Government to UK aviation industry: Drop Dead

Links on Head for Points may pay us an affiliate commission. A list of partners is here.

Following a number of days of talks with British Airways, Virgin Atlantic, easyJet and representatives from UK airports, the Government has refused to provide a package of financial support for the UK aviation sector.

According to reports, a letter was sent by the Chancellor of the Exchequer this afternoon which made it clear that there would be no industry-wide package of measures.

The Government did say, however, that it would be prepared to talk to airports or airlines “as a last resort” when they would otherwise need to appoint an administrator. There would be no discussions until companies were at the brink and had exhausted all other options for raising finance.

The letter implies that any deal would involve the Government taking partial or full control of the airline or airport involved through the acquisition of newly issued shares and would not involve any Government loans.

Whether of not the Government chose to save any particular business would depend on:

“whether the business makes a material contribution to the economic activity of the UK, the importance of maintaining a thriving competitive aviation sector in the UK to deliver connectivity and the equitable and fair treatment across businesses in the sector”

Here is the full text (click to enlarge):

and

The reference to ‘maintaining a thriving competitive aviation sector’ looks like a signal to Virgin Atlantic that the Government is willing to take it over if required. There had been some speculation that Virgin Atlantic could be sacrificed as long as British Airways was protected.

The Government stated that airlines and airports are already benefitting from the ability to reclaim up to £2,500 per month of the salary of furloughed workers. There was also an implication that the Government may soon allow non-investment grade companies to access pots of state funding which may benefit the weaker players in the sector.

In terms of airports, Karen Dee, chief executive of the Airport Operators Association, said in a statement:

“After having publicly announced a support package for airports and airlines, we’re surprised by where we find ourselves today. Our industry will now have to fight on its own to protect its workforce and its future”

In terms of ‘what does this mean for me’, I would say that in no circumstances now should you accept a credit voucher from British Airways, Virgin Atlantic or easyJet. Insist on cash. It is an unnecessary risk if you have an option.

Now that the Government had made it clear that no financial support will be available, it is unlikely that banks will be queuing up to provide loans to the sector. The credit card companies are also unlikely to release the funds they are refusing to pass over for flights booked in the future.

In the case of IAG and easyJet, it would be virtually impossible for them to issue new shares in the market at this time – although both have enough reserves to keep going for 3-4 months.

The Sunday Times said last week that British Airways was losing €200m per week so, assuming IAG as a whole is losing €400m per week, their €9 billion of liquidity is good for another 3-4 months.

For more information on this, click this Google search link and visit the Financial Times story at the top. Doing this gets you over the FT paywall. The Sky News version is here.

Category

British Airways and Avios, Virgin Atlantic and Flying Club

This article is closed to new posts. Discussion continues in the HfP Forums.

sayling says:

24 Mar24 March 22:37

About to show some ignorance here possibly, but wouldn’t cashing out miles with any airline help that airlines bottom line, by reducing their liabilities?
- Rob says:
  
  24 Mar24 March 22:42
  
  Balance sheet looks better, cash looks worse. Guess which one counts at the moment.
- Lady London says:
  
  25 Mar25 March 08:27
  
  Cash is always, always king.
  
  When I worked in computers one very large company that ran slot machines asked us could they pay about £300,000 worth of computer in 10p pieces 🙂
James Oliver says:

24 Mar24 March 22:47

I have an ANA flight to Tokyo booked in November with Virgin Flying Club miles… what is the likely outcome if Virgin Atlantic runs into any trouble? Would my booking go with them?
- Rob says:
  
  24 Mar24 March 22:56
  
  The history of other frequent flyer scheme failures is that bookings on partners are cancelled, as the partner will never be paid.
  - meta says:
    
    24 Mar24 March 23:16
    
    If you paid taxes/surcharges on credit card and they are over £100, wouldn’t S75 apply? You could then ask for comparable ticket on a different airline.
- Graham says:
  
  24 Mar24 March 22:57
  
  Who knows? Probably wouldn’t be honoured. That is more than six months away and what’s the point in worrying about it now? We don’t know what is happening next month. I wouldn’t book any non-refundable items if you haven’t already until VS are back up and running.
marcw says:

24 Mar24 March 23:26

Rob. For you. With Love:
“Qantas shares now up 30% in early trade after securing A$1.05 bln at interest rate of 2.75% for up to 10 years, broader market up 6%”
- Riccatti says:
  
  25 Mar25 March 02:13
  
  Actually, a good point.
  
  Airlines will have investors lining up for yield (not banks, and it is intended by regs that banks don’t take tail risks on their books..). This is because of QE, and amounts of cash available.
  
  ECB, BOE, and now FED can simply start buying airline corporate debt (if rated sufficiently well).
will says:

25 Mar25 March 00:39

Pretty insane strategy from the government here.

Run your cash piles and credit lines down and if you go into administration we’ll step in.

The weakest will get bailed out first and the strongest will have to sit there running their reserves out until they go into administration at which point they’ll get a bail out.

It might not be a reward for failure but it’s certainly a punishment for success.
- Callum says:
  
  25 Mar25 March 02:29
  
  That is the fundamental basis of our tax and benefits system though. Given that’s what happens to individuals I guess there’s some sense in treating businesses the same way.
  - Will says:
    
    25 Mar25 March 09:31
    
    In normal times I agree but right now punishing those with cash reserves for a situation they did not cause doesn’t really help.
    
