Norwegian secures a Government bail-out, whilst easyJet puts a UK-wide deal at risk

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The first European airline bail-out (if you don’t include the nationalisation of Alitalia, which was already doomed!) has been finalised.  A 2nd bail-out, for Finnair, is expected to be agreed imminently albeit the Finnish Government is already a 56% shareholder in the airline.

Norwegian has agreed a deal with the Government of Norway to provide a credit guarantee of NOK 3 billion (£225m).

This means, effectively, that Norwegian can arrange a bank loan which will be underwritten by the Government.

An additional NOK 3 billion will be offered to SAS, small domestic airline Wideroe and other carriers.

It is not a slam-dunk for Norwegian, however.  According to Reuters reports, the initial tranche of NOK 300 million depends on commercial lenders providing NOK 30 million as the Government will only fund 90% of the guarantee.

To access an additional NOK 1.2 billion, Norwegian has to persuade its banks to postpone loan repayments, including interest, for the next three months.  The final NOK 1.5 billion requires the airline to raise additional money for shareholders to improve its debt to equity ratio.

Even if these criteria are met, NOK 3 billion (£225m) is a modest sum of money in airline terms.  It is unclear what the Norwegian cash burn currently is, however, given that 90% of staff have been placed on unpaid leave and virtually all non-Scandinavian routes temporarily closed.

As an additional trade off, all airlines receiving money will be forced to operate selected domestic routes in Norway – selected by the Government – irrespective of whether they are commercially viable.

The bottom line is that there is no guarantee that Norwegian can tick all the boxes required to receive the money, or that it will be enough.

Airline Norwegian secures a Government bail-out

Is easyJet putting a UK airline bail-out at risk?

Plans for a Government-led UK airline – and indeed airport – bail-out are progressing, but it isn’t easy.

British Airways took a firm stand early in the process by stating that it had no interest in a bail-out, whilst adding that if there was one it would obviously jump in.  You could see this as altruism on the part of the airline, but you could also see it as an attempt to drive Virgin Atlantic into bankruptcy.

British Airways and its parent IAG were very publicly against any Government help for Flybe.  By coincidence, as soon as Flybe failed, British Airways regained 12 Summer slot pairs at Heathrow which it was forced to divest as a condition of buying BMI.  I imagine these slots are worth, conservatively, £100m between them.

The complex structure of IAG also makes a bail-out difficult.  British Airways is, of course, a Spanish-owned company.  Should the UK Government be supporting Spanish businesses?  On the other hand, you can be sure that the Spanish Government has bigger problems at the moment, especially post-Brexit, than propping up a UK carrier.

I would have expected an easier ride from easyJet.  Whilst, on paper, the company is financially stronger than IAG it is likely to be grounding more of its fleet.  It also has little to gain from seeing Virgin Atlantic fail, except potentially a handful of extra London Gatwick slots.

easyJet seems to have played its hand badly, however.  This week it paid out dividends of £174 million, of which £60 million goes to Sir Stelios Haji-Ioannou and his family, at the same time as seeking Government funds.

To add insult to injury, it has insisted that cabin crew sign up to a new agreement which includes fundamentally detrimental changes to terms and conditions.  Whilst the request for three months unpaid leave is being mirrored elsewhere, easyJet wants to impose other changes which will run until November 2021 – over 18 months away – including removing free cabin crew meals, scrapping 2021 pay rises and unfavourable changes to working patterns.

easyJet is now in the bizarre position of having over 17,000 of its own staff petition the Government to REFUSE a bail out of the airline.

It is worth contrasting this with the situation at Virgin Atlantic.  Looking at what I have seen posted by staff on social media, there is a genuine desire amongst crew and management to pull together to ensure that the airline survives.

Despite all this, I would expect a multi-billion pound set of loan guarantees to be announced over the next few days.  There may also be an element of direct compensation as the Foreign Office has now advised all UK residents not to travel if possible.

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Comments

  1. OT – My Iberia flight (at end of March) to Madrid is cancelled but I cannot get through to Customer Service. The line duly cuts-off all the time. Online there is no option but to get in touch with CS.

    Anyone with recent Iberia CS experience?

  2. I am currently in Mexico with a return flight booked on Friday with American Airlines returning to London via Miami. I left the UK more than 2 weeks ago so am not affected by the EU/UK ban. Does anyone know if the US ban on travel with Mexico put in place yesterday covers transit passengers as well or if I will be allowed to travel? Called AA who told me to check the ESTA website and that has nothing on the Mexico ban just the EU/UK one. On hold with them again trying to figure this out.

    Have Amex plat insurance, but helpfully their insurance team does not work the weekend so not getting anything out of them either.

    • I can only find references to border crossings in the media, however things are changing on a daily basis. A lot could happen by next Friday, and either the US or Mexico could decide to change the rules at any moment, leaving you stranded like many British travellers in Peru. As well as contacting your insurance I would suggest trying to contact the British embassy or consulate for advice and also be prepared to look for a direct flight back to the UK.

      • Based on a quick look at the AA web-site and elsewhere, the border restrictions are apparently supposed to apply to flights as well as the land border but can’t find evidence of this happening yet. I also can’t find anything about whether this applies to different nationalities (while the Canada ban is for non-Canadian/US citizens)

        American’s US and Mexican (Spanish-only?) versions of their web-site do NOT include Mexico in their travel alerts, while they do include Canada. Checked flight status for AA’s Mexico City to LA route (one flight a day) and it shows as running as normal today and for the next two days, which is as far as they go, so no sign of disruption there. I imagine you are already checking their Miami flights.

