British Airways owner IAG secures £900m loan from Spanish government – but it can’t be used to help stricken UK airline which is cutting 12,000 jobs amid coronavirus crisis
- International Airlines Group has received a £900m loan from the Spanish govt
- IAG is the parent company of British Airways which is loosing 12,000 jobs
- The Madrid money can only be used on IAG’s Spanish firms Iberia and Vueling
- IAG has not sought a loan from the UK government to secure jobs at BA
- Here’s how to help people impacted by Covid-19
British Airways’ parent company has signed agreements for £900 million of loans backed by the Spanish government, but the money cannot be used to help its UK airline which is cutting up to 12,000 jobs.
IAG said the money can be used to help its Spanish carriers Iberia and Vueling mitigate the economic impact of the coronavirus pandemic.
There are ‘restrictions on the upstream of cash to the rest of the IAG companies’, the firm added.
International Airlines Group, owner of British Airways, has secured a £900m loan from the Spanish government to secure jobs at Iberia and Vueling. Under the terms of the loan, the cash can only be used on its Spanish airlines
IAG has not requested a loan from the UK Government.
It announced this week that up to 12,000 jobs will be lost at BA, representing more than a quarter of the workforce.
On Thursday it emerged that the airline may not resume operations at Gatwick, the UK’s second busiest airport.
In a letter to staff, BA chief executive Alex Cruz wrote: ‘There is no Government bailout standing by for BA.’
Trade union Unite’s national officer for aviation Oliver Richardson said: ‘The fact that Iberia is seeking support from the Spanish government should be welcomed and is a common sense approach to preserving jobs and services, following the immense damage the Covid-19 pandemic is causing to the aviation sector.
‘What is concerning is that the parent company IAG is not seeking a similar solution for British Airways.
‘Rather than seeking to preserve jobs and workers’ terms and conditions, and act for the good of the aviation sector, British Airways is guilty of an act of smash and grab opportunism which is designed to boost their profits in the future and to try to force other operators out of the UK aviation sector.’
Will the rules be changed on refunds?
Industry insiders have suggested that the Department for Transport (DfT) is set to make an announcement on the issue after weeks of inaction.
The Association of British Travel Agents (Abta) has been lobbying ministers to relax rules requiring airlines to issue refunds within a set timeframe — although most have ignored them anyway.
They want credit notes to retain Atol protection, giving reassurance to holidaymakers who fear their money will disappear.
The situation has been worsened by uncertainty about when flights will resume. The International Air Transport Association (IATA) has warned that the industry is facing an ‘apocalypse’ and more than half the world’s carriers could go bust.
EasyJet has received a £500 million emergency loan from the Treasury. But the future looks less hopeful for Virgin Atlantic, whose request for state aid was refused.
Even BA boss Alex Cruz has warned that the nation’s flag-carrier faces a fight for survival. In a dramatic announcement to staff yesterday, the company said it was making up to a quarter of them — 12,000 people — redundant.
But an Abta spokesman says: ‘Customers whose holidays have been cancelled because of the pandemic absolutely have the right to a refund, and where cash refunds are requested they should be given as soon as possible.’
The British government has turned to Morgan Stanley for advice on a package of measures to keep its airlines in business during the coronavirus crisis, after warnings that the industry might implode, two sources familiar with the matter told Reuters.
The Wall Street investment bank, originally drafted in to handle a possible bailout of Virgin Atlantic, has been awarded a broader mandate to examine ways to support the entire airline sector in Britain, the sources said.
‘The situation was more complicated than expected,’ the second source said, adding that any bailout of Virgin Atlantic might prompt other airlines to request state aid.
Morgan Stanley’s expanded role comes as British Airways-owner IAG began a sweeping restructuring and the boss of London Heathrow Airport’s boss warned that Britain risks destroying its aviation sector by not propping up airlines as countries such as the United States and France have done.
Airlines around the world are struggling with the fallout of the coronavirus pandemic, with some such as Germany’s Lufthansa seeking urgent state assistance as air travel has been brought to a virtual standstill, threatening thousands of jobs.
