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Karl Stagno-Navarra
As Air Malta and the four major unions representing the sectoral categories of its 2,000 strong workforce met last Monday, agreeing not to divulge any information regarding a proposed second rescue plan, the national airline has established itself as a pioneer in adopting a statement of corporate governance within the public sector, and is promoting this as a practice to be adopted by all government owned companies and agencies.
The initiative – that passed unnoticed to many – was launched for the first time in conjunction with the publication of Air Malta’s financial results in March.
Echoing a message he passed on last week while addressing the Institute of Accountants, Air Malta chairman Lawrence Zammit told Business Today that the initiative was taken to “ensure bigger transparency in all operations”.
The statement – though not necessary due to the fact that Air Malta is not a listed company – obliges the company to disclose information to its clients, in this case the Maltese people in general. “This practice should be adopted by all government-owned companies and agencies, as it would be the best exercise one would expect from the companies that he pays taxes for. All taxpayers are indirectly the investors, and they have a right to know what is happening with their money, just as any stock-exchange listed company is obliged to do,” said Lawrence Zammit.
The information disclosed in the statement of corporate governance is already being regarded as instrumental to the negotiations that started last Monday between the airlines top management and the unions representing the workforce.
The board of directors believes that the current setup of Air Malta plc enables it to operate in a proper and efficient manner and provides adequate safeguards for good corporate governance. The board has established committees to assist it in fulfilling its responsibilities. Committees include the audit committee, the investments committee and the fuel hedging committee.
Other initiatives aimed at good corporate governance are the corporate management board made up of all the chief officers which convene on a weekly basis and concentrate on the developing the annual budget and business plan and managing the day to day operations of the company. The CEO leads the corporate management board that reports directly to the board.
Other initiates taken in this regard were the works council, aimed to promote dialogue through the sharing of information and exchanging of ideas in an open manner between the company’s senior management and the its employees.
The internal audit is an independent, objective assurance and consulting activity designed to add value to the company’s operations. Its work focuses in bringing a systematic approach to evaluate and improve the effectiveness of risk management, control and governance processes.
Air Malta’s board of directors confirm that the above corporate governance processes were in place throughout the year 2005/6 and up to the date of approval of the financial statements. They further confirm that the information received was sufficient to enable them to review the effectiveness of the company’s systems of internal controls.
The statement of corporate governance clearly states that the airline faces the threat of traffic movements to low-cost competition where they have been offered subsidies to operate underserved routes. If more subsidies are given to low-cost operators on more routes, this will have a significant negative impact on Air Malta, threatening its survival.
The threats the Air Malta group faces demand even more than before, the continued support of all stakeholders in Air Malta plc who have already demonstrated their understanding of the needs of the company. Air Malta believes that through the support of all stakeholders the airline will deal with the challenges its faces successfully.
In line with the rescue plan, Air Malta has continued to seek further efficiencies and improvement in the airline’s cost structure. The airline is soon approaching the end of its fleet rollover plan which was accelerated by one year to reap faster cost savings benefits. By March next year Air Malta will be operating with an all 14 Airbus new fleet. Two brand new Airbus A320 will join the fleet in February and March 2007. Apart from service enhancements the new fleet offers customers, including in flight entertainment which was launched last August, the new aircraft have brought a decrease of Lm3.4 million in maintenance costs over the same period last year.
Payroll costs, which after fuel are one of the airline’s principle cost components, have decreased by 5.6% compared with the previous year. This decrease is attributed to a reduction in staff and decreases in overtime costs which were reduced by Lm100,000. The voluntary redundancy scheme which closed in few days ago is expected to yield further payroll savings. Other cost savings were registered from handling expenses at foreign airports (Lm600,000), aircraft rentals (Lm1million), commissions (Lm500,000), and insurance costs (Lm300,000).
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