No Government Bailout On The Cards For British Airlines

The UK chancellor Rishi Sunak has revealed that there will be no blanket bailout for the UK’s airlines. Late yesterday, he said that any rescue deal would be formed on an individual basis, and only once all other avenues have been thoroughly explored. The industry has been ‘surprised’ by his stance, although it does seem that the government hasn’t completely ruled out taking equity stakes in viable airline businesses.

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British airlines are left without a safety net as the government confirms there will be no industry bailout. Photo: Getty

No bailout for UK airlines

Yesterday, we speculated that the UK government was grappling with some tough decisions in regard to what form an airline bailout would take. Hours later, it was revealed that the government had indeed reached a decision, and that decision was not to make a decision at all.

Yesterday evening, the Financial Times reported that, despite an initial pledge of support from chancellor Rishi Sunak, there would not be an industry-wide bailout initiated. The UK chancellor reportedly warned the aviation industry that only ‘bespoke support’ would be available, and only after all other avenues have been thoroughly explored.

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In a letter seen by the FT, Sunak wrote,

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“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.”

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Airlines all over the UK have grounded large portions of their fleets. Photo: Getty

The letter went on to state that any intervention by the government as a very last resort would be “structured to protect taxpayers’ interests.” The letter was sent to airlines, airports and other businesses involved in the aviation industry in the UK.

Equity stakes not ruled out

Although this stance will come as a blow to airlines hoping for a US-style multibillion-dollar bailout, the government hasn’t completely ruled out the idea of taking equity stakes in some airlines. However, this would only be applicable if it was deemed to be completely necessary to save an otherwise viable business.

We can look to the bailout of British bank RBS back in 2008 for an idea of how this would look, should it happen. If the government was to take equity in an airline, it would likely be at commercial rates and would involve a significant shake-up of the current shareholders.

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Equity stakes could shake up some shareholdings such as IAG’s shares in British Airways. Photo: Getty

Mr. Sunak’s letter further pointed out the extensive measures the government has put into place to protect both businesses and their employees in the UK. Last Friday the government announced a package of measures to cover a large proportion of staff wages, as well as for businesses to apply for loans and defer tax payments.

Industry is ‘surprised’

The confirmation that there is to be no blanket bailout package for airlines has come as something of a surprise to airlines and airports alike. CEO of the Airport Operators Association, Karen Dee, told the Guardian that,

“After [the government] publicly announced a support package for airports and airlines, we’re surprised by where we find ourselves today.”

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Airports too are already looking to furlough or lose some staff. Photo: Getty

She said that airports were working hard to protect their staff and operations through the current crisis, but that some may need to close entirely to protect their future business. She also pointed out that some were heavily involved in what she called ‘lifeline services’, ensuring connectivity for remote communities and moving goods and medical supplies in and out of the UK. She further said,

“While countries across Europe have recognized 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.”

Numerous UK based airlines have grounded extensive portions of their fleets, with some stopping operations altogether. IATA has warned that airlines all over the world face ‘apocalypse’ if the governments do not step in to help.

What do you think of the chancellor’s stance? Fair or not? Let us know in the comments.

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Mohave

Bailout is investing. The U.S, and U.K. should not invest in airlines which will not survive. Government should invest in airlines with the best chance of survival.

Dave

At least the British government have seen sense. All British airlines are private companies with shareholders so it should be the shareholders who provide the funds not the British taxpayers. All the British airlines are listed on the stock exchange.