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30.10.2012 Official
Journal
of
the
European
Union L
301/29
COMMISSION DECISION
of 27 June 2012
on the State aid No SA.33015 (2012/C) which Malta is planning to implement for Air Malta plc.
(notified under document C(2012) 4198)
(Only the English version is authentic)
(Text with EEA relevance)
(2012/661/EU)
THE EUROPEAN COMMISSION,
5 March 2012. The Commission asked further questions
by letter dated 19 March 2012, to which Malta replied
on 19 April 2012.
Having regard to the Treaty on the Functioning of the European
Union, and in particular the first subparagraph of Article 108(2)
thereof,
(3) The
opening
decision
was
published
in
the Official Journal
of the European Union on 21 February 2012. The
Commission called on interested parties to submit their
comments.
Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,
(4) The
Commission
received
comments
from
six
interested
parties. It forwarded them to Malta, which was given the
opportunity to react; its comments were received by
Having regard to the decision by which the Commission
letter dated 27 April 2012.
decided to initiate the procedure laid down in Article 108(2)
TFEU, in respect of the aid SA.33015 ( 1 ),
2. DESCRIPTION OF THE MEASURE AND THE RESTRUC
TURING PLAN
Having called on interested parties to submit their comments
2.1 Restructuring aid
pursuant to the provisions cited above, and having regard to
their comments,
(5) Malta
notified
restructuring
aid
of
EUR
130
million
to
Air Malta in the form of equity, including a debt-to-
equity swap of the approved rescue loan of EUR 52
million, on the basis of the Restructuring Plan (RP)
Whereas:
described below starting in November 2010 (after the
approval of the rescue loan), and covering a five year
restructuring period from autumn 2010 until autumn
2015.
1. PROCEDURE
(1) By
letter
dated
16
May
2011
Malta
notified
the
Commission of the restructuring aid to Air Malta plc,
2.2 Beneficiary
following a rescue aid loan of EUR 52 million that was
approved by a Commission decision of 15 November
(6)
Air Malta plc. is the national flag carrier of Malta since
2010 (N 504/2010, hereinafter "the decision on the
1974. At the beginning of the restructuring process, Air
rescue aid"). The Commission requested additional
Malta operated 12 passenger aircrafts and served 43
information by letters dated 5 July and 1 September
scheduled destinations in Europe, North Africa and the
2011, to which then Maltese authorities replied by
Eastern Mediterranean. Air Malta is owned by the Maltese
letters dated 2 August and 22 September 2011.
government (98 %) and private investors (2 %).

(7)
Air Malta is a very small player in the European aviation
(2) By
letter
dated
25
January
2012,
the
Commission
market (ca. 1,8 million passengers in 2010), representing
informed Malta that it had decided to initiate the
only 0,25 % of the entire European airline industry’s
procedure laid down in Article 108(2) TFEU in respect
productive capacity and output (in terms of passengers).
of the aid (hereinafter "the opening decision"). Malta
With the intended reduction of 2 aircrafts in Air Malta’s
provided comments on that decision by letter dated
fleet, it will become an even smaller player in a growing
European air transport market. Air Malta plan to join a
( 1 ) Commission Decision C(2012) 170 final of 25 January 2012
global alliance to improve connectivity in this reduced
(OJ C 50, 21.2.2012, p. 7).
fleet scenario and also to improve fleet utilisation.

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L 301/30
EN
Official Journal of the European Union
30.10.2012
(8)
Nonetheless, Air Malta is the most important air carrier for flights from and to Malta with a market
share of 51 % (passengers) and 28 % (cargo). According to Malta, the restructuring of Air Malta is
crucial as it provides Malta with a regular and dependable link to main European and North African
centres whilst also supporting the economy through services such as the transportation of mail, cargo
and patients for treatment abroad. This role is not filled by Air Malta's main competitors, above all
low cost carriers (LCC) like Ryanair and easyJet.
(9) Air
Malta
has
been
making
losses
in
its
core
airline
business
for
several
years
and
made
a
EUR
23,1
million operating loss in FY ( 1 ) 2010 and EUR 37,3 million in FY2011 (see Table 2).
(10) Air
Malta
plc.
has
the
following
subsidiaries
("Air Malta Group"):
Table 1
Air Malta Group structure
Profit b/tax in
Subsidiary
Share of Air
Malta plc.
FY2010
(in EUR 000's)
Osprey Insurance Brokers Ltd. (an insurance broker) 100
% 618
Shield Insurance Company Ltd. (a captive insurance company) 100
% 1,165
Selmun Palace Hotel Co. Ltd. (a four star hotel in Malta) 100
% (879)
Holiday Malta (a UK based specialist tour operator) 100
% (GBP
1,081)
World Aviation Group (a general sales agent for Air Malta and other airlines) 50
% 241
Lufthansa Technik Malta (joint venture with Lufthansa Technik AG to perform
8 % (10,896)
aircraft maintenance and repair operations)
2.3 Restructuring Plan
(11) The RP (dated 29 November 2011) and its Update of 28 February 2012 aim to restore Air Malta's
profitability by FY2014 and its return to long-time viability by 2015. The duration of the RP is
limited to five years, running from autumn 2010 to autumn 2015.
(12) The plan assumes that it will be possible to turn around the existing level of losses from an operating
loss (EBIT) of EUR 37,3 million and a net loss of EUR 88,9 million in FY2011 to an operating profit
of EUR […] (*) million and a net profit of EUR […] million in FY2014 and a further improvement of
the profit situation in FY2015 and FY2016 (see Table 2).
Table 2
Profit and loss 2008-2016
(in EUR million)
Financial year 2008 2009 2010 2011 2012(f) 2013(f) 2014(f) 2015(f) 2016(f)
Revenues 273,7 249,5 210,8 207,5 […] […] […] […] […]
Operating result (8,9) (33,8) (23,1) (37,3) […] […] […] […] […]
Net result 3,6 (23,7) (11,6) (88,9) […] […] […] […] […]
(13) The
plan
aims
to
achieve
a
return
on
capital
employed
(ROCE)
( 2 ) of [4 to 6] % and a return on
equity (ROE) ( 3 ) of [5 to 7] % for FY2016.
( 1 ) Air Malta's financial year starts on 1 April. Thus, e.g. FY2011 is from 01.04.2010 to 31.03.2011, FY2016 from
01.04.2015 to 31.03.2016.
(*) Business secret
( 2 ) ROCE = Net profit / (Debt + Equity)
( 3 ) ROE = Net profit / Equity

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EN
30.10.2012 Official
Journal
of
the
European
Union L
301/31
Table 3
ROCE and ROE 2012-2016
FY 2012 2013 2014 2015 2016
Return on equity (ROE) n/a
– [30 to – 20] % [2
to
6]
% [4
to
6]
% [5
to
7]
%
Return on capital
– [60 to – 50] % –
[20
to
10]
% [0
to
5]
% [4
to
6]
% [4
to
6]
%
employed (ROCE)
(14) To achieve these results, Air Malta proposes the
According to Malta, both profitable and 'marginal
following key actions:
routes' has been classified as relevant compensatory
measures.
Route and network strategy
(15) The
target
is
to
create
a
more
cost-effective
schedule.
(19) The
changes
in
the
route
network
between
FY2010
and
Therefore, Air Malta will terminate certain routes –
FY2013 relate to an overall capacity reduction of 20,9 %
both loss making and profitable – and increase
ASK ( 3 ) of the 2010 overall capacity. This includes a
frequency on selected core routes.
capacity reduction of [27 to 33] % ([12,5 to 15,5] % ( 4 )
are related to routes claimed to be profitable, [5,5 to
7,5] % ( 5 ) to 'marginal routes' and [9 to 11] % ( 6 ) to
unprofitable routes) and a capacity increase through the
(16) Air
Malta
has
already
taken
action
to
discontinue
the
loss
launching of new destinations and expansion of existing
making routes to Leipzig, Tunis, Damascus, Palermo and
schedules of [8 to 10] %.
Turin in early 2011.
(17) Furthermore,
as
of
autumn
2011,
Air
Malta
has
started
Table 4
to discontinue or reduce capacity on certain routes which
are offered as compensatory measures according to the
Capacity change 2010-2013
Community guidelines on State aid for rescuing and
restructuring firms in difficulty ( 1 ) (hereinafter, “the R&R
Capacity change ASK %
of
FY2010
Guidelines”). This will also release the pertinent slots in a
number of foreign airports, with Air Malta thus forgoing
Total ASK (FY2010) 4
145
522
any grandfather rights it currently has on these slots. By
2013, […] slot pairs will be surrendered at coordinated
ASK reduction in capacity […] [27
to
33]
%
airports ( 2 ) such as London-Gatwick, Manchester,
Amsterdam, Frankfurt, Geneva, Catania, Stuttgart,
ASK increase in capacity […] [8
to
10]
%
London-Heathrow and Munich. Through the withdrawal
or reduced frequency other airlines will be able to benefit
from potentially increasing their load factors and/or
Total ASK (FY2013) 3
275
710 79
%
yields.
Overall decrease in capacity
869 812 20,9
%
(FY2010-FY2013)
(18) Concerning
the
profitability
of
the
different
routes,
Malta
provided the gross margin of all of the routes between
FY2010-FY2013 as well as for Summer 2009-Summer
(20) Especially
important are connections to international
2012. The gross margin is calculated as follows: Revenue
hubs which are essential for Malta's access to global
minus VDOC (variable direct operating costs) minus
markets. Because of this, Air Malta concluded code
FDOC (fixed direct operating costs). The routes are
share agreements with a number of airlines. Furthermore,
profitable if they have a gross margin equal or above
Air Malta plans to join a global alliance to improve
0 %. Routes are 'marginally profitable' if their gross
connectivity and fleet utilisation.
margin is currently lower than 0 % but higher than
- 10 % but would become profitable in the future.
( 3 ) ASK = available seat kilometre.
( 4 ) 17,9 % when one compares the change between summer 2009 and
( 1 ) OJ C 244, 1.10.2004, p. 2
summer 2012.
( 2 ) Coordinated airports are airports where the slots are allocated by a
( 5 ) 9,8 % when one compares the change between summer 2009 and
coordinator under Regulation (EEC) No 95/93 on common rules for
summer 2012.
the allocation of slots at Community airports flight (OJ L 14,
( 6 ) 1,7 % when one compares the change between summer 2009 and
22.1.1993, p. 1).
summer 2012.

