The UK government is getting close to finalizing the details of a deal to support its airlines amid the current decline in air travel. Airlines including Ryanair and IAG met with transport secretary Grant Shapps earlier this week to set out what they feel they need from the UK right now. Any rescue package is likely to be a loan rather than a grant, and is expected to come with demands which will need to be met before airlines can access the money.
UK government nears a deal
The UK government is reported to be getting close to firming up a multi-billion pound plan to bail out its struggling airlines. According to Sky News, it has drafted in the support of London City bankers to take a close look at the finances of Britain’s biggest airlines, as they draw together the details of the massive bailout plan.
Sky News notes that Rothschild, one of the oldest banking families in England, has been drafted in to advise the government on the terms of its rescue package. Major airlines including British Airways’ owner IAG, Virgin Atlantic and low-cost carrier Ryanair have all held talks with transport secretary Grant Shapps earlier this week, where they laid out their wish list for financial assistance.
IATA previously forecast that the aviation industry would need some $200bn of state support if airline collapses were to be avoided. That report has put governments under increasing pressure to move to support airlines, but with a multitude of industries looking for financial support and national economies slumping, divided priorities is an understatement.
Strings will likely be attached
Already this week we’ve seen a number of governments around the world coming to the rescue of their air transport providers. However, measures put in place so far have come with many strings attached.
For example, Norway’s proposed six billion krone ($537m) bailout, of which airline Norwegian is being offered half, requires that the beleaguered airline boosts its capital liquidity before most of the funding will be released.
New Zealand offered its national carrier $510m, but only if the airline suspends its dividend and paying interest rates of 7% – 9%. Finland has guaranteed a $645m loan to Finnair, but again based on the financial health of the business. And the US $58bn bailout for airlines may yet involve some caveats, such as the Treasury receiving stock options, stock or warrants.
The fact that Rothschild is involved in the development of the package speaks volumes about the UK government’s approach to the rescue deal. Airlines are unlikely to be handed funds on a golden platter, and will likely be expected to prove both need and value in order to access the cash.
What the airlines want
Industry heads are understood to be pushing for some specific forms of support. These include,
- State-backed credit facilities for billions of pounds of liquidity
- A freeze on air traffic control charges
- A 12-week ban on claims under EU261
- A month-long cancellation of APD once flights resume normally
- Support with the costs of maintaining employee jobs
It’s likely not all of these measures will be approved by the UK government, but at least some will be under serious consideration. One good thing to come out of the aid package is that the government is hoping to firm up an agreement with the airlines to operate repatriation flights for the thousands of UK residents currently stranded abroad.
British Airways has said that pilots will be asked to take two weeks of unpaid leave in each of April and May, with the pay cut split over a period of the months. Rival airline Virgin Atlantic has asked all its staff to take two of the next three months as unpaid leave, a move that’s been criticized in parliament by MPs.
Europe’s busiest airport at London Heathrow is suffering too. With hardly any flights to handle, it is attempting to cut costs by removing pay for executives, putting a freeze on recruitment and undertaking a review of all ongoing capital projects.
It’s hoped that an announcement will be made this evening regarding state support for airlines, perhaps as part of PM Johnson’s daily coronavirus speech. Simple Flying will keep you posted.