Air Malta isn’t perfect, but that’s no reason to shut it down

UPDATE (21 January 2019): EU legislation has changed to make sure flights from the UK will continue running after a no-deal Brexit. The UK government’s line is that aviation will continue as-is post-Brexit. The Independent reported on this in August 2018, adding there is still no legal basis for aviation to continue post-Brexit. My article is now invalid. I’m leaving it online to show you what the situation looked like as of April 2018.

Air Malta is finally turning itself around. The government managed this by sleight of hand accounting with its landing slots at Heathrow. Yet Brexit may throw a spanner in the works and could be Air Malta’s undoing.

I

International agreements are the basis of the aviation industry. These are not simple ‘Can I fly to your airport?’ ‘Yeah, sure!’ type of agreements. The detailed agreements cover all aspects of the industry. They even specify the time slots when one country’s planes can fly into another’s airspace.

Over the years, this led to inefficiencies in the system. The European Union took one look at the situation and started making life simpler for everyone. Now there are rules in place so airlines from any European country can fly to, from or within any other European country. It’s why Air Malta can announce a route from Catania to Vienna, for example. This is one of those things that led to low-cost airlines and greater travel opportunities over the past 20 years.

No one outside the Brexit negotiating team knows what’s going to happen to the aviation industry.

This was, and still is, great news for consumers.

Dismantling all this to replace it with something else is one of the challenges that Brexit negotiators face. There is great potential for havoc and disruption here.

Not so great news for consumers.

Or Air Malta.

But Malta is part of the Union, so we have a better negotiating position because we’re one of 27 against the United Kingdom? Right?

It’s more complicated than that.

II

Once the UK becomes a third-country, the aviation sector needs to have a solid basis to continue operating as it does today. In short, this means that European airlines will need to wait until there is an international agreement to be able to fly to the UK. UK airlines will need to wait until there is an international agreement to be able to fly to the rest of the EU.

Air Malta 9H-AEO Airbus A320-214 (c) Baldo Fabio Scotti

You would think this is going to be part of the Brexit negotiations. After all, Britain has the largest aviation network in Europe. It’s a GBP 16 000 000 000 industry. It would be pointless for either side to ignore this.

But these regulations are subject to the European Court of Justice. And UK Prime Minister Theresa May made herself clear about the European Court of Justice. It will no longer have jurisdiction in the UK after Brexit.

It’s possible that Ms May’s government will backtrack on this promise. It’s also possible that the Brexit negotiators will find some suitable compromise.

Right now, no one knows.

The EU has announced the UK will not be able to keep its membership of the European Aviation Safety Agency. I suspect this is a hard-ball negotiating tactic and not a policy statement.

No one outside the negotiating team knows.

The negotiation needs to finish in 2018. European parliaments, including the UK, need to ratify the result before Brexit day, 31 March 2019.

Brexit and the aviation industry – It’s more complicated than you think

Assuming the worst, some airlines are kick starting their contingency plans. Easyjet has changed its ownerships structure so it will remain EU-owned after Brexit. Ryanair has applied for a British operating certificate to allow it to fly to and from the UK after Brexit.

What’s Air Malta doing?

III

Air Malta has flown to the UK since the beginning. For historical and cultural reasons, the UK is the most important market for Air Malta. There are several daily flights leaving Malta for the UK. Being able to fly to the UK is critical for the airline.

What contingency plans does it have in place?

A quick search on Google for anything Brexit related gave me these results:

Google shows nothing Brexit related on Air Malta’s site. I last ran a search on 12 April 2018.

That didn’t look promising, so I searched for Brexit information on the gov.mt domain. I got some results this time but nothing aviation, or Air Malta related.

The only statement I found was about tourism by the Maltese tourism minister Edward Zammit Lewis. He stated that British tourists visiting Malta post-Brexit would continue to enjoy “the same conditions.” He didn’t elaborate more than that. Trying to read into that statement is pointless so I’m not going to.

Maybe I’m being unreasonable. UK tourists only make up 30% of tourists visiting the islands according to the National Statistics Office:

UK tourists are 30.26% of the total tourists visiting Malta (Source: National Statistics Office)

Maybe Air Malta can afford to lose 30% of its traffic for some time until the UK and the EU sort things out.

What if it can’t?

IV

Air Malta went through a creative accounting exercise last December. The government, which is still the owner of Air Malta, bought Air Malta’s landing slots for EUR 58 000 000. It packaged them into a new company which then leased the slots back to Air Malta.

This way, Air Malta got a magical cash injection of EUR 58 million. And it still uses its own landing slots. The Times of Malta reports that Air Malta’s landing slots at Heathrow and Gatwick are the airline’s best assets.

What is Air Malta going to do with these landing slots if it can’t fly there?

V

At a time when Air Malta is in a delicate situation with huge losses announced in 2017, Malta should be taking care of it more than ever.

Will the government shut down Air Malta?

The airline could, for example, take a leaf out of Ryanair’s book and apply for a UK aviation licence. I fear this is not something Air Malta can consider. The UK’s Civil Aviation Authority is clear about the requirements for a licence. You must be able to operate for 3 months without any income. I took a look at Air Malta’s last published accounts (ending 31 March 2017) which are online. Their operational costs were EUR 205 900 000, which equates to EUR 17 158 333 per month. Or EUR 51 474 999 that needs to be available to please UK regulators. Since Air Malta made EUR 13 100 000 loss in that financial year, I’m not sure they can afford this. There can’t be much change left over from the fifty-eight million they got for their landing slots.

Maybe I’m wrong.

Why is our government not looking beyond 31 March 2019?

Will it shut Air Malta’s and blame Brexit?

References

  1. Airlines keep quiet about no-deal threat to 5m tickets; Ben Clatworthy; The Times; 2019-01-21
  2. Destination unknown: Passengers on Cinderella flights will breach the Brexit barrier; Simon Calder; The Independent; 2018-08-29
  3. Air Malta underlines its growth strategy and introduces Catania – Vienna; airmalta.com; Retrieved 2018-04-04
  4. Will Brexit complicate landing rights for UK flights?; Paul McClean, Alex Barker; Financial Times; 2017-02-12
  5. Brexit: Theresa May says UK leaving EU court’s jurisdiction; BBC; 2017-08-23
  6. EU could dash hopes for UK to stay in aviation safety agency; Julia Fioretti; Reuters; 2018-01-25
  7. Budget airline easyJet says flying rights now Brexit proof; Reuters; 2018-02-08
  8. Malta to offer British tourists ‘same conditions’ after Brexit – Tourism Minister; Times of Malta; 2016-10-26
  9. Air Malta received €58m for its airport slots; Vanessa McDonald; The Times of Malta; 2018-03-19
  10. Licensing Airlines in the UK: the framework and criteria for granting Operating Licences, Route Licences and Air Transport Licences; Civil Aviation Authority; Retrieved 2018-04-09
  11. Air Malta plc Annual Report and Consolidated Financial Statements; Air Malta; 2017-03-31

All references were valid and correct when this article was published. Changes to referenced websites or web pages may render some references invalid. If this is the case, please leave a comment below.


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