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L 301/32
EN
Official Journal of the European Union
30.10.2012
Cost initiatives
Revenue initiatives
(21) Cost
initiatives
are
focused
on
improving
the
efficiency
of
(26) Air
Malta
aims
at
increasing
its
revenues
by
introducing
Air Malta's operations in order to reduce the cost
ancillary revenues from additional payable services
structure by streamlining the core business, addressing
(similar to the LCC approach) together with improving
operational inefficiencies and bringing the airline into a
its revenue management and pricing.
competitive and sustainable position. The annual
improvements in profitability from cost initiatives are
expected to total EUR [42 to 52] million by the end
of the RP period which means a reduction in the total
costs of the Company of [10 to 12] % and a decline of
the total operating cost per passenger by [7,5 to 10] %
(27) Given
the
seasonal
nature
of
Air
Malta’s
market,
the
(while total passengers carried during the same period
focus of the revenue initiatives is to improve yield in
remain almost constant). The major items are: network
summer, when load factors are already strong, and to
based reductions (EUR [21 to 27] million), personnel
build revenue in winter through targeted marketing,
savings (EUR [9 to 11] million) and contract
campaigns and seat sales. Total passenger revenue per
management (EUR [7 to 9] million).
passenger (including ancillary revenues) is projected to
increase to EUR [110-120] per passenger in FY2016
compared with EUR [100 to 105] in FY2011.
Ancillary passenger revenue streams will then represent
[3 to 4] % of total revenues in FY2016, compared with
(22) The
planned
20,9
%
capacity
reduction
has
an
impact
on
approximately 20
% for the Company's primary
fixed and variable direct operating costs such as a
competitors, easyJet and Ryanair. The main revenue
reduction in fuel uplift of approximately […] million
initiatives include: improvement of the load factor (EUR
gallons (EUR […] million), the reduction in the number
[9 to 10] million), yield management (EUR [8 to 10]
of flown hours and therefore a decrease of the overall
million) and ancillary revenues (EUR [9 to 11] million).
maintenance costs […] and a reduction of landing,
handling and navigation and en-route charges […].
Load factor
(23) The airline will reduce the fleet from 12 to 10 aircraft.
One aircraft has already been subleased to a Mexican
(28) Air
Malta
has
developed
a
new
commercial
strategy
in
carrier from […] and another aircraft, which is
order to improve its competitiveness and load factor.
currently subleased under a short-term contract, has
This strategy includes simplification and standardisation
been subleased to a Polish carrier from […] to […].
of processes and offerings, branding Air Malta as a “des
Both aircraft will be sub-leased at cost and hence will
tination airline” (closer business relations with Malta
reduce Air Malta's overall lease expenditure. The overall
Tourism Authority), building customer loyalty and
lease rate is expected to decrease by EUR [2,5 to 3,5]
repetitive business, guerrilla marketing and distribution
million.
and innovative products and offerings.
(24) However, the reduction in network is expected to have a
negative effect on passengers and cargo carried, before
initiatives are implemented. It is assumed that passengers
(29) This
new
strategy
and
improved
marketing
should
lead
(scheduled and chartered) will decrease from 1,75 million
to revenue enhancement. As can be seen from Table 5,
in FY2011 to [1,5 to 1,7] million in FY2013 resulting in
according to Air Malta's RP, passenger numbers will
a revenue reduction of EUR [11 to 13] million. Cargo
decline between FY2011 and FY2013 driven by the
revenue is also expected to decrease by EUR [1 to 2]
reduction in the planned reduction in capacity;
million as a result of network reduction.
however, by FY2016 the reduction in passengers will

have been recovered through: targeted marketing […];
filling seats in troughs by focusing on increasing
passenger numbers in the winter and shoulder seasons
and market growth.
(25) Air Malta is renegotiating the contracts with their major
suppliers. The overall target for contract costs savings is
ca. EUR [7 to 8] million. The review has been
commenced with ten business partners. A big amount
of savings […] was already achieved through negotiations
with Malta International Airport ( 1 ).
(30) With an expected growth in passenger volume of
approximately [90,000 to 100,000] at average yields
less incremental passenger related costs, revenue is
( 1 ) The former state owned airport has been privatized. The major
expected to increase by [7 to 9] % from EUR 205,4
shareholder is a private consortium led by the Austrian Flughafen
Wien AG. The Maltese government is only a minority shareholder
million in FY2011 to EUR [200 to 240] million in
(20 %).
FY2016.

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EN
30.10.2012 Official
Journal
of
the
European
Union L
301/33
Table 5
Load factors, FY2011 to FY2016
FY 2011 2012 2013 2014 2015 2016
Revenues (EUR 000’s) 205
369 [180
000
to
[180 000 to
[190 000 to
[200 000 to
[200 000 to
220 000]
220 000]
240 000]
240 000]
240 000]
Passengers (million) ( 1 ) 1,75 [1,6
to
1,8] [1,6
to
1,8] [1,6
to
1,8] [1,6
to
1,8] [1,6
to
1,8]
Total seats (million) [2,5
to
3] [2
to
2,5] [2
to
2,5] [2
to
2,5] [2
to
2,5] [2
to
2,5]
Load factor ( 2 ) [72
to
75]
% [72
to
75]
% [72
to
75]
% [72
to
75]
% [73
to
78]
% [73
to
78]
%
( 1 ) Based on Air Malta route economics inclusive of schedule and charter (Malta and UK operations)
( 2 ) Load factor projections are an output based on projected seat numbers and passengers.
(31) The
increase
in
forecast
load
factors
reflects
the
improved
Ancillary pre-flight and in-flight revenues
commercial strategy of the airline and greater focus on
yield management. The key drivers behind the load factor
(36) Following
the
approach
of
many
LCC's
Air
Malta
will
changes are a growth in traffic (based on an expected
charge fees for ancillary services both pre- and in-flight
market growth of 5,9 % as forecast by Eurocontrol),
which is expected to lead to increased revenues by EUR
reduced fares to improve competitive position resulting
[9 to 11] million in FY2016.
in a [4 to 6] % reduction in yield and an increase in
number of passengers, network re-evaluation in order
to focus on commercially viable routes only, expanding
code shares agreements and cooperation with […], the
(37) Pre-flight
revenues
initiatives
include
cessation of the granting of complimentary tickets to a
range of beneficiaries and the expected improvement of
the political situation in Libya (plan assumes that flights
to Libya are suspended during FY2012 due to the recent
crisis).
— differentiated service fees by sale channel (tour oper
ators, global distribution, call centre and online)
between EUR 10,00 and EUR 15,00 in order to
drive business to cheaper and more profitable sale
(32) Following
a number of changes to the commercial
channels such as the internet (increase in profitability
approach and route strategy that have already been
by EUR [1 to 2] million p/a);
implemented at the beginning of the restructuring
process, the airline has already achieved an increase in
load factor by [6 to 8] % (from [65 to 67] % in FY2010
to [72 to 75] % in FY2011).
— improved revenues through all added services booked
through the airline's new Internet Booking Engine
(EUR [1 to 2] million p/a);
Yield management
(33) Air Malta will apply industry standard practices to
revenue management, pricing and increasing focus on
MICE (Meetings, incentives, conferencing, exhibitions),
— additional bag charge fees of EUR [35 to 45] for any
corporate travel and tour operator relationships. These
second or subsequent bag, it is assumed that 3 % all
efforts are predicted to result in improved revenues of
passengers travel with more than one bag (EUR [1 to
EUR [8 to 10] million.
2] million p/a);
(34) Pricing
revenue
initiatives
include:
changes
to
pricing
structures, concentration on higher passenger volumes
— additional revenue shall also be generated through
in off-peak periods and better yield performance during
seat reservations fee of EUR [9 to 11] for each reser
high season as well as a strategic framework for
vation, it is assumed that on average 10 passengers a
managing Tour Operators (EUR [3 to 4] million).
sector will make a seat reservation;
(35) Revenue
management
initiatives
include:
simplification
of
processes, management of market rather than and indi
— lounge access fee of EUR [9 to 11] with an assumed
vidual flights (EUR [4 to 5] million).
take-up rate of 1 % (EUR [100 000 to 200 000] p/a);

