Coronavirus: Airlines lobby Sunak over prolonged ‘cash crisis’ wanting help well past June
Britain’s airline industry is urging ministers to further extend government emergency wage subsidies beyond the end of June, warning that it will face a continuing “cash crisis” as demand for air travel takes months to recover from the COVID-19 crisis. Airlines UK has written to the Chancellor, Rishi Sunak, to ask the Treasury to provide certainty for airlines about the ongoing operation of the Coronavirus Job Retention Scheme. Airlines UK says if the scheme is “withdrawn prematurely, carriers experiencing only a tentative revenue recovery will face a renewed cash crisis”. They also want a ‘tapering’ of the scheme or a review on a sectoral basis – to avoid aviation facing a cliff-edge post-June, whilst services start slowly being scaled up. Airlines have already had assistance with air traffic control charges for the lockdown period. Mr Sunak has said that the government will only consider bailing out individual carriers “as a last resort”. Airlines want the furlough scheme to last as long as possible, as if there is a second wave of infection, it will delay the return of air travel demand.
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Coronavirus: Airlines lobby Sunak over prolonged ‘cash crisis’
Airlines are urging Rishi Sunak to taper the emergency job retention scheme beyond June, in a letter seen by Sky News.
By Mark Kleinman – City editor (Sky.com)
Sunday 26 April 2020 18:26, UK
Britain’s airline industry is urging ministers to further extend government emergency wage subsidies, warning that it will face a continuing “cash crisis” as demand takes months to recover from the COVID-19 crisis.
Sky News has seen a letter sent on Friday by Tim Alderslade, chief executive of Airlines UK, asking the Treasury to provide certainty for its members about the ongoing operation of the Coronavirus Job Retention Scheme.
In it, Mr Alderslade told Rishi Sunak, the chancellor, that if the scheme is “withdrawn prematurely, carriers experiencing only a tentative revenue recovery will face a renewed cash crisis”.
“We believe that the scheme will need to be extended beyond June, [currently the scheme is till the end of June] and that consideration should be given to measures – including a ‘tapering’ of the scheme or a review on a sectoral basis – to avoid aviation facing a cliff-edge post-June, whilst services are scaled-up.”
The Airlines UK letter was sent amid ongoing deliberations by the Treasury about the provision of taxpayer support to the aviation industry.
Carriers have already called for additional help from the government on regulatory and air traffic control charges.
Mr Sunak has said that the government will only consider bailing out individual carriers “as a last resort”, dealing a blow to airlines including Virgin Atlantic Airways.
The chancellor has, however, already extended the job retention scheme by one month and signalled his openness to doing so again.
Industries such as aviation are particularly keen for it to be in place for as long as possible, because the uncoordinated international lifting of lockdown measures is likely to play a part in delaying the recovery of international air travel.
“Research by IATA [the International Air Transport Association] has shown that a substantial number of travellers are likely to delay a return to travel, and a majority could wait until they have greater certainty around their own personal finances,” Mr Alderslade wrote.
“There is early evidence of this trend in the Chinese and Australian markets, where domestic demand has continued to deteriorate or remain at substantially reduced levels even after the rate of new infections has fallen significantly.”
The comments in Mr Alderslade’s letter echo those of Stewart Wingate, the boss of Gatwick Airport, who said last week that it could take four years for passenger numbers to return to pre-coronavirus levels.
Airlines UK also told Mr Sunak that it welcomed the establishment of a ‘Restart and Recovery’ unit within the Department for Transport.
“This work will also examine economic and policy measures to support the sector, and we remain clear that further such measures will undoubtedly be required to get UK aviation back on a competitive footing and to maintain its critical role in the UK economy and as the third-largest aviation market in the world,” Mr Alderslade wrote.
https://news.sky.com/story/coronavirus-airlines-lobby-sunak-over-prolonged-cash-crisis-11979120
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See earlier:
Sunak warns airlines they will receive only ‘bespoke’ help
Cash-strapped industry urged to explore all other funding avenues first
Jim Pickard, Nikou Asgari and Peggy Hollinger in London (Financial Times)
MARCH 24 2020
The UK chancellor has warned the aviation industry it will only receive “bespoke support” from the government after all other options have been exhausted, as it reels from the virtual shutdown in global travel because of the coronavirus pandemic.
However the letter from Rishi Sunak, sent at lunchtime on Tuesday, holds out the possibility of government intervention for companies in the cash-strapped industry which can prove they have pursued all other avenues for survival.
“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,” Mr Sunak wrote.
“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.”
In those circumstances terms would be “structured to protect taxpayers’ interests”, Mr Sunak said in the letter, which was sent to airlines, airports and others in the sector.
Ministers have not ruled out the idea of taking equity stakes in some airlines to prevent the collapse of otherwise viable companies.
One industry source said airlines seeking government support should expect ministers to demand an equity stake at commercial rates and that there would be significant dilution of shareholders.
“It will be RBS style and not some soft loan,” the airline insider said, referring to the government’s takeover of the bank during the 2008 financial crisis.
Richard Branson, the chairman of Virgin Group, last week urged the government to provide up to £7.5bn of emergency state support to rescue the UK aviation industry, which has been blighted by the coronavirus pandemic. With flight bans across most of Europe, Ryanair announced on Tuesday that it did not expect to resume commercial flights before June.
In his letter, which has not been released to the public, Mr Sunak pointed out there were already several schemes available to help companies. Last week he revealed a package of measures to pay staff wages and defer several tax payments, including value added tax.
He also announced a £330bn package of loan guarantees to enable banks to lend to companies. However, the government is aware that these loans will not be available to all aviation companies because applicants need to be “investment grade”.
Mr Sunak said the priority for all companies should be to reassess their cash flow positions. “We would expect all companies to be pursuing all possible actions to preserve cash and maximise liquidity, including engaging with shareholders, lenders and the markets and utilising all available assets and facilities,” he warned.
Transport secretary Grant Shapps was willing to discuss “industry-wide measures” to help deal with the immediate crisis, the chancellor added.
Analysts suggested that airlines would struggle to raise commercial financing without greater government support than was indicated in the chancellor’s letter.
“What helps them get the commercial finance is a government backstop that can reassure lenders they are not the final line of funding,” said Gerald Khoo, aviation analyst at Liberum. “Listed companies can’t raise equity fast enough in this situation, even if capital markets were open.”
The chancellor’s demand that airlines explore every option before asking for help was seen by some of the financially more robust carriers as a smart solution to the dilemma of how to extend support without giving benefits to airlines that were not financially viable before the crisis.
“As long as everyone has access to the offer of help, that is fine,” said the airline insider. “But if it helps inefficient polluting airlines and leaves them stronger than they were before that is not OK.”
EasyJet, Europe’s second-biggest low-cost carrier, said it would review Mr Sunak’s letter and the measures to support UK business introduced last week. “Our immediate focus is on liquidity and protecting jobs and we are working with the government to make best use of these measures,” the company said.
Norwegian Air Shuttle, the struggling low-cost carrier that employs roughly 350 people in the UK, said the letter had laid out more clearly than before the preconditions for any state support. “Our discussions with government will continue,” it said. The group, which is fighting to stave off collapse, is set to draw down the first tranche of a NKr300m ($27m) Norwegian government rescue package.
But Karen Dee, chief executive of the Airport Operators Association, criticised the lack of a single comprehensive package for the entire industry.
“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,” she said.
https://www.ft.com/content/0ef2e802-6ddd-11ea-9bca-bf503995cd6f
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