he will only comment publicly after those discussions come to an end.

Government and EU officials began a final round of negotiations on Friday, with sources saying the Commission is still asking for more details on Air Malta’s operations, including the number of aircraft and employees on its books.

The major reason behind its refusal is that EU regulations bind companies that get state aid to become commercially feasible within 10 years and precludes governments from injecting further money in them before the 10 years elapse.

Air Malta received its last government injection in 2012

Air Malta received its last government injection in 2012 but it had run into financial difficulty by 2020, eight years later.

Furthermore, it has not been able to become commercially feasible.

Two years ago, Malta asked Brussels for permission to pump €290 million into the airline in a last-ditch attempt to save it. It had suggested a five-year state aid financing plan which it said would help turn the airline into a sustainable, profit-making enterprise.

The airline had been suffering losses which were made exponentially worse when the pandemic brought most air travel to a halt. Minister Caruana had said it was making losses of over €170,000 daily just to operate its aircraft.

Last year, he then announced plans to slash the airline’s workforce by half as part of a major restructuring plan to save it, saying the exercise “could very well be Air Malta’s last chance”.

Sources said those efforts, along with the hundreds of Air Malta staff who were transferred to other government entities or given early retirement schemes over the months, were not in vain but not enough to persuade the EU to approve the state aid. The only way out for the government would be to set up a new national airline to replace Air Malta. In that case, EU regulations would allow the government to pump state aid into the new company.

It is still not clear whether the entire workforce could be absorbed by the new company. Discussions are still underway on the liquidation of early retirement schemes as there is yet no agreement, sources said.

To the naked eye, the airline will likely appear to be the same but it will be a different company. But you can rest assured that Malta will have a national airline- Source

Air Malta would continue to operate its routes normally for the coming months and the change would not impact flights or schedules before a smooth transition takes place, according to sources. The government would even likely manage to retain the name Air Malta and possibly even its branding.

“To the naked eye, the airline will likely appear to be the same but it will be a different company,” one source said. “But you can rest assured that Malta will have a national airline.”

Italy employed a similar practice two years ago when it closed down its flag carrier Alitalia and opened a new national airline which it called ITA (Italia Trasporto Aereo) after reaching an agreement with the European Commission.

Alitalia, whose fragile financial condition worsened during the pandemic, was also struggling financially and Italy had failed to find an outside investor to take it over.

PN statement

In a statement, the Nationalist Party said the government should be honest, clear and transparent and put everyone’s mind at rest on Air Malta’s future.

Such news, it said, created uncertainty among many people including employees and their families, as well as all those who worked in the tourism industry and the airline’s clients.

The government’s unexplainable silence increased such uncertainty, it said.