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L 301/34
EN
Official Journal of the European Union
30.10.2012
— revenues through bag insurance of EUR [3 to 5]
in Government debt substituting the approved Rescue
offered when making an online booking with an
Aid loan and already disbursed to be converted to equity.
assumed take-up rate of 1 % (EUR [50 000 to
100 000] p/a).
(44) Air Malta proposes the remaining amount (i.e. the own
contribution of 45 %) to be financed by the sale of land
(38) In-flight
revenues
initiatives
include
(EUR 66,2 million), sale of subsidiaries (EUR [9 to 12]
million), sale of engines (EUR [9 to 12] million) and a
bank loan (EUR [20 to 25] million).
— paid catering service (EUR [4 to 5] million p/a);
(45) The most important part of the Company's own
— sale of duty free and other goods (EUR [1 to 2]
contribution will come from the sale of land. Air Malta
million p/a).
owns a leasehold title on valuable property situated on
the perimeter of Malta International Airport. The
Government of Malta has expressed its strategic interest
to acquire Air Malta's airside properties. The land sites
Reduction of staff and organisation change
concerned represent a scarce resource that Government
would like to see developed in a manner consistent with
(39) Air
Malta
plans
to
significantly
restructure
its
organi
its long term strategy for the development of aviation
sation in order to reduce the costs of the back office
related activity in Malta, including the creation of a
and support functions but also to improve the produc
cargo hub as part of an enlarged aviation park that
tivity of the front line operational functions. Migrating to
also includes aircraft repair and other related facilities.
the new organisation will release approximately 430 full-
The sale will not be carried out in an open, transparent
time equivalents (FTE), giving an annual saving of EUR [9
and non-discriminatory tender. However, in line with its
to 11] million. The transition process to the new organi
general policy and the national legal requirements, all
sation will take approximately 18-24 months and so the
property acquisitions by the Government have to be
full saving will not impact the profit and loss results until
effected at a fair open market value, which reflects the
FY2014. It should be noted that this overall saving will
price that would be paid on an arm’s length basis by a
be eroded by contracted increases in wages of [2 to 3] %
private investor. The Plan assumes the sale of the land
per annum agreed with staff from FY2013 onwards.
adjacent to the airport for a total of EUR 66,2 million
between FY2012 and FY2014. The value is based on an
independent valuation report from November 2011 by
(40) The
four
trade
unions
have
a
legally
valid
Collective
[…], an independent evaluator appointed by the
Agreement, through which early retirement schemes
Government for this purpose.
(ERS) are available to staff as an entitlement. The eligi
bility criterion of the ERS is such that only […] staff are
eligible to apply.
(46) Air
Malta
secured
a
private
loan
of
EUR
[25
to
30]
million provided by […] in December 2011. This
bridging loan will facilitate the transition to the final
(41) Additionally,
Air
Malta
will
offer
a
voluntary
redundancy
equity structure over the next three years.
scheme (VRS) which will be universally available to staff
wherein the Company retains the right to accept or
refuse the staff member’s application. Employees are
eligible for the VRS when they have continuously
(47) Air
Malta
estimates
to
generate
revenues
of
EUR
[9
to
worked with Air Malta for at least […] years. The VRS
11] million through the sale of its subsidiaries […].
offers a payment of up to EUR […] per employee […].
(48) The
sale
of
spare
engines
[…]
took
place
on
28
October
(42) Moreover,
the
Company
also
underwent
a
main
organi
and 17 December 2010 respectively and generated
sation structure change and recruited new key executives
revenues of USD [19 to 22] million. However, whereas
to its management team.
engine No. […] was fully owned by Air Malta, engine
No. […] was leased property of Air Malta with an option
to purchase the engine at EUR [5 to 7] million, which
2.4 State aid and financing of the restructuring costs
was exercised. The net proceeds from the sale of the
engines are EUR [9 to 12] million.
(43) Given
the
total
restructuring
costs
of
EUR
238
million,
the Government of Malta intends to recapitalise the bene
ficiary with EUR 130 million of equity according to the
following schedule: EUR 60 million will be injected via
(49) The EUR [20 to 25] million bank loan will be concluded
fresh share issue in FY2013, EUR 15 million in FY2014,
only in FY2014, Air Malta has thus not concluded the
EUR 3 million in FY2015 in addition to EUR 52 million
negotiations yet.

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EN
30.10.2012 Official
Journal
of
the
European
Union L
301/35
Table 6
Sources and uses of funding 2011-2016
(in EUR million)
Uses FY2011-2016 Sources FY2011-2016
Repayment of rescue aid 52
000 Internal
contribution:
Sale of land 66
200
Repayment of third party loan [20
000
to
25
000] Sale of subsidiaries [9
000
to
12
000]
Redundancy payments [25
000
to
30
000] Sale
of
engines [9
000
to
12
000]
Restructuring costs [13
000
to
16
000] Third
party
contribution:
Bank debt [20
000
to
25
000]
Capital expenditure [13
000
to
16
000]
Change in working capital/ net losses [50
000
to
60
000]
Maintenance reserves payment [40
000
to
50
000] Government
funding:
Government equity 130
000
Total 238
000 238
000
2.5 The opening decision
(53) Regarding the own contribution, the Commission
expressed its doubt whether it is indeed real, i.e. actual
(50) On 25 January 2012, the Commission opened the formal
and excluding all future expected profits, as required by
investigation procedure. In its decision, the Commission
point 43 of the R&R Guidelines. In particular, the
expressed doubts relating to the return to long term
Commission requested clarification regarding the sale of
viability of the company, namely about the feasibility
Air Malta's subsidiaries, the availability of the envisaged
of the optimistic forecasts of the previous version of
EUR 20 million loan and whether the sales of engines
the RP which assumed a return to profitability by
took place within the restructuring period.
2016 to be on a similar level as the profitability of
major low cost carriers such as Ryanair or major tradi
tional carriers such as Lufthansa. In particular, the
Commission questioned the assumed impact of the
ancillary revenues, cost reduction through contract
(54) Lastly, the Commission requested further comments
renegotiation, market growth rates, yield and the non-
regarding the Plan's compliance with the "one time, last
inclusion of cost inflation in Air Malta's RP. Furthermore,
time" principle with regard to an EUR 57 million capital
Malta was invited to provide clarifications regarding the
increase that was carried out by Malta in April 2014.
scenario analysis.
(51) Regarding
the proposed compensatory measures, the
Commission doubted that the proposed overall capacity
3. COMMENTS FROM MALTA
reduction of 20 % of ASK can be regarded as compen
(55) In
its
reply
to
the
opening
decision,
Malta
submitted
satory measures since it also contains loss-making routes
comments and clarifications regarding all of the points
whose closure is necessary to restore viability. The
raised in the Commission's opening decision, indicating
Commission also asked for further clarifications
that the notified RP complies with all the conditions
regarding the calculation of profitability of certain non-
imposed by the R&R Guidelines. Moreover, Malta also
loss making routes as well as additional information that
provided an update regarding the restructuring process,
would demonstrate that the proposed measures are
demonstrating that significant progress has already been
sufficient enough to compensate for the undue distortion
achieved.
of competition caused by the state aid.
(52) Apart from the capacity reduction, the Commission
doubted whether the proposed sale of non-loss making
(56) As regards the doubts on the forecasted return to profit
assets can be considered as compensatory measure in
ability, Air Malta revised its forecasts (see Table 3) to an
view of the fact that according to point 40 of the R&R
EBIT margin of [3 to 5] % in FY2016, which is lower
Guidelines, the compensation measure should take place
than the historical margins achieved by Ryanair and
in particular in the market where the firm will have a
Lufthansa. This reduction in profitability is mainly due
significant market position after restructuring.
to the realignment of the fuel assumptions.

---

L 301/36
EN
Official Journal of the European Union
30.10.2012
(57) Air
Malta
provided
substantiated
comments
regarding
the
to be drawn in FY2014 and confirmed the conclusion of
ancillary revenues, demonstrating that they will represent
the EUR [25 to 30] million bridge loan agreement.
[3 to 5] % of passenger revenues in FY 2016 which is
significantly lower than the percentages achieved by the
directly competing low Cost carriers (LCCs) such as
Ryanair and easyJet as well as other network carriers
(62) As
regards
the "one time, last time" principle, Malta
that have embraced the ancillary revenue strategy, such
submitted a business plan on the basis of which the
as Aer Lingus. Regarding the costs reduction through
EUR 57 million capital increase was carried out in
contract renegotiation, Air Malta confirmed that over
2004, demonstrating that this transaction should be
EUR [4 to 6] million p.a. has already been committed
viewed as conform with the market economy investor
through concluded negotiations and a number of
principle.
additional savings have been identified which would
lead to a total amount of contract savings of EUR [9
to 11] million instead of EUR [7 to 9] million as
previously planned.
4. COMMENTS FROM INTERESTED PARTIES
(63) During the formal investigation procedure the
(58) Malta has also revised its assumptions for Maltese market
Commission received comments from six interested
growth rates reducing it from 5,9 % annual growth rate
parties: Ryanair; International Airlines Group SA (IAG,
to 4 % p.a. for the period to 2016. In addition a
i.e. the holding company owning British Airways and
reduction in passengers flown of [2 to 4] % p.a. for the
Iberia); Malta Chamber of Commerce, Enterprise and
period FY2011-FY2013 has been assumed (in line with
Industry; Airline Pilots Association Malta (ALPA); Malta
capacity reduction): following such reduction, an annual
Hotels and Restaurant Association (MHRA) and a
passenger growth rate of [2 to 4] % has been assumed
consultant who wishes not to disclose his identity.
for FY2013-FY2016. This growth rate remains lower
than the average market growth rate for the overall
period.
(64) The observations of the Malta Chamber of Commerce,
ALPA and MHRA were in favour of Air Malta's
continuity in business underlining its importance for
(59) Malta
has
clarified
that
the
RP
only
assumes
an
average
the whole Maltese economy, especially for the tourism
growth of less than 2 % for yields throughout the period
sector. The Commission was asked to take into account
(passenger revenues including ancillary/total passengers)
the particularities of the case and the small size of Air
which is in line with the forecast for several network
Malta when assessing the RP.
carriers in Europe such as Aer Lingus or IAG and
lower than the directly competing LCCs easyJet and
Ryanair. Malta has also adapted its assumptions on cost
inflation, in particular in aircraft leases and forecasted
(65) The
critical
comments
made
by
Ryanair
and
IAG
refer
fuel costs and clarified the assumptions for the scenario
mostly to the doubts already expressed in the opening
analysis including the deviation from EBIT.
decision as regard to the return to viability and the
underlying assumptions. Ryanair states that the small
size of Air Malta's fleet deprives it of the possibility of
benefiting from economies of scale and integration. This
(60) As
regards
the
proposed
compensatory
measures,
Malta
provided additional detailed information regarding the
disadvantage will be further exacerbated by the decrease
calculation of profitability of routes in respect of their
in the number of aircraft. Furthermore, Ryanair and the
contribution to the fixed/variable direct operating costs
anonymous consultant criticise that the land sale will be
and overheads. Malta reiterated that the sale of its two
carried out not in an open tender and allege that Malta
profit-making insurance companies could be considered
hopes to inject extra aid into Air Malta through this
as a relevant compensatory measure because it provided
transaction.
Air Malta with cost effective insurance solutions and
both of the companies were significant players in the
local aviation insurance market. Since Air Malta is a
small airline, it has a high component of overheads
(66) As
to
the
transport
of
patients
for
treatment
abroad
and
relative to its overall cost base due to the functional
the link to non-EU destinations based on bilateral
requirements of operating an airline. Excessive
agreement, Ryanair points to the legislation on public
reduction of capacity would thus compromise the
service obligations (PSO), in particular Regulation
airline's long term viability.
1008/2008 according to which PSO must be imposed
after an open tender and compensated on the basis of an
analysis of the costs which a typical well run undertaking
would have incurred in discharging those obligations.
(61) As
regards
the
own
contribution
Malta
confirmed
that
all
Ryanair warns of an ex-post application of supposed
sales of the subsidiaries will be conducted in an open,
PSO in order to justify the RP and invites the
competitive, transparent and non-discriminatory manner.
Commission to investigate this issue, in particular in
Malta also provided additional information regarding the
order to determine whether any such compensation has
sale of engines, the EUR [20 to 25] million facility that is
been determined.

