Air Malta's struggle and the dependent island

Malta's lifeline (Photo: Wikipedia)

Government subsidies to airlines are a regular topic on this blog, however, up until now we had focus mostly on the funds governments pay out in order to develop air routes or airports, and devoted relatively little space to that government aid whose objective is to guarantee the survival of an airline.

We have, admittedly, seen less and less of these since the wave of market liberalization of the 90s and the stronger stance of the European Commission on these matters, however, a new, and I hope exceptional, case is back on the table. This time it affects one of the small players of European aviation, but one that can have a massive impact on the economy of one of the European Union members states: Air Malta.

I guess the capital importance of tourism and air travel in this island nation, that happens to be also the Europe Union's smallest member, has been the decisive argument in convincing the European Commission to give the green light to a €52 million aid package to Malta's ailing flag carrier. We saw in a previous post how the market is often able to adapt quite quickly to the demise of a relatively large carrier, however, the fact that tourism accounts for around a quarter of the country's GDP and Air Malta is carrying nearly half of this traffic, could make any less-than-immediate transition extremely painful for the island's economy.

When I was reading about the case I could see how many commentators had serious doubts about Air Malta's capacity to reverse its situation, an opinion that seems to be shared in Brussels too...in any case, the aid package is supposed to guarantee operations for the next 6 months, a time the Maltese authorities should use to prepare for the worst-case scenario and to make sure that a possible Air Malta's bankruptcy does not bring about the bankruptcy of the country too!