Air Malta Press Release

During the year ended March 2001, the airline and the Group achieved a record turnover. The Group’s turnover was Lm124million (excluding revenue from the Associated Companies). The Airline made an operating profit of Lm0.9million whilst the Group accrued a pre-tax loss of Lm3.7million. In terms of passengers there was a shortfall on the German, Libyan, the Gulf and Middle East routes. The financial performance of Air Malta during the year was marked by escalating fuel prices that added Lm5million to the fuel bill on top of the Lm3million increase sustained in the previous year. The strong Dollar negatively affected our exchange rate and also impacted large bills paid for aircraft leases and maintenance. On the other hand revenue was eroded by declining yields as competitive pressures reached more severe pressures and the Euro depreciated in value.

Air Malta’s financial results for the year ending 2001 have to be seen in the light of the industry’s problems during that period. The industry was plagued in the preceding two years by uncontrollable factors like fuel and falling yields. The global airline industry faced severe profit erosion induced by a decline in traffic, whilst overcapacity and cutthroat competition resulted in discounted fares. In addition labour costs soared. The Association of European Airlines reported that more than half of its members failed to break even in the year 2000, whilst a substantial
Prior the tragic events of the 11th September i.e. for the period April to September, Air Malta registered an increase of just over 6% in passenger traffic and an increase in its market share by about 7 percentage points. In other words Air Malta was looking ahead to exceed budget expectations for a profitable year 2001/ 2002.

Inevitably the events of the 11th had a dramatic and immediate effect on the airline industry. They set in motion events which led to a fully-fledged crisis of unprecedented proportions. There was a drastic drop in traffic and revenue dropped further particularly as advanced bookings dried up, cutting business and leisure traffic. The hardest hit so far have been those airlines who entered the crisis with depleted cash reserves. A number of airlines have found it and are finding it very difficult to survive. No airline, including Air Malta, was immune to all this: these calamitous events negatively impacted Air Malta’s healthy trend for 2001/2002. There were hefty overnight increases in insurance premia. Traffic dropped to various degrees on different routes. A rise in security costs is now expected with ECAC/ICAO issuing soon further measures potentially involving expenditure on aircraft modifications. Azzurra was equally, if not more adversely affected, as most of its flights were being operated on behalf of Alitalia, who, in turn suffered strongly following the 11 September incidents. All this would have a negative impact on results and cash flow forecast to 31st March 2002.

Air Malta made cash preservation as the focal point of its short to mid term strategy. The immediate measures taken by Air Malta were:-

* The rationalisation of capacity


* Ensuring that human resources costs are in line with the commercial, operational and financial situation.

* Curtailing all non-essential expenditures, freeze non-operational capital investment.

* Re-negotiating prices with vendors and extending all terms of credit.

* Re-negotiating terms with commercial banks and aircraft lessors.

* Focusing on core activities.

The airline is also evoking strategic initiatives to address Air Malta’s short and medium term issues as well as to build shareholder value for the longer term. Sound predictions at this stage would almost be irrelevant since there are too many unknown variables. Events have made existing business plans obsolete. The dynamics of aviation economics will be re-examined and they might have a different definition and application in the future. A model has to be found where airlines do not have to operate within Maginot margins which leaves them without the cash resources they require to sustain them through hard times.

Last year the Air Malta Chairman had stated that 2000/2001 was going to be a very difficult year. Little did the Company imagine that they would be facing the toughest challenge ever.

In view of the gravity of the situation Air Malta needs to utilise all its resources, energy, creativity and determination to take complex and difficult decisions in order to weather out this storm, whilst taking into consideration the interests of the national economy, particularly tourism

In this context it is an absolute must, that all concerned including management, staff and Unions really understand these historical critical times of the airline industry and together face this unique challenge. The airline should take this opportunity to holistically examine its operations, re-think all, adjust and re-structure at all levels and come out of this situation fit and healthy enough to benefit from the eventual upturn.