Negotiations over Air Malta restructuring

The Maltese government has started a process which should lead to the restructuring of Air Malta, the national airline. This state-owned enterprise, which is of great strategic importance for the Maltese economy, has been making considerable financial losses in recent years. Negotiations between the government and the four trade unions representing Air Malta’s employees have been taking place during early 2004, covering matters such as pay and conditions and employment guarantees, and progress appeared to have been made in April.

The government is currently carrying out a comprehensive review of the structure and operations of several state-owned companies. Major restructuring exercises have already been carried out at Malta Drydocks and Shipbuilding (MT0312102N) and the Public Broadcasting Services (PBS) (MT0405101N). The focus has now turned to one of the country's most strategically important enterprises, Air Malta.

Air Malta

Air Malta, Malta’s national airline, was set up and registered as a limited-liability company by the government in 1973. Its first air service license was granted subject to the condition that the substantial ownership and effective control of the airline would, at all times, be held and exercised by the government of Malta or by Maltese citizens or companies. The primary aim of Air Malta is to establish, maintain, develop and operate air transport services to and from Malta which, by the carriage of passengers, freight and mail, serve the national interest. Air Malta carries out these services under the regulation of the Maltese Department of Civil Aviation.

Air Malta currently serves around 45 destinations in Europe, North Africa and the Middle East. It has a fleet of 13 aircraft consisting of four Airbus A320, three Airbus A319 and six Boeing 737-300. In the financial period April 2001-July 2002, Air Malta carried 2.3 million passengers on its combined scheduled and charter services. By 2008, the average age of the fleet of aircraft will go down to 2.7 years.

In the early 1990s, Air Malta set up CargoSystems to provide services ranging from third-party handling to warehousing, marketing, on-board courier services and, eventually, a dedicated scheduled freighter operation.

Throughout the years, Air Malta has sought to diversify its activities with a view to varying its operations. It currently incorporates a number of subsidiaries. The first step in diversification was the setting up of a fully-owned tour-operating subsidiary in the UK, followed by increasingly deep involvement in the accommodation side of tourism, with hotels, a tourist village and self-catering complexes acquired or constructed. Other subsidiaries include a ground handler for foreign-based tour wholesalers, a tour operator, and a company which provides duty-free goods on the ground and in flight. The airline also has a stake in a state corporation insurance business. In 1995, Air Malta set up its own 'captive' insurance company primarily to insure its peripheral aviation insurance policies. At the same time the company also set up another insurance company to cater for Air Malta’s insurance requirements and which specialises in aviation insurance. The combination of the two insurance companies proved to be an effective risk management tool for the company.

In 2002 Air Malta and Lufthansa Technik AG set-up a new joint venture whereby Lufthansa Technik Malta started performing maintenance work on planes owned by Lufthansa German Airlines, Air Malta and third parties.

Air Malta has another subsidiary called Malta Air Charter which operates a daily schedule of helicopter airlink and sightseeing flights over Malta and Gozo (the smaller neighbouring island). It also carries passengers between Malta International airport and Xewkija Heliport in Gozo.

Finally, Air Malta holds 49% of the equity in Azzurra Air, a limited-liability company registered in Italy which operates to several European destinations and a number of domestic routes from Milan. Azzurra Air employs a staff complement of around 420 people.

Air Malta’s problems and the government’s proposals

With over 95% of the total shares, the Maltese government is the major shareholder in Air Malta. One of the first signs of its discontent with the state of Air Malta was when the latter's chair was not reappointed in June 2003. A subsequent examination of Air Malta's financial and operational position by the airline's external independent auditors revealed several alarming facts, the most worrying of which was that it was losing money from its core operations and had lost almost MTL 17 million between 2000 and 2003.

The Maltese government announced three important decisions with the aim of rescuing the ailing Air Malta. First, it decided to sell Air Malta’s subsidiaries, starting with Azzurra Air. The profits will be reinvested in the company. It is estimated that this will amount to an investment of around MTL 15 million. Second, the government will increase Air Malta’s capital by MTL 30 million in order to safeguard the jobs of the 1,950 employees and its major role as contributor to tourism in Malta. Third, the government announced a restructuring process aimed at reducing the recurrent annual loss of around MTL 9 million in the core business of the organisation. The aim is to reduce operational and administrative expenses by around MTL 3.75 million within three years. This exercise will focus on several issues, including:

• a decrease in administrative expenses;

• a decrease in the salaries, allowances and other benefits of the management and directors;

• an increase in managerial accountability;

• a decrease in the cost of inflight services through procedural changes;

• a comprehensive reform of procedures adopted in outstations;

• a new plane fleet to reduce maintenance bills;

• adoption of newer technologies to enhance administrative procedures; and

• a better allocation of human resources.

