UK government draws up plans to buy airline shares, that would eventually be sold back to private investors, to keep them afloat during Covid-19

The FT has reported that the UK government is preparing plans to buy equity stakes in airlines and other companies hardest hit by the coronavirus crisis, after being warned that the economic packages it has announced so far will not be enough to save them. This is still in discussion. The plans would see the UK taxpayer inject billions of pounds into companies including British Airways in exchange for shares that would eventually be sold back to private investors. The airlines, unlike companies selling essential items, currently have almost zero customers – taking holidays and leisure breaks is no longer desirable, or indeed, permitted.  So the airlines and airport will have almost no income. The government plan for the airlines is “an infusion of capital in exchange for equity.”  That is safer for the government than a loan, that may never be repaid, even when airlines get back to operating nearly normally.  Many airlines already have huge debts. They cannot borrow more commercially. Some airlines wanted state loans and tax relief, but that might not be enough during a sustained shutdown in the global aviation industry. The US might also take equity stakes in their domestic airlines.

UK government draws up plans to buy into airlines

Taxpayer injection for British Airways and other companies in return for shares

A UK official confirmed that talks were taking place which could see the state end up with equity stakes in British airlines 

By David Crow in New York and Jim Pickard in London


The UK government is drawing up plans to buy equity stakes in airlines and other companies hardest hit by the coronavirus crisis after being warned that the economic packages it has announced so far will not be enough to save them.

The plans would see the UK taxpayer inject billions of pounds into companies including British Airways in exchange for shares that would eventually be sold back to private investors, according to three people briefed on the proposals.

Two of the people said the government was contemplating the move after being warned by bankers that the support it has already unveiled — including £330bn of loan guarantees — would not be enough to stave off the collapse of companies that had seen their revenues all but evaporate.

“They are coming up with a Tarp-like programme for certain industries like the airlines,” said one of the people, referencing the US troubled asset relief programme that was rolled out during the financial crisis to support American banks.

“There are certain industries where there will need to be an infusion of capital in exchange for equity,” they said. “The challenge with a loan is if you make a loan to a company with no revenues, then accounting will say it’s impaired.”

They added: “For those companies that are really virtually shut down because of this virus a loan in many ways is not going to work.”

The person said that, in addition to airlines, “at some point the government will need to think about all the industries and businesses that might be severely impaired”.

“The airlines are obvious, but there will be others,” they said.

A second person briefed on the plans said that some companies had entered the coronavirus crisis with too much debt which would restrict how much extra borrowing they could take on.

They said: “The key is to address the companies that will require some equity capital on top of loans, as the financial structure of each company has limits to accommodate more debt, depending on their sector and existing financial structure.”

One of the people warned that the proposal was complex and might not come to fruition.

One UK official confirmed that the talks were taking place and admitted that the state could end up with equity stakes in the airlines. He said the government was being advised by bankers from Rothschild, the investment bank.

However, he cautioned that while the Tarp-type scheme was being discussed the final outcome could turn out to be “more complicated”.

Some airlines had been hoping for a more conventional rescue involving state loans and relief on airport charges and air passenger duty but ministers believe this would not necessarily be enough to keep them afloat during a sustained shutdown in the global aviation industry.

Aviation executives made those demands at a meeting with ministers on Wednesday.

Grant Shapps, the UK transport secretary. promised this week that the government would not allow the collapse of “world-leading, well-run, profitable” airlines and said an announcement would be made imminently.

Policymakers in the US have also raised the prospect of taking equity stakes in their domestic airlines.

A stimulus bill unveiled by Senate Republicans earlier this week earmarked $50bn in loans and loan guarantees to airlines. But it also said the government could take stakes in the companies through different kinds of securities in order to participate in the “gains” of its investments.

A spokesperson for British Airways declined to comment.

Additional reporting by James Politi in Washington



U.S. airlines call for payroll protections as aid talks continue

MARCH 20, 2020

CHICAGO/WASHINGTON (Reuters) – U.S. airlines called on Friday for a government stimulus package to help them weather the coronavirus crisis by providing payroll protections, warning that around 750,000 jobs depend on the airline industry.