‘We have been clear that we are prepared to enter discussions with individual companies seeking bespoke support as a last resort,’ a spokesman for British Prime Minister Boris Johnson said of British airlines which have exhausted other funding measures to cope with the crisis.
Morgan Stanley declined to comment, while Treasury representatives were not immediately available to comment on the investment bank’s appointment.
Global airline losses from the coronavirus pandemic are estimated at $314 billion, the International Air Transport Association (IATA) estimates.
Virgin Atlantic, which is 51 per cent owned by billionaire Richard Branson’s Virgin Group and 49 per cent by U.S. airline Delta, has warned it will only survive if it gets state aid, while its staff have taken a temporary wage reduction.
Johnson’s government has so far been wary of bailing out travel companies and in March let regional carrier Flybe collapse, marking one of the first big corporate casualties of the coronavirus outbreak.
Morgan Stanley is working closely with Rothschild, which won a similar government mandate earlier this year to handle talks with airlines and other British companies bearing the brunt of the coronavirus pandemic, the sources said.
Any bailout of Virgin Atlantic would only come after all other possibilities, including a sale, had been fully explored, one of the sources said.
Unions have asked why IAG is cutting jobs at British Airways while leaving other airlines that form part of the group untouched
A spokeswoman for Virgin Atlantic said it was exploring all available options to obtain additional external credit, adding it was working with Houlihan Lokey on private sector funding and ongoing discussions with stakeholders were ‘constructive’.
Meanwhile, Branson and the Virgin Group were committed to the airline and were not looking to sell it, a representative for the group said on Friday.
But if no bailout is granted and Virgin Atlantic ends up collapsing, then the government will need to review the competitive landscape on transatlantic flights as British Airways would emerge as a winner, another source said.
Virgin Atlantic has increased its routes between London and North America over the past few years to win more U.S. customers and boost profitability.
British Airways’ parent company IAG warned it may cut up to 12,000 jobs after reporting an operating loss before exceptional items of 535 million euros for the first quarter, but ruled out any plan to ask the British Treasury for state support.
However, IAG’s Spanish airlines Iberia and Vueling have taken a different path and on Friday secured 1 billion euros of government-backed loans.
How coronavirus has affected airlines in the UK over the past month
Flybe: Europe’s largest regional airline collapsed on March 5 after months on the brink, triggering 2,400 job losses and left around 15,000 passengers stranded across the UK and Europe. Flybe’s owners, a consortium including Virgin Atlantic, the Stobart Group and hedge fund firm Cyrus Capital, blamed coronavirus for hastening the ailing airline’s collapse. Flybe operated up to 50 UK routes, accounting for 40 per cent of all domestic flights, and was used by 9.5million passengers a year.
British Airways: The International Airlines Group, which also includes Iberia and Aer Lingus, said on March 16 that there would be a 75 per cent reduction in passenger capacity for two months, with boss Willie Walsh admitting there was ‘no guarantee that many European airlines would survive’. The company has since said it wants to reduce the number of staff by 12,000.
easyJet: The airline with 9,000 UK-based staff including 4,000 cabin crew grounded its entire fleet of 344 planes on March 30. The Luton-based carrier said parking all of its planes ‘removes significant cost’ as the aviation industry struggles to cope with a collapse in demand.
Loganair: The Scottish regional airline said on March 30 that it expects to ask the Government for a bailout to cope with the impact of the pandemic. Loganair will go to the government despite being told by Finance Minister Rishi Sunak last week that airlines should exhaust all other options for funding, before asking for help.
Jet2: The budget holiday airline has suspended all of its flights departing from Britain until April 30. A number of Jet2 flights turned around mid-air last month while travelling to Spain when a lockdown was announced in the country.
Virgin Atlantic: The airline said on March 16 that it would have reduced its lights by 80 per cent by March 26, and this will go up to 85 per cent by April. It has also urged the Government to offer carriers emergency credit facilities worth up to £7.5billion.
Ryanair: More than 90 per cent of the Irish-based airline’s planes are now grounded, with the rest of the aircraft providing repatriation and rescue flights. Ryanair CEO Michael O’Leary said his airline would be forced to shed 3,000 jobs while seeking pay reductions of up to 20 per cent by those who remain.
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