Unions at Air Malta

As several measures proposed by the government will affect Air Malta’s employees, the government started discussing the proposed package with the trade unions involved. The employees of Air Malta are represented by four different unions:

• most of the workforce are covered by the Maritime and Aviation Section of the General Workers' Union (GWU), Malta’s largest union (MT0404102F). In 2003, this section represented a total of 4,024 employees;

• the Union of Cabin Crew, which in 2003 represented the interests of 215 employees (111 men and 104 women);

• the Airline Pilots Association (ALPA), which had 141 members (133 men and 8 women) in 2003. It was set up in 1980 by a small group of first officers and flight engineers and concluded its first collective agreement with Air Malta in 1982; and

• the Association of Airline Engineers, which represented the interests of 65 people (64 men and 1 woman) in 2003.

Draft 'organisational pact'

Several intensive meetings were held between government officials and representatives of the trade unions in early 2004. When the negotiations ended, the government sent the unions a draft of what it called an 'organisational pact'.

The government said that this pact gathered the various ideas derived from the meetings with the unions. These meetings had the effect of changing the government’s position on two issues, one regarding a wage freeze and the other regarding redundancies. The government decided to pay increments if profits were registered within the first three years of the new plan. Besides, the government said that if the new plan is implemented, it would not consider redundancies unless extraordinary conditions develop. Air Malta also intends to hold regular meetings with the unions to monitor the implementation of the plan.

The proposed pact is divided into two parts. The first part is common for all unions, and the second part contains five different appendices. Four appendices concern the specific collective agreements with each of the four unions, while the fifth appendix concerns the measures that Air Malta will take with regard to the company’s management.

Unions’ reactions and the way forward

The government’s proposals for restructuring were met with disdain by the four unions representing Air Malta employees. They accused the government of not accepting any of the proposals submitted by the unions, and of keeping its original proposals while repackaging them in a different manner. It was claimed that the government’s restructuring plan would drastically damage the present conditions of work.

When the situation looked as if it was heading towards a deadlock, a breakthrough came after a renowned legal advisor was brought in by the four unions to act as their facilitator. In mid-April 2004, the unions presented a united front when submitting their counter-proposals to government. In these proposals, the unions insisted that cost-cutting must also be accompanied by increased efforts to generate new revenue. The unions proposed a three-year moratorium on wages and increments as their contribution to the rescue plan proposed by Air Malta. During these three years, the unions and the management should meet regularly to review the situation.  The unions insisted this is not a wage freeze because cost-of-living increases and bonuses would continue to be given. The unions proposed that their collective agreements, which have all expired, should remain in force for the next three years. Unions were also prepared to allow flexibility and to change poor work practices. The unions would also accept it if the firm wants to be privatised, as long as they are informed.  The unions will accept these conditions as long as the government guarantees that there will be no redundancies.

Subsequently, on 20 April, in a brief meeting between the four unions and the Investments Minister, the parties agreed on a way forward. The government reacted positively to the unions’ proposals and immediately announced a series of cost-cutting measures for the airline’s management and went ahead with the MTL 30 million recapitalisation. While no deadline was set for a final agreement, all parties undertook to reach a deal as early as possible.

Commentary

Air Malta can survive only if it is restructured by changing the way it operates, cutting its costs and increasing its revenues. While Air Malta employees seem to understand the need for this major restructuring exercise, they also fear that this will diminish their quality of life.

Industrial relations analysts argue that Air Malta cannot be saved through government imposition, but through both sides understanding the situation and acknowledging that action to address it is not only for the benefit of the employees or the company but for the Maltese economy as a whole.

Full data regarding the causes of Air Malta's financial difficulties are unavailable at present. The company’s recovery plan has also not yet been revealed. If the employees, who are expected to concede entitlements to earnings and conditions, are made aware of the company’s recovery plan, it can be assumed that their resistance to organisational change might diminish.

While the groundwork for a final agreement seems to be in place, everything depends on the intense negotiations that are currently taking place between the parties concerned. (Manwel Debono, Malta Workers' Participation Development Centre)