A Republican proposal introduced in the U.S. Senate on Thursday would grant up to $50 billion in secured loans, but bars the cash grants the airlines had requested, spurring intense discussions between airlines, unions and congressional aides over the shape of the aid.

“Loans alone are not sufficient and should be coupled with a worker payroll assistance program and targeted tax relief which will allow airlines to keep operating through this crisis,” industry body Airlines for America said in a statement.

United Airlines Holdings Inc (UAL.O) and American Airlines Group Inc (AAL.O) displayed a united front with their unions, together asking employees to write letters to Congress urging action.

Chicago-based United warned that without sufficient government support by the end of March, it would have to start cutting its payroll to match a 60% schedule reduction planned for April, saying “time is running out.”

Late on Friday, United said it was now cutting 95% of its international flights in April, including suspending all flights next month to Canada, Europe, Central and South America and Africa and nearly all flights in Asia.

Airlines have already raised capital, suspended share buybacks, cut executive pay, slashed flights and grounded jets to reduce costs and preserve cash during a steep erosion in air travel demand.

Even with those “self-help measures,” Delta Air Lines Inc (DAL.N) Chief Executive Ed Bastian said on Friday his airline was burning through $50 million in cash each day. Delta expects its revenue to fall by $10 billion in the second quarter from a year earlier.

U.S. President Donald Trump has said he stands ready to support the industry, but the idea of a bailout has met with a backlash from some critics who argue the airlines should have saved more cash for a rainy day, rather than rewarding shareholders.

“Whatever they ask for will be very controversial,” said Al Koch, vice chairman of AlixPartners, who was involved in the restructuring of General Motors in 2008-09. “It’s one thing for Trump to say we’ll stand behind airlines, and another thing for Congress to enact something into law.”

Meanwhile, union groups continued to lobby for any stimulus package to guarantee protections for frontline employees.

To protect workers, Association of Flight Attendants-CWA President Sara Nelson is pushing for direct payroll subsidies for employees, ranging from wheelchair assistants and gate agents to mechanics and flight attendants.

In a letter to Senate Majority Leader Mitch McConnell and Minority Leader Chuck Schumer on Friday, a dozen lawmakers said that basic protections for frontline workers, including contractors, were “a moral obligation,” but added that airlines should not receive “a blank check.”

Talks in Congress concluded Friday without an agreement, but congressional negotiators will resume talks on Saturday.



Easyjet seeks state loans — but pays Stelios £60 million

Friday March 20 2020, The Times

Easyjet will go ahead with a £174 million dividend payout to shareholders despite appealing for taxpayer support.

The airline said that it might need lines of credit or loans from the government to cope with the coronavirus crisis. It insisted last night, however, that this would not affect the payout, £60 million of which will go to its founder, Sir Stelios Haji-Ioannou.

Easyjet gave no indication that it would ask those investors to help the business.

Including the latest dividend, the airline has made shareholder payouts of more than £1.8 billion since 2012. Of that dividend bonanza, in which the company is committed to paying 50 per cent of its earnings to shareholders, Sir Stelios, 53, and his family interests have received nearly £650 million.

The Greek-Cypriot, who controls 34 per cent of Easyjet shares, was silent yesterday when asked whether the dividend payment should go ahead. A spokesman said he would not make any comment.

It is understood that the airline took legal advice on whether it could withdraw or postpone the dividend. Johan Lundgren, its chief executive, told BBC radio that the payment was “something that we are legally obliged to do”. Scores of other stock market listed companies are withdrawing or reconsidering their annual payouts.

A spokesman for Easyjet said that the airline was not looking for a taxpayer bailout. Mr Lundgren said: “We are looking for loans on a commercial basis. We are not asking for free money.”

European travel restrictions have led Easyjet to ground more than 100 aircraft and start to save money by putting its staff on unpaid leave.

• British Airways pilots are to take a 50 per cent cut to their basic salary for April and May, split over three months, as the airline tries to cut costs. It will mean the 4,500 pilots take two weeks of unpaid leave for each of the two months, the Financial Times reported.