---

EN
30.10.2012 Official
Journal
of
the
European
Union L
301/37
5. COMMENTS FROM MALTA ON THE OBSERVATIONS OF
form whatsoever, which distorts or threaten to distort
INTERESTED PARTIES
competition by favouring certain undertakings or the
production of certain goods, shall, in so far as it affects
(67) Malta addressed in detail all of the arguments raised by
trade between the Member States, be incompatible with
third parties in their comments. In particular, Malta
the internal market.
rebutted the arguments regarding Air Malta's return to
long-term viability asserting that the trend of escalating
losses of the Airline has already been reversed.
(73) The
concept
of
State
aid
applies
to
any
advantage
granted
directly or indirectly, financed out of State resources,
(68) Air
Malta's
commercial
strategy
is
to
be
a "destination
granted by the State itself or by any intermediary body
airline" with its activities centred around the local airport.
acting by virtue of powers conferred on it.
The successful turnaround of the company will in
addition be achieved through significant reduction of
waste and losses accompanied by the change in work
practices of the company.
(74) In this context, the decision of the Maltese authorities to
inject new equity of EUR 130 million has to be seen as
State aid. The capital injection involves State resources
(69) Regarding
the
argument
of
Air
Malta's
inability
to
profit
and constitutes a selective advantage to Air Malta, since it
from economies of scale, the Maltese authorities argue
improves its financial situation.
that the operating costs in the airline industry are
variable in nature (amounting to [60 to 70] % in Air
Malta's case). These include fuel costs, aircraft rental
and maintenance, landing, navigation and flight crew
costs, all of which are driven by regulated market
(75) The
measure
affects
trade
between
Member
States
and
pricing which limits, to some extent, the economies of
Competition as Air Malta is in competition with other
scale that an airline could benefit from.
European Union airlines, in particular since the entry into
force of the third stage of liberalisation of air transport
("third package") on 1 January 1993. The measure in
question enables Air Malta to continue operating so
(70) As to the valuation and sale of strategic property to the
that it does not have to face the consequences
Government, Malta reasserts that the valuation was
normally deriving from its poor financial results and
carried out by an external and independent evaluator
therefore it distorts competition.
[…] with no conflict of interest and is based on a
detailed report which follows international valuation
standards as set out by the International Valuation
Standards Council. The logic behind this transaction is
evidenced by the new needs of the company (signifi
(76) Under
these
conditions,
the
capital
injection
constitutes
cantly reduced staff) and change of culture which
State aid within the meaning of Article 107(1) of the
require the workforce to be based in one modern
TFEU. This conclusion is not disputed by the Maltese
office. Therefore the Airline disposed of property that it
authorities.
no longer needed. Given the scarcity of land resources in
Malta, the Maltese authorities submit that the strategy to
create an aviation park on this land predates Air Malta's
restructuring by many years.
6.2 Compatibility of the aid with the internal market
under the R&R Guidelines
(71) As far as public services are concerned, the Maltese auth
(77) Article
107(3)(c)
TFEU
stipulates
that
State
aid
can
be
orities confirmed that PSO under regulation
authorised where it is granted to promote the devel
No 1008/2008 on common rules for the operation of
opment of certain economic sectors and where this aid
air services in the Community have neither been imposed
does not adversely affect trading conditions to an extent
in the past nor are planned for the future. Consequently,
contrary to the common interest.
no compensation from the State has been or will be paid.
Therefore, Air Malta has never been provided with any
remuneration from public funds for any of the services
which it provides to and from Malta, including the
(78) The Commission considers the present measure to
transport of medical passengers.
constitute a restructuring aid which must be assessed in
the light of the criteria under the R&R Guidelines as well
as the 1994 Aviation Guidelines ( 1 ), in order to establish
6. ASSESSMENT OF THE AID
whether it may be compatible with the internal market
pursuant to Article 107(3) TFEU.
6.1 Existence of State Aid
( 1 ) Application of articles 92 and 93 of the EC Treaty and article 61 of
(72) By virtue of Article 107(1) of the TFEU, any aid granted
the EEA Agreement to State aids in the aviation sector, OJ C 350,
by a Member State or through State resources in any
10.12.1994, p. 5.

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L 301/38
EN
Official Journal of the European Union
30.10.2012
(79) The Commission acknowledges that the Maltese auth
its initial financial position is unsecure. A firm is in
orities have undertaken to respect the stand-still
principle considered as newly created for the first three
obligation (in accordance with point 34 of the R&R
years following the start of operations in the relevant
Guidelines) and have not granted any aid to Air Malta
field of activity.
(apart from the Rescue aid as approved by the
Commission on 15 November 2010).
(85) Air
Malta
was
created
in
1974
and
cannot
therefore
be
considered as a newly created firm.
6.2.1 Eligibility
(80) Regarding
eligibility,
point
(33)
of
the
R&R
Guidelines
Business group
states that the firm must qualify as a firm in difficulty

within the meaning of these Guidelines (points 9-13).
(86) Point
13 of the R&R Guidelines states that a firm
belonging to or being taken over by a larger business
group is not normally eligible for rescue or restructuring
aid, except where it can be demonstrated that the firm's
Firm in difficulty
difficulties are intrinsic and are not the result of an
arbitrary allocation of costs within the group, and that
(81) According to point 9 of the R&R Guidelines the
the difficulties are too serious to be dealt with by the
Commission regards a firm as being in difficulty when
group itself. Where a firm in difficulty creates a
it is unable, whether through its own resources or with
subsidiary, the subsidiary, together with the firm in
the funds it is able to obtain from its owners/share
difficulty controlling it, will be regarded as a group and
holders or creditors, to stem losses which without
may receive aid under the conditions laid down in this
outside intervention by the public authorities, will
point.
almost certainly condemn it to going out of business
in the short or medium term.
(87) Air Malta plc. forms a group together with its
subsidiaries (see paragraph (10)). The accounts of the
group show that the airline, despite being part of a
(82) Subsequently,
Point
10(a)
of
the
R&R
Guidelines
clarifies
that a limited liability company is regarded as being in
larger group of companies, in fact constitutes 94 % of
difficulty where more than half of its registered capital
the total Air Malta Group turnover and there is therefore
has disappeared and more than one quarter of that
no possibility for any other part of the Group to finance
capital has been lost over the preceding 12 months.
the restructuring of the airline. Furthermore, the accounts

demonstrate that the airline’s losses are intrinsic to the
airline itself and are therefore not attributable to any part
of the Group.
(83) The
Commission
notes
that
Air
Malta
is
a
company
with
limited liability which has lost almost all of its registered
capital and is unable to meet its current obligations. Air
(88) The
Commission
thus
considers
that
the
difficulties
of
Malta was found to be a company in difficulty already in
Air Malta are not a result of an arbitrary allocation of
the decision by which the rescue aid to the company was
costs within the group but are mostly due to weak
approved ( 1 ). According to point (25) of the R&R
revenues in its core business. The difficulties are too
Guidelines a Member State concerned must communicate
serious to be dealt with by the group itself especially
to the Commission, not later than six months after the
because many of the subsidiaries are loss making and
rescue aid measure has been authorised, a restructuring
the positive contribution by the profitable subsidiaries
plan or a liquidation plan or proof that the rescue loan
is far too small to compensate the losses in Air Malta's
has been reimbursed in full. Malta has duly notified the
core business.
RP of Air Malta within the six months deadline. Given
that this relatively short period the situation of Air Malta
has not substantially changed so that it requires restruc
turing aid for its return to viability, it follows that the
6.2.2 Restoration of long-term viability
company clearly still fulfils the criteria set in point 10(a)
of the R&R Guidelines and hence qualifies as a company
(89) Firstly,
according
to
point
35
of
the
R&R
Guidelines
the
in difficulty for the same reasons indicated in the
restructuring plan, the duration of which must be as
decision on the rescue aid (points 7-13 and 45).
short as possible, must restore the long-term viability
of the firm within a reasonable timescale and on the
basis of realistic assumptions as to future operating
conditions.
(84) Point
12
of
the
Guidelines
states
that
a
newly
created
firm is not eligible for rescue or restructuring aid even if
(90) The
plan
must
provide
for
a
turnaround
that
will
enable
( 1 ) N504/2010 Air Malta plc., http://ec.europa.eu/competition/elojade/
the company, after completing its restructuring, to cover
isef/case_details.cfm?proc_code=3_N504_2010
all its costs including depreciation and financial charges.

