UK Airlines Start Using Government Loan Arrangements

 - April 6, 2020, 4:46 PM

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Rather than attempt a huge airline sector bailout, the UK has stuck to its plans—with broad industry support—lowering barriers to loans to business announced last month while telling the aviation industry it can take advantage of the help just like everyone else. The effort has resulted in EasyJet, which grounded its entire fleet at the end of March, arranging a £600 million ($735 million) loan on Monday with the UK Treasury while also securing $500 million in credit facilities to ensure continued liquidity.

Virgin Atlantic appears next in line. It has been the most vocal airline in calling for support, although an early appeal to the government backfired after British Airways disagreed with the amount and the approach. British Airways parent IAG disagreed with Virgin Atlantic’s proposal that the sector receive a joint bailout amounting to some £7.5 billion, prompting ministers such as transport secretary Grant Shapps to complain about mixed messages about what the industry wanted to help it survive the crisis.

On Tuesday, March 31, the industry presented the UK government with a fresh proposal, with the Treasury reportedly having appointed EY, the accountancy firm, and Rothschild, the investment bank, to help evaluate how best the government could support the country's ailing carriers and their support infrastructure, including airports.

Industry associations, many members of parliament, and industry heavyweights such as Rolls-Royce and Airbus wrote to the chancellor of the exchequer, Rishi Sunak, in support. Then everything went quiet as if the industry had agreed collectively that less media speculation would prove advantageous and not antagonize the chancellor.

With the EasyJet announcement, however, it would seem case-by-case will be the approach, with loans, not a massive bailout. IAG already secured its own facility with banks in late March as both it and EasyJet indicated they would only want loans on commercial terms. This was in contrast with early comments from Shapps suggesting the government might end up taking shareholdings in airlines, in much the same way it had to take stakes in the worst-hit banks during the 2008 worldwide financial crisis.

“The aviation sector is important to the UK economy, and firms can draw upon the unprecedented package of measures announced by the chancellor, including schemes to raise capital, flexibilities with tax bills, and financial support for employees," a spokesperson for the UK Department for Transport told AIN. “We are continuing to work closely with the sector and are willing to consider the situation of individual firms, so long as all other government schemes have been explored and all commercial options exhausted, including raising capital from existing investors.”

While waiting for a government decision on its preferred approach, Tim Alderslade, chief executive of Airlines UK, and Karen Dee, chief executive of the Airport Operators Association, stressed the importance of the aviation sector to the UK economy and individuals alike and warned of the severe consequences of the government's approach.  “Aviation is one of the key enablers of the UK economy—without it, we cannot trade or visit family and friends or do business—and more than a million people are employed in the sector," they said in a joint statement. "Now we are seeing airports start to close their doors, and revenue—for both airlines and airports—fall to practically zero. Yet we need a healthy aviation industry to support the UK’s recovery from the pandemic.

“We’ve put countless cross-industry ideas on the table to help aviation through this, and the chancellor said in his letter this week he was open to discussing them, yet no discussion has yet taken place. We are now entering the danger zone, and we urge the government to change tack and start to engage on a sector-wide basis before it’s too late.”