    In the case of BA and EasyJet they aren’t struggling because they ran unprofitable businesses, they’re struggling because due to a once in 50+ year event they have no customers for air travel, but they will once this is over.
    
    There’s no evidence to suggest that if you bankrupt them the next airline to emerge would have been able to weather this storm and it’s quite likely you either get a government run disaster or a bunch of inexperienced lower quality alternatives.
    
    In this case also on individual basis the government have bailed out wealth owning payrol employees before they run any reserves down in their 80% to stay at home payment.
S says:

25 Mar25 March 01:18

Good. There should be no bailouts.
- Will says:
  
  25 Mar25 March 01:34
  
  I’d be interested to know your opinion on wether the Rolls Royce bain out are the time of the RB211 was a bad idea….
  
  The idea that you’ll let a company go to the wall during this only to be replaced by a company that would also have gone to the wall during this baffles me, that’s not capitalism by any stretch.
  - S says:
    
    25 Mar25 March 03:08
    
    Rolls Royce was well before my time, but I would have gladly let the banks fail in 2008.
    
    I despise government intervention.
    
    Of course it is capitalism. How is it capitalism if we keep bailing out the losers? Maybe the airlines shouldn’t have spent 99% of their liquid net on share buybacks?
    
    It’s up to the shareholders to save the airlines, not the government.
    - S says:
      
      25 Mar25 March 03:12
      
      And I’m generally sick of the “privatized profits, socialised losses” crony capitalism. The govenment should drop dead too.
      
      We could have free markets with real price competition, but instead the government decided to nationalise railways, because now when everyones preoccupied with covid, nobody will bother to scrutinize Whitehall on that decision.
      
      Capitalism.
      - John says:
        
        25 Mar25 March 04:29
        
        Railways are the worst example of privatisation
      - S says:
        
        25 Mar25 March 05:05
        
        They were never really privatised. The government was still telling the companies where to go, where to stop, and at what price to sell the tickets at.
      - pauldb says:
        
        25 Mar25 March 06:49
        
        If airlines or railway operators go into administration, it’s because no investors can see a path for them back to profitability. No shareholder is being bailed out by this, they would lose 100% (or maybe 99%).
        You can’t really compel investors to put in fresh money – hopefully that’s obvious.
        So in those circumstances, if you say it has to be free market competition to provide transportation, you get no transportation.
        The only alternative is that all of us, as taxpayers, fund the operators.
      - Will says:
        
        25 Mar25 March 09:36
        
        I agree with you on crony capitalism but a large part of why our countries industry is gone is due to lack of long term foresight and a willingness to allow companies to go bankrupt during hard times.
        
        The bank bailouts were badly executed 12 years ago but if banks failed 1. Gov would have had to pick up a huge tab for guaranteeing lost deposits and 2. Loads of business reliant on credit from banks would not have remained liquid and failed.
        
        If anything this government behaviour encourages bigger dividends in the good time so you get bailed out faster in the bad time’s and don’t waste the cash you worked hard to build.
Fred Hopkins says:

25 Mar25 March 07:05

Good work on encouraging people to bail out and take whatever cash reserves BA & Virgin et al have. I get people want their money but you’re just happily (almost gleefully) expediting their demise. Let’s see how happy you are Rob when HfP doesn’t have its backbone topic of BA, Avios & Amex to dissect on an hourly basis.
- Rob says:
  
  25 Mar25 March 10:02
  
  If BA or Virgin emailed you and said ‘will you make us an interest-free loan for two years, and by the way there is no security attached to it’ would you send them some cash in the current scenario? Of course not.
  
  This is exactly what we’re talking about here – people making an interest-free unsecured loan to a struggling airline, at a time when their own job may be at risk.
Nick says:

25 Mar25 March 07:28

Along with the Avios and Virgin miles dilemma, what about the IAG shares that a lot of us own.
Hang in there or take the hit
Paul says:

25 Mar25 March 07:29

‘ In terms of ‘what does this mean for me’, I would say that in no circumstances now should you accept a credit voucher from British Airways, Virgin Atlantic or easyJet. Insist on cash. It is an unnecessary risk if you have an option.’

… which is the fastest way to make this come to pass … so, “we’re all in this together, unless I lose my Avios points” is basically the HFP take on this global pandemic?
- Rob says:
  
  25 Mar25 March 09:58
  
  We’re talking about cash, not points.
  
  Tell me, honestly. Would you accept a £2,000 voucher from Virgin Atlantic today if you had the choice of a £2,000 cash refund instead? Remember that your voucher is NOT protected under S75 so you can’t claim from your credit card.
  - Paul says:
    
    25 Mar25 March 12:05
    
    My view is that the refund rules should be binned in these exceptional circumstances – they are clearly not designed for this type of total shutdown scenario and if the value of everyone’s future bookings were kept in the airline, perhaps that would make the existential difference.
    
    And to answer your question, no if I was offered the choice by the airline I would take the cash, but if I was not then I’m fine with that and certainly not on here, or anywhere, bleating about “being entitled” to a refund, which collectively would sink the airline. It’s the ultimate “I’m alright, Jack” – there are real people there, with jobs to worry about, it’s not just some faceless money tree.