---

EN
30.10.2012 Official
Journal
of
the
European
Union L
301/39
The expected return on capital must be enough to enable
[9 to 11] % between FY2010 and FY2016 or a decline of
the restructured firm to compete in the marketplace on
the total operating cost per passenger by [8 to 10] %
its own merits (point 37 of the R&R Guidelines).
between FY2010 and FY2016.
(91) The
RP
with
five
years
long
restructuring
period
aims
to
(95) The
RP
demonstrates
that
especially
the
reduction
of
achieve a return to profitability as of FY2014 thereby
capacity by downsizing the fleet from 12 to 10 aircraft
ensuring long term viability.
and by consequently reducing the ASK capacity offered
leads to significant cost reduction.
(92) Moreover, the most important restructuring measures as
well as the implementation of compensatory measures
(96) The social costs of the restructuring amount to the legal
obligations of the Company to those workers that will be
will take place in the first half of the restructuring
made redundant. The airline has already concluded
period. However, some minor restructuring measures as
negotiations with three of its trade unions, covering
well part of the notified capital injection should be
85 % of the workforce. The negotiations with the
carried out in 2014 and 2015. The Maltese authorities
remaining trade union (ALPA) are in the final stages.
demonstrated that the strategy in the RP is set out over
The Commission notes that the airline has over-
five years after a careful assessment of the shortest time
achieved its target of 500 voluntary applications for its
required to restore the long-term viability of the
Early Retirement and Voluntary Redundancy schemes.
Company, keeping in mind possible future operating
More than 40 % of the planned total of staff has
conditions.
already left the company.
(93) The Commission notes that the notified five years
(97) The assumed cost reduction through contract
restructuring period is especially required because of
management of EUR [7 to 9] million in cost savings
the relocation of Air Malta. Indeed, Air Malta had to
appears achievable since over EUR [4 to 5] million p.a.
first implement its voluntary redundancy and early
has already been committed through negotiations
retirement schemes (following the negotiations with
concluded to date and, according to the Maltese auth
trade unions) in the first half of the restructuring
orities, negotiations with Malta International Airport
period. Subsequently, the company's reduced staff will
(which is mostly owned by private shareholders)
be able to relocate to the new headquarter building.
contributing the highest amount of cost savings […]
The sale of the land, which constitutes the main
are 90 % concluded.
element of the own contribution can thus only take
place in the second half of the restructuring period
(FY2012-FY2014). Moreover, Malta intends to disburse
the aid only in the second half of the restructuring
(98) As
to the ancillary
revenues,
the
Maltese
authorities
period (see paragraph 43) due to budgetary constraints.
demonstrated that the assumed figures ([3 to 5] % of
Furthermore, the Commission notes that especially in the
total revenues or [3 to 5] % of passenger revenues in
air transport sector in the current economic circum
FY2016) are substantially lower than the percentages
stances, the stabilization of operational and services
achieved by other carriers including LLC and network
performance has to be achieved in order to ensure a
carriers. Furthermore, Air Malta has successfully started
long-term viability as a solid base for future growth and
to implement some of its ancillary revenue initiatives
not only a short-term turnaround. This takes by nature
which deliver results that are in-line, if not above, the
several years. The Commission notes that in previous
predictions contained in the RP.
cases a restructuring period of five years or more has
been accepted ( 1 ). Therefore, on balance, the Commission
finds the relatively long restructuring period (November
Scenario analysis
2010 – 2015) acceptable.
(99) These
results
are
based
on
realistic
assumptions.
The
Commission positively notes that, following the
opening decision, all the assumptions of the RP were
(94) To
enable
a
turnaround
for
Air
Malta,
the
RP
envisages
revised and a number of key assumptions were
significant cost reductions, especially through the
adapted. In more detail:
reduction of capacity and staff as well as an improved
cost management. The annual improvements in profit
ability from cost initiatives are expected to total EUR [42
to 52] million by the end of the restructuring period
(a) GDP and market forecasts have been revised to
which corresponds to a reduction in total costs of
reflect the deteriorating economic situation in
Europe. The 5,9 % annual growth rate for the
Maltese air transport market has been reduced to
( 1 ) See Commission decisions in the cases Austrian Airlines (C 6/09),
4 % per annum for the period to 2016 in view of
OJ L 59, 9.3.2010, p. 1, paragraph 296 (6 years restructuring
period) and Royal Mail Group (SA.31479), C(2012) 1834 final,
the revised GDP growth forecasts by the IMF and
paragraph 217 (5 years restructuring period).
Eurostat.

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L 301/40
EN
Official Journal of the European Union
30.10.2012
(b) As to the assumed yield, Malta demonstrated that the
(103) Some major European air carriers like British Airways,
assumed average growth of less than 2 % in yield is
Iberia or easyJet target a much higher ROCE (12 % ( 1 ))
in line with the forecast for several network carriers
in the next years. However, the Commission notes that
in Europe (e. g. Lufthansa 1,3 % in 2012, Air France-
Air Malta as a small carrier with a fleet of only 10
KLM 1,0 % in 2012, IAG 2,9 % in 2012) and lower
aircraft which does not have much possibility to
than the directly competing LCCs easyJet (3,4 % in
benefit from synergies and which additionally intends
2012) and Ryanair (5 % in 2012).
to meet specific needs due to Malta's peripheral
geographical situation is not comparable with major
flag carriers or large LCCs. Given the particularities of
the present case, a ROCE of [4 to 6] % appears to be
enough to enable Air Malta to compete in the
(c) As to the assumptions on inflation, Air Malta
marketplace on its own merits.
reviewed its assumptions and corrected for inflation
by including a 1,2 % p.a. escalation in costs to the
fixed component of the aircraft leases. The revision of
the inflation component on the rental agreements
results in 60 % of the operating cost base of the
(104) Furthermore, Air Malta made progress in restructuring up
airline (personnel costs, fuel and rental agreements)
to now which demonstrates that the restructuring
being corrected for inflation. Conservatively, no
measures taken are already effective. 2011 figures show
inflation assumptions have been made for revenue
a revenue increase of 1,6 % compared with 2010 (not
to account for an increase in purchasing power in
withstanding 8 % capacity reduction) which is 2,9 %
the long-term. Furthermore, wage increases – wages
ahead of the levels originally forecasted in the RP ( 2 ).
are the second largest cost item for Air Malta – have
Air Malta's financial performance for the year to date
been included in the RP.
December 2011 has improved by EUR 13 million on
last year and is approximately EUR 1 million better
than the results forecasted in the RP. Other key indicators
for the same period show that the seat load factor has
increased by [3 to 5] %, passengers have increased by [1
(d) The costs for fuel, which are the largest cost item for
to 3] % and average fare has increased by [0 to 2] %
the airline, are expressed in real terms. The fuel price
whereas Cost per Available Seat Kilometre (CASK) is [0
forecast has been revised to better reflect the latest
to 2] % lower.
long-term oil price forecasts.
(105) Against this background, the Commission considers that
(100) In addition, Malta provided a scenario analysis including,
the revised the RP will enable Air Malta to restore its
beside the above mentioned most realistic assumptions
long-time viability within a reasonable timescale.
(base case scenario), a best case and a worst case scenario
with modified assumptions on several key drivers such as
expected cost reductions through renegotiation of
contracts, staff reduction, number of passengers,
revenue per passengers, fuel price and foreign exchange
6.2.3 Avoidance of undue distortion of competition (compen
rates.
satory measures)
(106) Secondly, according to point 38 of the R&R Guidelines,
compensatory measures must be taken in order to ensure
that the adverse effects on trading conditions are
(101) The revision and the adaptation of a number of key
minimized as much as possible. These measures may
assumptions as described in paragraph 99 led to
comprise divestment of assets, reductions in capacity or
revised financial projections for the base case scenario
market presence and reduction of entry barriers on the
resulting in the FY2015 operating profit to move from
markets concerned (point 39 of the R&R Guidelines).
EUR [11 to 13] million to EUR [9 to 11] million and the
FY2016 operating profit to move from EUR [13 to 15]
million to EUR [9 to 11] million. Together with the
provided clarification, the adapted assumptions and the
revised forecasts give now a more realistic and sound
(107) In this regard, closure of loss-making activities which
picture of Air Malta's future development.
would at any rate be necessary to restore viability will
not be considered as a reduction of capacity or market
presence for the purpose of the assessment of the
compensatory measures (point 40 of the R&R Guide
lines).
(102) Air Malta aims to achieve a return on equity of [4 to
6] % and [4 to 6] % and a return on capital employed of
[4 to 6] % and [4 to 6] % respectively in FY2015 and in
( 1 ) See comments by IAG dated 2 March 2012.
( 2 ) The RP expected revenues in December 2011 amounting to
FY2016. These profitability figures are in line with other
EUR 169,939 m whereas the actual figures show revenues of
major European carriers in the last years.
EUR 174,896 m (which is 2,9 % ahead).

