KM`s Olympic Route

The Malta Independent  

  

Since Austin Gatt has taken responsibility for State investments under his ministerial portfolio he has been making matter of fact hard assessments on the pitiful state of the commercial companies where the State still has a controlling interest. The problems however remain largely unaddressed as Minister Gatt is perceived by those who hold vested interest in maintaining the status quo as a small island in a large of sea of public management irresponsibility. They probably believe that Minister Gatt cannot detach himself form the collective guilt of his cabinet for the present state, and will, as hitherto, eventually have to settle for an expensive fudge which will leave matters substantially unchanged.

This week however we have been talking serious numbers. Government is being constrained to recapitalise Air Malta (KM) to the tune of Lm30 million to make up for the Azzurra Air misadventure and to account for operational losses which KM has been incurring since 2000/2001. Minister Gatt speaks like a virgin just appearing on the scene free from the guilt of the bordello performed by his predecessors. This week he announced that government will undertake the recapitalisation of KM if the Unions and Management agree on a company pact involving substantial operational cost cuts through new and efficient work practices. We have been told that KM failed to undertake the structural measures that most airlines were constrained to adopt after the 9/11 blow to the airline industry and I would add that KM probably holds the record of being the only traditional airline that increased its workforce after 9/11.

On 25th February 2002, 5 months after 9/11, I had penned and published a contribution on the challenges facing KM of which here follows an extract:

”May I share with you this quote I found in Bloomberg Financial News on 18th February 2002 spelling the problems with Olympic, the Greek National Airline

Greece is renewing its attempt to sell Olympic after Sabena SA and Swissair stopped flying as losses worsened after passenger traffic dropped following Sept. 11 attacks on the US. The Greek government plans to eliminate jobs and implement other cost cutting measures to help attract a buyer.
The sole bidder, a venture between Greek millionaire Vardinayiannis and Olympic’s pilots association, that had offered to buy 51% of the airline after previous efforts to sell stake to British Airways and Axon Airlines collapsed, failed to finance its 102 million euro offer by the set deadline.
Greece has tried several times over the past decade to turnaround Olympic as it spent more than $2 billion to keep the airline afloat. Each time it backtracked because of union opposition to cuts in staff and employee benefits. EU regulations prohibit further subsidies.

To become profitable the airline must eliminate many of its unprofitable routes and discharge half its staff. A succession of Greek governments has contributed to Olympic’s losses by forcing it to hire workers to win votes and giving labour unions a veto over some management decisions

This is a warning signal of what Air Malta will have to go through unless management pulls its act together and is allowed to the do so by government in the national interest irrespective of the blushes that may be suffered by the party in government.
Air Malta is a monument to the successful re-structuring carried out by Labour’s two governments of the seventies. Over the years Air Malta achieved its dual purpose to become a pillar of growth for Malta’s tourist industry and also to be profitable in its own right.

All this until the nationalist dreamt of a new role for Air Malta, that of becoming a regional operator with Malta as a hub for the region. It was a pipe dream project which loaded Air Malta with a equipment configurations based on the RJ’s totally unsuitable for Air Malta’s plain vanilla mission to sustain tourism. It also forced Air Malta to make a massive investment in an Italian regional airline AZZURRA which has absorbed a lot of time, money and human resources but still have to discover what profitable operations are all about.

Add to this the political privileges which Air Malta has to dish out to please its political masters and inflexible union practices and you have a Maltese Olympic in the making.

Air Malta needs to re-discover its mission of becoming an integral and structural part of Malta’s tourist industry and must shed off and cut losses in ventures which made it wander and lose focus under the Nationalist administration.

And the tourist industry must re-invent itself to favour Air Malta’s development by re-positioning our product to attract short stay value added tourism. With short stay tourism we can get a much better spend per bed-night and given our bed-stock Air Malta could almost double its passenger kilometres simply by having 2 guests sleeping 3 days each in a hotel bed in a week rather than one guest staying the whole week.

Unless we act I can well see Air Malta going the Olympic route and there will be no medals to award, just pain and misery to share.”

Two years later we are exactly where I warned we would be. If this sounds like I told you so it is because it is just that.

Minister Gatt must not be left alone by the Cabinet. No Minister, no matter how capable or well-intentioned, can perform such restructuring, left unattended for far too many years, on his own. The Cabinet must first accept collective responsibility for the financial mess it has allowed KM to get itself into and then send a clear message that the restructuring being proposed as a quid pro quo for recapitalization of the company carries the unconditional approval of the whole cabinet, that there will be no more expensive fudges and that the only alternative to it would be far too drastic to contemplate.