Etihad’s takeover of Air Malta – a leap in the dark or salvation?

The recent announcement that Etihad Airways has wrapped up a deal to secure a 49.9% stake in Malta’s national air carrier has posed more questions than answers. First of all, we know practically next to nothing on the deal which has been kept under wraps as negotiations went along. A terse announcement in a local newspaper indicated that the deal was done but as yet there has been no official communication from government or the Tourism Minister who contents himself in issuing vaguely veiled soundbites whilst inaugurating refurbishments at five star hotels.

It would be pertinent to examine previous deals in which Etihad was involved and where they have managed to turn the business around with spectacular results.  Recently, Luca de Montezemolo Alitalia’s new chairman announced that he aims to make the airline profitable in 2017 following its takeover by Emirates-based Etihad Airways. Alitalia’s new strategy envisions new routes from Rome to Dusseldorf, San Francisco, Beijing, Santiago, Chile, among other cities, and extra flights to New York, Chicago, Rio de Janeiro and Abu Dhabi, Etihad’s hub.

Strategy focuses on three Italian hubs: Milan’s Malpensa airport for increased long-haul flights; Milan’s Linate for more connections to partner companies’ hubs, and Rome’s Leonardo da Vinci airport for a wider offer of long-haul destinations and short and-medium-haul flights. Malpensa will also get extra flights to Abu Dhabi, Shanghai and Tokyo.

Air Malta has a vast and extensive network that covers several countries and most major cities are well served. With the recent increase in seat capacity and load factors, the airline has seen its customer base expand greatly over the years. The recent financial statements for the year ended 31st March 2015 have indicated that Air Malta is undergoing a restructuring process with the financial results showing a deterioration of losses for the group that amount to EUR 23.9 million, an increase of well over EUR 11 million from 2014. It remains to be seen whether Etihad Airways will inject capital into the enterprise or will start restructuring by trimming the staff level count.

Malta’s national airline agreed on a restructuring plan with the EU when it was making a loss of €78 million, which demonstrates how far the company has come in a few short years since 2012.

In her address to shareholder, Air Malta Chairperson Maria Micallef said the company had a diligent and professional workforce which now needed to increase its productivity by 25 per cent in some areas for the airline to compete with other airlines at par and not be left behind. She also underlined the need to find a strategic partner.

“No matter how much we address our costs, we shall never be able to negotiate with the same clout of airlines that have fleets of hundreds of aircraft. We will not be able to negotiate the same costs for fuel, for maintenance, for IT systems and for everything else. And, in an industry driven first and foremost by cost and pricing, this means we shall never be able to compete effectively,” she said. Therefore, Air Malta would definitely gain advantages from a potential strategic alliance to beat the challenges brought by the lack of economies of scale the airline has at the moment.”

Ms Micallef emphasised that during the last six months of the Restructuring Plan all stakeholders must show how much they care about the airline.

When quizzed about the possibility of job losses at Air Malta, the Tourism Minister Edward Zammit Lewis was coy about what the future held. Quizzed by the press in February, he said it is premature to comment on whether there will be any job cuts for workers employed with Malta’s national airline, both because of discussions to find a strategic partner, as well as the changes being made within Air Malta.

Last July, however, the minister said that there were no plans to downsize the number of staff at the airline. In a statement last January, the minister spoke of meetings with Air Malta staff, held to discuss the way in which “positive change in direction for the airline” will happen.

“The message being delivered by the government is that it believes in Air Malta’s potential to strengthen as an airline and offer more opportunities to the country,” the statement read.