---

EN
30.10.2012 Official
Journal
of
the
European
Union L
301/41
(108) Air Malta proposes the following compensatory
(112) The Commission does not take into account so called
measures:
'marginal' routes, i.e. routes which are not profitable
today having a gross margin between 0 % and -10 %
but have potential for profitability in the future with
the right management and commercial attention and
— Reduction in absolute capacity in passenger transport;
investment, since point 40 of the R&R Guidelines
refers to 'loss-making activities' at the time of notifying
the RP.
— Surrender of profitable and potentially profitable
routes;
(113) As to the profitability of charter flights, the Maltese auth
— Surrender of landing slots at coordinated European
orities confirmed that all charter services were profitable.
airports;
The overall profitability of charter flights for FY2010 was
[5 to 8] % (gross margin).
— Reduction of cargo flights;
(114) The Commission takes into account the figures for the
changes between FY2010 and FY2013 and not for
— Sale of subsidiaries.
between Summer 2009 and Summer 2012 since the
end of FY2010 (i.e. March 2010) constitutes a more
appropriate starting point than the summer 2009, i.e.
six months earlier, in view of the restructuring period
Reduction in absolute capacity in passenger transport
starting in autumn 2010. The Commission notes that
the Maltese authorities confirmed that the route
(109) The first compensatory measure offered by Air Malta is
the reduction of capacity in passenger transport. The
network should be constant from FY2013 onwards so
total capacity reduction amounts to 19,7 % (Summer
that this capacity change applies for the whole restruc
2009 to Summer 2012) or 20,9
% (FY2010 to
turing period.
FY2013). The overall capacity reduction cannot be
accepted under point 40 of the R&R Guidelines since
this also includes the reduction and withdrawal of
unprofitable routes.
(115) Based on an overall capacity in FY2010 of 4 145 522
ASK, the capacity reductions related to both profitable
scheduled routes and charter routes amount to […] ASK
Surrender of profitable and potentially profitable routes
which is accompanied by an expected capacity increase

of […] ASK. Therefore, the overall capacity reduction in
(110) Based on the information provided in the formal inves
passenger transport acceptable as compensatory measure
tigation procedure, the Commission is in a position to
(capacity reduction related to profitable routes minus
identify 14 routes (
capacity increase) between FY2010 and the end of the

1 ) to be reduced in capacity or
withdrawn which are profitable as well as a number of
restructuring period amounts to 5 % of the 2010
charter flights which can be accepted as compensatory
capacity.
measures.
(111) The profitability of the scheduled routes is determined on
Surrender of landing slots at coordinated European airports
the basis of the so called 'gross margin' which is
calculated as follows: Revenue minus VDOC (variable
(116) As a result of the Air Malta's change in network, the
direct operating costs) minus FDOC (fixed direct
reduction of frequencies operated and the cancellation
operating costs). The routes are profitable if they have
of certain routes, […] landing slots pairs ( 2 ) will be
a gross margin equal or above 0. The so called 'net
surrendered are at European Level 3 Coordinated
margin' takes also into account the overhead costs.
Airports ( 3 ). The Commission notes that the surrender
From the Commission's point of view, the gross
of these landing slots will enable other competing
margin appears to be the appropriate figure since it
airlines to increase their capacity at those coordinated
takes into account all costs which are directly linked to
airports (regardless of the concrete route that has been
the route in question. Applying the 'net margin' would
withdrawn) and thus represents a reduction of entry
be too strict since the overhead costs have a non-linear
barriers on the market. Therefore, this measure can be
relationship to fleet size and capacity and cannot be
accepted as a compensatory measure.
reduced below a certain level given the fact that some
activities and functions are necessary to the normal oper
( 2 ) […].
ations of the airline, regardless of its size.
( 3 ) See Article 2 (g) of Regulation (EEC) No 95/93 as well as the defi
nition of 'level 3 airports' under point 5 of the Worldwide Slot
Guidelines by the International Air Transport Association (www.
( 1 ) […].
iata.org/wsg).

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L 301/42
EN
Official Journal of the European Union
30.10.2012
Reduction of cargo flights
(122) The compensatory measures must be in proportion to
the distortive effects of the aid and, in particular, to the
(117) In the formal investigation procedure, Malta has
size and the relative importance of the firm on its market
proposed as additional compensatory measure a
or markets. The degree of reduction must be established
capacity reduction of 20 % in cargo flights. According
on a case-by-case basis (point 40 of the R&R Guidelines).
to Malta, all cargo flights concerned have been profitable.
Air Malta holds a significant market position in the local
cargo and freighter market (with a market share of 28 %
for flights from and to Malta). Therefore, the
Commission will take into account this reduction as
compensatory measure.
(123) Air Malta is a very small player in the European aviation
market representing only 0,25 % of the entire European
airline industry’s productive capacity and output (in
terms of passengers).Even though Air Malta has still a
leading position in the Maltese aviation market, the
Sale of subsidiaries
airlines which would benefit from Air Malta's market
exit are above all large LCCs like Ryanair and easyJet
(118) Beyond the capacity reduction, Air Malta proposes the
sale of non-loss making assets as compensatory
that already have a significant market share in the
measures. This includes its subsidiaries Shield Insurance
European aviation market.
Company Ltd ("Shield Insurance") and Osprey Insurance
Brokers Company Ltd ("Osprey Insurance Brokers").
Shield Insurance is a Captive Insurance Company
operating in Guernsey and is primarily set up to insure
Air Malta's peripheral aviation insurance policies.
However it has access to the international insurance
(124) The Commission notes that for a small carrier like Air
market and is licensed to transact insurance business of
Malta, any further reduction in its fleet size will have a
various classes, both in respect of the Air Malta Group as
negative effect on the viability of the airline, without
well as for third parties. Osprey Insurance Brokers is an
providing any meaningful market opportunities for
insurance broker and specialises in handling accounts of
competitors. Air Malta's fleet may be too small to
a medium to large economical nature involving all classes
provide synergies and to efficiently have a multiple
of insurances, including aviation.
type fleet to attract a bigger market and reach potential
markets. For Air Malta, it is very difficult to diversify on
board products and seating configurations in its aircraft
to maximise profits. Furthermore, the small size puts Air
Malta at a disadvantage when financing aircraft, handling
(119) According to point 40 of the R&R Guidelines, the
contracts and other matters where economies of scale
compensation measures should take place in particular
bring tangible financial and competitive benefits. Any
in the market where the firm will have a significant
further capacity reduction could have a cumulative
market position after restructuring.
negative effect on the airline's ability to compete with
larger competitors.
(120) The market where Air Malta has and will have a
significant market position is the Maltese air transport
market (both passengers and cargo). This does not
(125) Furthermore, Malta is an area eligible for assistance under
apply to the insurance sector. The insurance activities
Article 107 (3)(a) TFEU. According to point 56 of the
are non-core activities which are not strictly related to
R&R Guidelines, the conditions for authorising aid may
the air transport business. In fact, after the sale of Shield
be less stringent as regards the implementation of the
Insurance and Osprey Insurance Brokers, the Air Malta
compensatory measures.
group will not be active in the insurance market
anymore. Therefore, the sale neither of Shield Insurance
nor of Osprey Insurance Brokers can be considered as
compensatory measures.
(126) In addition, the Commission has to take into account the
particularities of the present case when assessing the
appropriateness of the proposed compensatory
Appropriateness of the proposed compensatory measures
measures. Malta's peripheral geographical situation as
an island causes problems with respect to accessibility
(121) When assessing whether the compensatory measures are
to the rest of the European Union. The Commission
appropriate the Commission will take account of the
acknowledges that the Maltese Islands are geographically
market structure and the conditions of competition to
isolated and therefore cross-border links with mainland
ensure that any such measure does not lead to deterio
Europe and other parts of the world are limited to sea
ration in the structure of the market (point 39 of the
and air transportation. Appropriate air links are crucial
R&R Guidelines).
for Malta's economy given its high degree of economic

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EN
30.10.2012 Official
Journal
of
the
European
Union L
301/43
openness ( 1 ) (necessitating reliable transport links for
(130) The Commission considers that the 5 % capacity
business travellers) and the importance of the tourism
reduction (for profitable activities) in passenger
industry ( 2 ). They are also vital for Malta's economic
transport (which is related to the fleet reduction by
and social cohesion both internally and with the rest of
two aircrafts over 12 aircrafts) may appear at first sight
the EU by providing daily transportation of mail and
to be small. However, considering the small size of Air
freight including perishables goods between the islands
Malta compared to the European airline industry’s
and the European mainland as well as passengers
productive capacity and output (in terms of passengers)
transport for medical reasons in stretchers and incubators
and the small size of Air Malta's fleet, the Commission
(in cases where special medical care required is not
finds that this capacity reduction is not insignificant.
available in Malta).
Moreover, the Commission notes that the overall
capacity reduction will result in a decrease of Air
Malta's market share on the Maltese air transport
market from 51 % in 2010 to less than 40 % expected
in 2016 ( 4 ).
(127) Also in its decision of 7 March 2007 concerning Cyprus
Airways ( 3 ), the Commission, when assessing the appro
priateness of the compensatory measures, considered in
respect of Cyprus the
(131) In view of the above, and taking furthermore into
account the fact that Air Malta will surrender an
important number of slots at coordinated airports,
"territorial, and, therefore permanent, characteristics
immediately creating new business opportunities for its
which impact on its socio-economic development.
competitors, the important capacity reduction of 20 % in
Cyprus' southern peripherality results in direct problems
the cargo flights segment (which will affect the significant
with respect to accessibility to the rest of the European
market position in the local cargo and freighter market
Union and as a result the country is extensively
held by Air Malta), the particular situation of Malta as
dependent on air and sea transport, but particularly on
regards peripherality, accessibility and dependence on air
air transport. This is important as in the case of Cyprus,
transport, the Commission concludes that the proposed
air travel is the only viable means of business passenger."
compensatory measures are appropriate to minimise the
distortive effects of the aid and proportionate to those
effects, and the size and importance of Air Malta.
(128) The Commission notes that Malta is in a situation
comparable to that of Cyprus in respect of peripherality,
accessibility and dependence on air transport.
6.2.4 Aid limited to the minimum (own contribution)
(132) Thirdly, according to point 43 of the R&R Guidelines, in
order to limit the amount of aid to the strict minimum
of the restructuring costs necessary, a significant
(129) The Commission notes that, since Air Malta is a very
contribution to the restructuring plan by the beneficiary
small player in the European aviation market and since
from its own resources is necessary. This can include the
the notified aid will not enable Air Malta to conduct an
sale of assets that are not essential to the firm's survival,
aggressive expansion policy or grow in dimension, the
or external financing at market conditions.
distortive effect of the notified measure is limited.
( 1 ) The Maltese economy has a high degree of openness, with exports
and imports accounting for around 77 % and 73 % of GDP in 2009.
58 % of export trade was conducted using air transport. In relation
(133) For large firms, the Commission normally considers a
to imports, although the majority of import trade was conducted
contribution of at least 50 % of the restructuring costs
using sea transport, air transport has also a significant share of 30 %.
to be appropriate. However, in exceptional circumstances
( 2 ) Malta is highly reliant on tourism, which in turn is dependent on air
and in cases of particular hardship, the Commission may
transport. The tourism sector has long been a key pillar of the
Maltese economy and is the leading services activity both in terms
accept a lower contribution (point 44 of the R&R Guide
of employment creation and foreign exchange earnings. Tourism
lines).
contributes approximately 25 % to the GDP of Malta. In 2009,
Malta attracted around 1,2 million tourists who spent EUR 638
million. According to Edition 2010 of European statistics, the
ratio of international tourism receipts to GDP was highest in
Malta (11,4 %). Malta is also heavily reliant on the HORECA
(hotel, restaurant and catering) sector. According to the EU Labour
(134) The own contribution must be real, i.e. actual, excluding
Force survey, as much as 8,6 % of the employed population – the
all future profits such as cash flow (point 43 of the R&R
highest for any EU-27 country – works in the HORECA sector
Guidelines). Inherently, the own contribution must not
which is directly related to tourism, compared to 4,3 % for EU-27.
include any further state aid.
The importance of tourism for Malta is reflected in the fact that
tourism intensity was 19,4 % (guest night per inhabitant) while the
EU-27 average was 4,6 %. About 98 % of tourist passengers relied
( 4 ) The Commission observes that in previous restructuring decisions, it
on air transport rather than sea transport.
did not distinguish between profitable and non-profitable activities
( 3 ) Commission decision C(2007) 300 of 7 March 2007 (OJ L 49,
when assessing the appropriateness of the capacity reduction as
22.2.2008, p. 25), paragraph 132.
compensatory measure.

