Chancellor tells airlines that the government will not bail them out, due to Covid-19 crisis
Rishi Sunak, the chancellor, has written to the airlines and airports, warning that there would be no sector-wide rescue to prevent companies going out of business because of coronavirus. He insisted that further taxpayer support for the sector would only be possible once they had “exhausted other options” including raising money from shareholders, investors and banks. Companies have been told to access funding already announced last week, including monthly payments of up to £2,500 for every employee temporarily laid off because of the crisis. In his letter he said that airlines and airports could only seek “bespoke” support from the Treasury as a “last resort”, with no guarantee of further help. The comments follow criticism levelled at Easyjet after it paid shareholders £174 million in dividends last week, despite appealing for taxpayer support. Sir Richard Branson, has also been attacked after the airline told staff to take 8 weeks of unpaid leave. He has since promised to invest £215 million to support his Virgin Group business. Many airlines may go bankrupt due to the virus crisis. Some of the smaller airports may close, and larger airports partly close temporarily.
Don’t expect us to bail you out, Rishi Sunak tells airlines
By Graeme Paton, Transport Correspondent
Ben Clatworthy, Assistant Travel Editor | Charlotte Wace
Tuesday March 24 2020 (The Times)
Airports may have to close temporarily after the government ruled out a comprehensive state bailout for the aviation industry, ministers were told today.
Rishi Sunak, the chancellor, wrote to the airlines and airports this afternoon, warning that there would be no sector-wide rescue to prevent companies going out of business because of coronavirus.
In a letter seen by The Times, Mr Sunak insisted that the aviation industry was “vital” to the nation’s economic recovery and to rescue Britons stuck overseas.
However, he said that further taxpayer support for the sector would only be possible once they had “exhausted other options” including raising money from shareholders, investors and banks. Companies have been told to access funding already announced last week, including monthly payments of up to £2,500 for every employee temporarily laid off because of the crisis.
In his letter he said that airlines and airports could only seek “bespoke” support from the Treasury as a “last resort”, with no guarantee of further help.
The comments follow criticism levelled at Easyjet after it paid shareholders £174 million in dividends last week, despite appealing for taxpayer support.
Sir Richard Branson, the billionaire owner of Virgin Atlantic, has also been attacked after the airline told staff to take eight weeks of unpaid leave. He has since promised to invest £215 million to support his Virgin Group business.
It is believed that the lack of a deal may also be linked to significant disparities between individual airlines and the fact that many are foreign owned. International Airlines Group – parent company of British Airways – is registered in Spain and its biggest shareholder is Qatar Airways.
Hundreds of thousands of British holidaymakers face being trapped overseas as airlines have begun grounding their fleets.
Ryanair confirmed that it expected that most of its flights would now be cancelled until the end of May as growing number of countries imposed lockdowns and restricted the movement of people. It would maintain a “very small number of flights to maintain essential connectivity, mostly between the UK and Ireland”.
However, the chancellor’s comments dismayed industry leaders, who accused the government of performing a U-turn on funding for the sector a week after the chancellor floated the suggestion of targeted financial cash to help keep planes in the skies.
The International Air Transport Association (Iata) warned that airlines in Europe would be worst hit by the global decline in travel prompted by the coronavirus pandemic. It said that European airlines were expecting an average 46 per cent drop in income this year compared with 2019.
The Airport Operators Association (AOA) said that passenger numbers at some UK airports were “approaching close to zero” and a number were already considering “shutting down for a period of time” after a collapse in income.
Airports are maintaining operations as hubs for air freight, bases for search-and-rescue operations and to provide links to the offshore oil and gas industry.
However, Karen Dee, the AOA chief executive, said that “all of that is now put at risk by the government’s decision”.
She added: “While countries across Europe have recognised the vital role airports play and are stepping into the breach, the UK government’s decision to take a case-by-case approach with dozens of UK airports is simply not feasible to provide the support necessary in the coming days.
“Not only does the decision today leave airports struggling to provide critical services, it will hamper the UK recovery . . . We urge the government to reconsider and at the very least provide a comprehensive package of support for airports and ground-based services, to ensure the UK’s critical aviation infrastructure is ready to take off once the Covid-19 pandemic recedes.”
The chancellor’s letter to airports and airlines said that the “priority for all companies should now be to reassess their cashflow positions in light of last Friday’s announcement” of support for all sectors of the economy.
