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Spin-off in Malta - that's behind Lufthansa's Eurowings plan

An airline subsidiary of Lufthansa is born - and it happens in a room of the Ministry of Transport of Malta.

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Spin-off in Malta - that's behind Lufthansa's Eurowings plan

An airline subsidiary of Lufthansa is born - and it happens in a room of the Ministry of Transport of Malta. A modest setting: in one corner someone had set up three small flag stands with the flags of Malta, the EU and the transport authority itself. Next to it is an advertising wall for the new airline. A few warm words, a certificate, shaking hands, done. Eurowings Europe Limited received its license to fly two weeks ago. A photographer captured the scene.

There is a simple reason why hardly anyone other than the participants themselves noticed anything about the big moment: In reality, an airline was only founded here on paper. Eurowings Europe Ltd., the latest addition to the Lufthansa Group, is based in Malta. But she has neither counters nor planes there, she doesn't even fly to the island. A kind of mailbox airline – but for what purpose?

When Lufthansa boss Carsten Spohr presented his group's latest business figures on Thursday of this week, the Maltese curiosity was not an issue. Instead, the CEO emphasized the astonishingly rapid recovery of the aviation group in the areas of freight, technology and the passenger business.

The group wants to make more than one billion euros in profit this year, and the forecasts have been doubled. They have the "best team in the world", offer the best conditions in Europe, have reached ten deals with nine unions in a short time and will hire more than 1000 employees per month.

The problem child of the family, on the other hand, went practically unmentioned: Eurowings. In the flight boom year 2022, the airline burdened the group with a three-digit million minus. And that, while at the same time competitors like Ryanair are demonstrating how high profits can also be made in the cheap segment. Spohr will not permanently watch as the Düsseldorf subsidiary ruins his balance sheet. The pressure on Eurowings boss Jens Bischof is growing. He needs achievements.

The ongoing collective bargaining dispute with the pilots shows how tense the situation is. After four days of strikes, which cost the stricken airline tens of millions, the management lost their heads. Instead of giving in to the demands for the sake of peace and undisturbed flight operations, the path of escalation was chosen in Düsseldorf.

In an almost snotty letter to the workforce, the commercial director Kai Duve declared that his company's growth course was over because of the strikes. The acquisition of new aircraft, new appointments in the cockpit and cabin, permanent contracts, all upcoming promotions to the rank of captain are "stopped with immediate effect".

The wild all-round blow surprised not only because of the unfortunate timing parallel to the report of a billion-dollar profit of the group. There had never been such an open threat against their own employees at the Kranich Group. Horrified, the pilot representatives asked for clarification from Lufthansa HR Director Michael Niggemann. Because what Eurowings threatens is in reality not the end of the growth course - but its relocation.

"The planned growth stop at Eurowings Germany does not mean that we are reducing our offer," explains a spokesman bluntly when asked. "Rather, we will find solutions within the Lufthansa Group with which we can not only defend our market position in European traffic, but also expand it further." Growth yes, but then somewhere else.

This is where Malta comes in. Because Eurowings is only Eurowings for customers. An increasingly opaque network of sub-airlines, so-called flight operations, has emerged under the umbrella of the Lufthansa Group. There is a Eurowings Germany, a Eurowings Discover, a Eurowings Europe and recently the Eurowings Europe Limited.

In addition, there is an increased use of so-called "wet leases". According to the pilots' union, last summer Eurowings partially completed a quarter of the flights with such leased jets including staff. From the point of view of many airline employees, this all serves one purpose above all: to undermine their employee rights.

Aviation expert Heinrich Großbongardt considers the strategy of the airline management to be clever but risky. “Eurowings is in a bind. If you want to hold your own against cheap competition in point-to-point business and eventually make money here, you have to cut costs,” he says, and after fuel, personnel costs are the biggest block.

Turning the tables on the motto "We can do things differently" is a smart move. "At the same time, as part of the Lufthansa Group, Eurowings cannot actually afford to act in the manner of Ryanair," believes Großbongardt. "That could damage the reputation of the entire group." A spin-off in Malta, the proverbial tax haven that attracts countless letterbox companies with attractive design options, seems particularly disreputable at first glance.

In fact, only a handful of employees hold the position at the headquarters of Eurowings Europe Limited in the Maltese city of St. Julians, thus complying with the legal requirements. Even the boss is often somewhere else. Stefan Beveridge, acting as Managing Director, flies tourists to Tenerife with the A320 in addition to his work as head of an airline as a pilot.

The actual decisions are made by Jens Bischof in Düsseldorf. Nevertheless, there is more to the founding of the Malta sister company than the obvious suspicion of tax avoidance. In fact, this is at least a flight from bureaucracy.

Many EU countries make life difficult for airlines and their employees with double taxation. A Eurowings Europe flight attendant stationed in Spain has to pay her income tax there, and a second time at the company headquarters in Austria. So far, this net loss at Eurowings has been offset by a gross surcharge. Above all, the associated bureaucratic effort produces enormous costs, they say.

To get around the problem, Eurowings Europe is now relocating all its jets on paper to Malta, where income tax is not levied on employees not working on the island. The first Airbus has already been provided with the new Malta identifier – 9H-EUL – and will take off on November 3rd for the premiere flight under the new flag from Salzburg to Berlin. Connections to Malta are not planned. And nothing will change for the crews either, says a Eurowings spokesman. "Your employment and social status remains untouched."

However, not everyone is convinced that Malta will remain a letterbox airline. "The Lufthansa Group is gaining access to staff from third countries here, without co-determination and without tariffs," says Daniel Kassa Mbuambi, chairman of the flight attendants' union Ufo. In the course of the re-establishment, Eurowings is planning to close the base in Munich, and 65 employees will be offered continued employment at other locations on poorer terms. A principle that is already known from previous settlements of Germanwings, for example.

Eurowings is in bad company in Malta. More and more low-cost carriers are relocating parts of their business to the island. At the end of September, the Hungarian Wizz Air started flight operations here, which are also physically operated from Malta. Which shows that the tax haven must have a few other advantages to offer in addition to the issue of double taxation.

After the new settlements, Malta's Transport Minister Aaron Farrugia recently exulted at the Malta Aviation Conference, more than 800 aircraft would be registered in Malta by 2023. That is more than all the airlines in the Lufthansa Group have together. At the same time, this means that the Maltese supervisory authority must monitor the safe operation of all these aircraft and airlines. Theoretically.

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