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L 301/44
EN
Official Journal of the European Union
30.10.2012
(135) As described above under section 2,4, the proposed own
set out by the International Valuation Standards Council
contribution of Air Malta consists of the sale of land, the
– and the evaluation is based on credible assumptions.
sale of subsidiaries, the sale of engines and a bank loan.
Therefore, the Commission considers that the result of
the present appraisal report is an appropriate approxi
mation for the realistic market price of the land.
Sale of land
(136) The most important part of the Company's own
(142) In view of the above, the Commission accepts the
contribution (EUR 66,2 million) will come from the
proceeds through the land sale as own contribution.
sale of land situated on the perimeter of Malta Inter
national Airport to the Maltese State. The Promise of
Sale Agreement was signed on 7 December 2011.
Sale of subsidiaries
(143) The sale of subsidiaries […] should, according to Malta,
(137) The sale will not be carried out in an open, transparent
generate at least EUR [10 to 12] million.
and non-discriminatory tender. However, in line with its
general policy and the national legal requirements, all
property acquisitions by the Maltese Government have
to be effected at a fair open market value, which
reflects the price that would be paid on an arm’s
(144) The value of the subsidiaries is based on indicative values
established by […] in a document entitled “Review of
length basis by a private investor.
potential disposal of assets” dated 24 June 2011.
(138) Air Malta has explained that in view of its restructuring
some of its properties became redundant such as its head
(145) Malta confirmed that all sales and transactions will be
conducted in an open, competitive, transparent and non-
office which will be too large for its reduced workforce.
discriminatory manner. The sale process is managed by
With a move to new premises, the company also wishes
an independent adviser. The open tender sale process is
to stimulate its cultural transformation into modern and
launched with the publication of a Request for Proposals
dynamic airline.
and the opening of an electronic data room. After the
selection of short-listed bidders, the data room re-opens
to the short-listed bidders for the purpose of due dili
gence. The short-listed bidders are invited to submit a
(139) The Government of Malta has expressed its strategic
final offer. The selected bidder is chosen and approved by
interest to acquire Air Malta's property situated on the
the Air Malta Board of Directors in view of maximising
perimeter of the Malta international airport as the land
the value of the assets. The most important steps are
sites concerned represent a scarce resource. Malta
notified to non-selected bidder to ensure a transparent
explained its long term strategy for the development of
and non-discriminatory procedure. Two sale procedures
aviation related activity in Malta, including the creation
have already been launched in line with the above
of a cargo hub as part of an enlarged aviation park that
described procedure: the sale of Selmun Palace and of
also includes aircraft repair and other related facilities.
Holiday Malta.
(140) The Commission acknowledges that with the land sale
(146) The Commission notes that the first bids for one of the
Malta pursues its strategy to develop the aviation related
subsidiaries, Holiday Malta, were significantly […] than
industry in Malta in order to increase employment in this
the indicative value. However, recent evaluation of
sector. Therefore, the Commission considers that the land
Selmun Palace in December 2011 – […] – support a
sale has not the main purpose to inject fresh money in
value ranging between EUR […] million and EUR […]
Air Malta but pursues a credible policy objective.
million.
(141) The value of the land is based on an independent
(147) Although Air Malta presented a conservative approach –
valuation report dated 25 November 2011 by […], an
the assumptions in the RP include a 15 % risk adjustment
independent evaluator appointed by the Government for
(proceeds from the sales of EUR [10 to 12 million
this purpose. […] is a reputable real estate firm with
instead of EUR [12 to 14] million) – the Commission
long-standing international and local experience. The
considers that the information provided on the
Commission has analysed the evaluation and found it
evaluation of the subsidiaries is not sufficient. The
sound. The evaluation gives no cause for concern since
evaluation reports are of a relatively poor quality and
no manifest errors have been detected, accepted method
do not enable the Commission to firmly conclude on
ologies are applied – the applied valuation standards are
the actual value of the subsidiaries.

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EN
30.10.2012 Official
Journal
of
the
European
Union L
301/45
(148) Against this background, the Commission is not in a
prior to the transaction. As no binding agreements have
position to quantify the exact amount of proceeds
been provided, this bank loan cannot be regarded as real
from the sale of subsidiaries. However, the Commission
and actual own contribution as required in point 43 of
notes that, based on the available information, the
the R&R Guidelines.
subsidiaries are indeed of a certain value. Any revenues
from the sale of subsidiaries, will therefore increase the
own contribution.
(154) However, the Commission notes that Air Malta already
arrived at the conclusion of a bridging finance in
Sale of engines
December 2011 amounting to EUR [25 to 30] million

for a three years maturity, secured without any assistance
(149) The proceeds from the sale of two spare engines to […],
of the Maltese authorities. The purpose of this loan is a
a private international financing and leasing company for
bridging financing of the restructuring of Air Malta until
spare engines, should be included into own contribution
2014 when the proceeds from the land sale are expected
of the company to its restructuring costs. The sale of the
to materialize.
spare engine with the serial number ESN […] took place
on 28 October 2010 and generated USD [10 to 12]
million. The sale of the spare engine with the serial
number ESN […] took place on 17 December 2010
(155) The loan will be provided by […]. Both banks are to be
and generated USD [9 to 11] million. The overall
regarded as private banks. […]
proceeds through the sale of engines amount to USD
[19 to 23] million (about EUR [15 to 17] million).
However, it should be noted that whereas engine No.
… was fully owned by Air Malta, engine No. […] was
leased property of Air Malta. The Airline had an option
(156) Air Malta has to pay an interest rate of currently [4 to
to purchase engine No. […] at EUR [5 to 7] million,
6] % p.a. (i.e. [150 to 350] basis point above the […]
which was exercised, and consequently the engine was
base rate as reference rate which currently amounts to
sold to […] and then leased-back.
2,5 %) plus fees amounting to [1 to 1,5] % p.a. The loan

is secured by a mortgage of EUR [25 to 30] million.
(150) For the purpose of own contribution, Air Malta has
applied the net proceeds, coming from the sale of the
(157) The Commission notes that this loan agreement of
engines, and has therefore considered the EUR [5 to 7]
December 2011 demonstrates that Air Malta was
million as a cost. The net proceeds are calculated as the
already able to obtain external financing at market
revenue from the sale of engines to […] (USD [10 to 12]
conditions without any assistance of the Maltese auth
million + USD [9 to 11] million = USD [19 to 23]
orities. Such financing shows that the market believes
million or EUR [15 to 17] million) less the cost of
in the feasibility of the envisaged return to viability.
purchasing of engine No. […]) (EUR [5 to 7] million)
The Commission hence considers the EUR [25 to 30]
netting EUR [10 to 12] million as own contribution.
million loan as part of the own contribution.
(151) The Commission notes that the sales of engines took
place within the restructuring period or just a very few
Appropriateness of the proposed own contribution
days to its beginning. Therefore, the whole revenues from
(158) In view of the above, the Commission considers as
those sales can be considered as own contribution.
appropriate and acceptable own contribution the
Furthermore, the Commission accepts the proposed
proceeds from the sale of land (EUR 66,2 million); the
calculation of the real amount of proceeds from the
sale of engines (EUR [9 to 12] million) and the bank
sales and thus accepts the own contribution of EUR [9
loan concluded in December 2011 (EUR 30 million). The
to 12] million.
total own contribution hence amounts to EUR 107
million which constitutes 45 % of the total restructuring
costs. Furthermore, the Commission notes that if the
expected proceeds from the sale of subsidiaries materi
Bank loan
alize, then the level of the own contribution will raise by
EUR [10 to 12] million and the total own contribution
(152) A loan amounting to EUR [20 to 25] million should be
granted by […] as of mid-2014.
would thus amount to 49,5 % of the total restructuring

costs.
(153) Malta has provided letters of intent by the two banks
dated 24 and 29 November 2011. However, no legally
(159) Malta is an area eligible for assistance under Article 107
binding agreement has been concluded yet since,
(3)(a) TFEU. In assisted areas the conditions for auth
according to Malta, it is commercial policy of the
orising aid may be less stringent as regards the size of
banks not to bind themselves more than two years
the beneficiary's contribution (point 56 of the R&R