Mr Sunak wrote: “Given the significant importance of the aviation sector to our economy and economic recovery, the government is prepared to enter negotiations with individual companies seeking bespoke support as a last resort, having exhausted other options. However, further taxpayer support would only be possible if all commercial avenues have been fully explored, including raising further capital from existing investors and discussing arrangements with financial stakeholders.
“Terms would be structured to protect taxpayer interest, and the government would expect to have regard to factors including but not limited to whether the business makes a material contribution to the economic activity of the UK.”
Any shutdown of airports is likely to jeopardise the mission to repatriate Britons from destinations around the world.
On Monday Dominic Raab, the foreign secretary, ordered British citizens overseas to return immediately amid fears most commercial air travel would cease. It remains unclear exactly how many Britons are overseas, although the government has said the number could be anywhere from 300,000 to a million.
Coronavirus: No extra help for airlines, chancellor says
The UK chancellor has told airlines to find other forms of funding and not turn first to the government for help getting through the coronavirus crisis.
Demand for tickets has collapsed forcing companies to ground aircraft.
Aviation bosses have been lobbying the government for a targeted aid package to stop firms going under as a result of the slump in demand.
But in a letter on Tuesday Rishi Sunak said the government would only step in as “a last resort”.
Mr Sunak instead urged airlines to try and raise money from shareholders.
He said the government would only enter into negotiations with individual airlines once they had “exhausted other options”.
But industry group the International Air Transport Association (IATA) warned of an “apocalypse” in the aviation sector as it called on governments around the world for help.
The group said annual worldwide revenues from ticket sales would fall by $252bn (£215bn) if travel bans remain in place for three months, a drop of 44% compared to last year.
“Travel restrictions and evaporating demand mean that, aside from cargo, there is almost no passenger business,” IATA boss Alexandre de Juniac, said.
“There is a small and shrinking window for governments to provide a lifeline of financial support to prevent a liquidity crisis from shuttering the industry.”
Virgin Atlantic, Ryanair and EasyJet have all grounded most of their fleets, while BA-owner IAG has cut capacity by 75% and Norwegian Air has cancelled thousands of flights.
This has also affected airports, which have cut hundreds of jobs across the UK since coronavirus arrived in the country.
Karen Dee, who runs the Airport Operators Association (AOA), said the aviation industry was “surprised” by Mr Sunak’s decision and will have to “fight on its own to protect its workforce and its future”.
“While countries across Europe have recognised the vital role airports play and are stepping into the breach, the UK government’s decision to take a case-by-case approach with dozens of UK airports is simply not feasible to provide the support necessary in the coming days,” she said.
“Not only does the decision today leave airports struggling to provide critical services, it will hamper the UK recovery.”
Carriers such as IAG and easyJet have boasted of healthy cash balances – it’s the regional airports more worthy of Treasury help
Rishi Sunak is right: airlines should ask their own shareholders for a bailout before they tap up the Treasury for public money.
The chancellor’s stance can be considered a U-turn since he seemed only last week to be ready to regard aviation as a special case. But a lot can happen in a few days and, in the interim, Sunak unveiled his flagship “furlough” scheme to keep workers in jobs by paying 80% of wages, up to £2,500 a month. That’s a huge help for all service industries, airlines included. It ought to be enough for now.
It will also have dawned on the Treasury that major UK operators can withstand a fair amount of temporary financial pain. EasyJet and IAG, owner of British Airways, have boasted about the size of their cash balances and the depth of their credit facilities. Fine, let them use those resources.
Indeed, easyJet gave a perfectly-timed illustration of its riches when it distributed a £171m dividend to its shareholders, including £60m for founder Sir Stelios Haji-Ioannou in Monaco, last week. Those same investors are free to recapitalise their airline should the need arise.
IAG and easyJet, thankfully, seemed to have absorbed the message and are not asking for bespoke deals or bail-outs. Instead, the difficulty for Sunak will come when he’s presented with pleas from weaker airlines and regional airports.
He can only promise pragmatism. It would be hard, for example, to mount an argument for saving a weak airline that couldn’t make profits in the pre-coronavirus age. There would, though, be a decent case for saving regional airports to boost economic recovery, as long as terms were good for taxpayers. But that’s getting ahead of events. In the meantime, the simple message is correct: shareholders and owners need to look out for their own interests.