        Presumably American will continue to operate flights from Mexico for at least a few days, or perhaps weeks, to get Americans home. BA flights seem to still be operating from Mexico City to Heathrow for now so that could be a back-up. I don’t know if the BA/AA transatlantic joint venture includes flights from Mexico.

        Good luck with getting home.

        • Just like Anna, I also suggest to try to get back as soon early as possible since things are changing so rapidly.

          Hopefully AA will be flexible and let you change your flights. The fact that they don’t have a travel alert for Mexico might make this harder, but on the other hand once they do have a travel alert they will probably start cancelling flights.

          • American Airlines have now added Mexico to their travel alerts today. So they will waive change fees but may still charge the difference if the earlier flights cost more.

    • Lady London says:

      Existing ESTAs are apparently being cancelled by the US as soon as your name appears on a flight manifest.

      US airports force you to immigrate if you are transiting. Apparently Terminal 1 at Toronto airport does not – you stay airside. Not sure if you would still need the Canadian equivalent of an esta though. Can you get a flight home on AC via Toronto? Ask Amex Plat or your insurance or, last resort, your credit card u set s.75 if they will pay or reimburse whatever you can find.

      Is land transit possible then picking up a flight out of a US gateway airport?

      • Probably not if they are closing the borders to non-essential travel and G could be a long way from the border anyway if in Yucatan area (sorry if I missed that)

        • Lady London says:

          Geography is not my strength @Anna

          I think if stuck in Mexico I would take any flight on anything out to Europe. Home country destination preferable but I wouldn’t be fussy as flights may stop completely. Whilst looking I would call my insurer, Amex or credit card (if s75 applies) to fund/reimburse it

  3. It would seem Easyjet want to impose the same terms on cabin crew staff as Ryanair where they have to pay for any company food consumed. L

    • Peter Bellew is the new Chief Operating Officer and recently joined EasyJet from Ryanair where he made similar changes. Must be purely coincidental….

  4. I would hope that any money for Easy key be conditional in every penny of shareholders cash being returned. I would go further and ask that the government suspend their stock until it is so that those who benefitted from the pay out also suffer the consequences of not returning it.
    Extraordinary circumstances require extraordinary measures

  5. insider says:

    If Virgin is in trouble, why doesn’t Beardy and reach into his pocket and put some money in? Or does he want to continue his strategy of robbing the taxpayer whilst sipping Martinis in his tax haven?

    • In the scheme of things he is a small player and he does not have the resources to save Virgin Atlantic. The choice is simple – gift BA a monopoly and remove the competition, BA will have even less of an incentive to care about service and value, or support a competitor (which in normal times its successful and by most people considered to offer a superior service and better value for money). I realise most people on this site are travelling with a partner so influenced by Amex 2 for 1 vouchers etc – but for someone who is single or paying cash, Virgin is always the better choice in my opinion (although obviously quite limited in terms of destinations).

      • Qwertyknowsbest says:

        + 1

      • Thomas Howard says:

        If VS go tits up you could tear up the oneworld transatlantic JV so AA have to compete. You’d also have competition from UA and DL west, EK, EY, CX, SQ going east.

        • Lol you do realise Etihad and Emirates are state owned, bailed out and subsidised as required. Changing planes in Dubai is also a waste of time and fuel, if a direct flight is available. AA and United are generally even worse than BA, so not much competition there. Cathay Pacific and Singapore Airlines are both excellent – although they will not survive current circumstances indefinitely either. In any case whatever “competition” they could give BA, losing Virgin would reduce direct point to point connections to the UK (as well as pushing up prices).

          • Shoestring says:

            Is that the same Jack who wants a police marksman to shoot me dead if I buy more than 2 packs of 1kg Basmati rice?

            whereas buying 2x 10kg packs of rice would be OK? because under the item limit

          • Shoestring says:

            so I’m not going to be around to buy my 80YO dad any rice for the next 20 weeks, get it now?

  6. Lady London says:

    Anyone who cant reach any airline make sure you document date, time and duration of those efforts such as itemised phone bills or screenshots. You don’t want to miss a flight the have to argue that you didn’t just no-show, for instance.

    At worst case send signed-for or tracked letter, or a registered letter, to a registered or official address of that airline informing them of your booking details, your name and address etc, and saying that as they have cancelled or rescheduled the flights you had booked.you are requesting a full refund of your booking (under EU261 if applicable or because any part of your holiday has been changed if a holiday/ATOL-covered booking etc.). If you used an agent or OTA then your contract may be with the agent so inform both in a way that can be proved you did it.

    s.75 is your backstop if you paid on UK credit card if your approaches to airline/agent/seller fail after reasonable (multiple) efforts or denials from your provider.

    • Lady London says:

      *if you use a contact form on website screenshot including date and time on your screen as these can get ‘lost’ in times of overload or the acknowledgement their system might send you might not contain what you actually sent to them.

  7. Charlieface says:

    Can someone explain to me the legal ins and outs of a company unilaterally imposing new T&Cs on an employee? Do they have to accept? Could the company just sack them if not?

    • Depends on their employment contract, it might have written into it that the employer can make changes. That’s why people are always advised to read them before signing.

  8. Surely shareholder money should be lost – every last penny of it – before Government steps up to help? Either we believe in capitalism or we don’t.

    • I think you have a point here, as surely if you buy shares you know that they may lose value?

  9. Samuel says:

    It is worth emphasising that these aren’t “free meals” that are being taken away. Pilots took a £2000 drop in salary to pay for these meals, and cabin crew only recently bought these meals for £600 per annum. These meals which are being taken away have been, and will continue to be, paid for by the crew. They are not free.

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