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L 301/46
EN
Official Journal of the European Union
30.10.2012
Guidelines). Furthermore, Malta's peripheral geographical
(164) In order to determine whether an economic advantage in
situation causes problems with respect to accessibility to
favour of Air Malta is present in the 2004 injection and
the rest of the EU and as a result the country is exten
therefore this measure involves state aid, the Commission
sively dependent on air transport (see paragraph (126)
must assess whether the undertaking received 'an
above) which has to be taken into account.
economic advantage, which it would not have obtained
under normal market conditions ( 2 )'. To examine this
question the Commission applies the market economy
investor principle (MEIP). According to this test, where,
in similar circumstances, a private investor operating in
(160) Due to the particularities of the present case, an own
normal market conditions of a market economy of a
contribution slightly lower than 50 % appears acceptable.
comparable size to that of the bodies operating in the
Since the RP, especially the submitted financial plan,
public sector could have been prompted to make the
demonstrates that the amount of aid is such as to
capital contribution in question, no State Aid would be
avoid providing Air Malta with surplus cash which
involved. The Commission must therefore assess whether
could be used for aggressive, market-distorting activities
a private investor would have entered into the trans
not linked to the restructuring process and that the aid
action in question on the same terms ( 3 ). The attitude
does not finance new investment that is not essential for
of the hypothetical private investor is that of a prudent
restoring the firm's viability as stipulated in point 45 of
investor ( 4 ) whose goal of profit maximisation is
the R&R Guidelines, the Commission concludes that an
tempered with caution about the level of risk acceptable
own contribution of at least 45 % is appropriate in the
for a given rate of return ( 5 ).
present case.
6.2.5 ‘One time, last time’ principle
(165) Moreover, '… [T]he comparison between the conduct of
public and private investors must be made by reference
(161) Finally, the aid must respect the condition that it is ‘one
to the attitude which a private investor would have had
time, last time’. Point 72 of the R&R Guidelines provides
at the time of the transaction in question, having regard
that a company that has received rescue and restructuring
to the available information and foreseeable devel
aid in the past ten years is not eligible for rescue or
opments at that time ( 6 )'.
restructuring aid.
(166) The Commission's analysis and assessment must include
(162) In April 2004, before accession to the EU, Malta carried
all factors that are relevant to the transaction at issue and
out a capital increase of EUR 57 million. The transaction
its context. This will include the financial situation of the
in question was made in kind and involved the transfer
beneficiary undertaking at the relevant market, while ex-
of real property (land and buildings) in return for
post developments or results are irrelevant unless they
obtaining additional shares in Air Malta. This measure
were foreseen at the time of the investment ( 7 ).
was not considered as rescue or restructuring aid by
the Maltese authorities who considered the capital
increase to be compatible with the market economy
investor principle.
(167) The transaction in question involved the transfer by the
Government of real property (land and buildings) to Air
Malta in return for obtaining additional shares in Air
(163) The Commission was informed about this measure at the
Malta. The use of the property in question had long
time in the context of pre-accession cooperation. Since
vested with Air Malta. The real estate in question had
the measure was granted before Malta's accession to the
been formerly held by Air Malta under a lease agreement
EU, it was not necessary for Malta to seek the Commis
since 1979 for an indefinite period. Air Malta had over
sion's approval prior to implementing the capital increase
the years enhanced the value of the property at its own
in 2004. However, in line with consistent Commission
cost and on the basis of an expectation that the property
practice (
would be transferred.

1 ), the Commission will take account of restruc
turing aid granted prior to accession for the application
of the "one time, last time" principle in subsequent cases
( 2 ) Joined cases T-228/99 and T-233/99, paragraph 251.
of restructuring aid.
( 3 ) Judgment in Joined Cases T-228/99 and T-233/99 Westdeutsche
Landesbank GZ v Commission [2003] ECR II-435 et seq, paragraph
245.
( 1 ) Commission Decision 2007/509/EC of 20 December 2006 on State
( 4 ) Case C-482/99 France v. Commission [2002] ECR I-4397,
aid No C 3/2005 (ex N 592/2004 (ex PL 51/2004)) which Poland is
paragraph 71.
planning to implement for Fabryka Samochodow Osobowych SA
( 5 ) Joined cases T-228/99 and T-233/99, paragraph 255.
(formerly DAEWOO — FSO Motor SA) (OJ L 187, 19.7.2007,
( 6 ) Joined Cases T-228/99 and T-233/99, paragraph 246. See also, Case
p. 30); Commission Decision 2010/174/EC of 10 March 2009 on
T-16/96, Cityflyer Express vs. Commission, [1998] ECR II-757,
the State aids C 43/07 (ex N 64/07) and C 44/05 (ex NN 79/05, ex
paragraph 76.
N 439/04) granted by Poland to Huta Stalowa Wola SA (OJ L 81,
( 7 ) Case C-124/10P, Commission v EDF, Judgement of 5 June 2012,
26.3.2010, p. 1).
paragraph 85.

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EN
30.10.2012 Official
Journal
of
the
European
Union L
301/47
(168) The Commission notes that this transaction was
corresponds to at least the nominal value of the shares
discussed and prepared over a number of years. The
and the share premium thereon issued in the company to
plan to transfer the land was already made in the
the Government of Malta".
1990's. A board paper in 2000 already referred to this
transaction. The reason for the delay of its implemen
tation is the privatisation of Malta International Airport
which was only completed in 2002.
(173) Moreover, the Commission notes that Air Malta was not
a firm in difficulties in April 2004. Although Air Malta
suffered from losses incurring by Air Malta's subsidiary
Azzura Air in the aftermath of 9/11, Malta had
(169) The transaction was made in view of a Corporate
significant cash reserves at that time. Based on the
Strategy and Business Plan 2004-2007 (November
figures on 31 July 2003, Air Malta's total equity was
2003) and a 3-year financial projection. Given positive
EUR 45,7 million (issued share capital of EUR 11,7
outlooks for the market environment such as expected
million plus a positive balance on the profit and loss
market growth for the Maltese air transport market,
account). Based on the management account for the
increasing seat capacity and earning margins in the
seven months ended 29 February 2004, the loss for
European aviation sector as well as encouraging results,
this period was EUR 15,5 million and a loss of
the business plan expected a substantial increase in
EUR 19,2 million was expected for the whole financial
passengers and yield in the following years achieving
year. Further losses have been recognized when closing
profitability by FY2007.
off the July 2004 statutory financial statements and
computed in early 2005. However, these losses would
not have been known or anticipated in April 2004.
(170) The relevant forecasts reflected the general opinion in the
airline industry at the time predicting strong growth in
the air transport sector. Furthermore, the positive results
(174) Furthermore, Air Malta was able to raise external debt
were based on additional expected growth opportunities
from three private banks without any Government
due to the EU accession of Malta. Besides the
support.
improvement of the capital structure, the business plan
proposed a number of reasonable initiatives such as the
introduction of a standardised, modern and fuel efficient
fleet of Airbus A319/A320 as well as rationalisation of
maintenance. The Commission notes that in 2004 LCCs
(175) Finally, private minority shareholders participated in the
were not seen as a threat for Air Malta on its core market
capital increase in proportion to their holdings (less than
as the lengths of the routes to/from Malta were regarded
5 % of the total capital).
as too long to make the LCC business model work.
Although the expectations turned out to be too opti
mistic and the challenges on the market to be under
estimated from an ex post perspective, given the
(176) Against this background, the Commission does not have
information available in 2004 and the general opinion
compelling evidence demonstrating that the April 2004
in the airline industry, the Commission considers the
transaction was not compliant with the market economy
forecasts in the business plan and the 3-year financial
investor principle since it appears rather reasonable to
projection to be credible at that time.
assume that a private investor would have behaved in
the same way as the Maltese government did, in
similar circumstances. The 2004 transaction therefore
did not constitute state aid to Air Malta.
(171) Due to the fact that the Maltese government as major
shareholder of Air Malta contributed only a minimal
share capital when the company was founded in 1974,
Air Malta was hugely undercapitalised compared to other
(177) The Maltese authorities have furthermore confirmed that
flag carriers prior to April 2004 and needed a capital
Air Malta has not received any rescue or restructuring aid
structure proportionate to its operations. The capital
in the past ten years. The Commission therefore
increase, which was made in kind by the transfer of
considers that the ‘one time, last time’ principle is
land, was intended to ensure that the company had a
respected.
balanced financial structure so as to enable it to engage
in a growth strategy and allow further equity leverage
through enhanced working capital management arrange
ments.
6.3 Conclusion
(178) In view of the above, the Commission considers that the
envisaged aid amounting to EUR 130 million and the RP
(172) The transaction was based on a market value with advice
is compatible with the conditions required by the R&R
from PriceWaterhouseCoopers which stated that "the
Guidelines. The Commission hence considers the aid to
value of assets being allocated to the company
be compatible with the internal market.

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L 301/48
EN
Official Journal of the European Union
30.10.2012
HAS ADOPTED THIS DECISION:
Article 1
The restructuring aid notified by Malta consisting in granting EUR 130 million to Air Malta in the form of
equity, including a debt-to-equity swap of the approved rescue loan of EUR 52 million, constitutes State aid,
within the meaning of Article 107 (1) of the Treaty on the Functioning of the European Union.
That State aid is compatible with the internal market on the basis of Article 107(3)(c) of the Treaty on the
Functioning of the European Union.
Article 2
This Decision is addressed to the Republic of Malta.
Done at Brussels, 27 June 2012.
For the Commission
Joaquín ALMUNIA
Vice-President

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Document Outline

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