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UK Government bails out Hungary’s Wizz Air with £300m – whilst Virgin Atlantic is turned down

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Doing a bailout quickly and fairly is not possible, unfortunately.  There will always be holes in the system.

As we have covered before, Virgin Atlantic is not able to access the Government’s coronavirus borrowing facility due to a technicality.  Any business which has issued tradeable debt can borrow from it.  Businesses which have not issued tradeable debt cannot.  easyJet has tradeable debt and got £600 millionIHG also took £600 million yesterday despite not needing it.  Virgin Atlantic has no tradeable debt.

Wizz Air has been approved for a soft loan of £300 million

Virgin Atlantic may not be able to borrow from the UK Government, but Hungary’s Wizz Air can.

It has put out a statement to the Stock Exchange stating that the UK Government has given it permission to draw down money from the Bank of England’s Covid Corporate Financing Facility.

The exact amount will depend on Wizz Air’s financial status but, given the F3 rating it holds from Fitch, it should qualify to borrow £300 million at an interest rate of just 0.6%.

I thought Wizz Air didn’t need money?

It doesn’t.

Wizz Air is the financially strongest airline in Europe.  As I mentioned in our Lufthansa article on Saturday, an analyst report from Citi last week estimated that Wizz has enough cash in the bank to survive for 22 months without flying.  This assumes that it repays all outstanding ticket holders IN CASH and continues to pay all of its bills on time.

Wizz Air is borrowing a potential £300 million from the UK Government because it is dirt cheap money.  It has no need for the funding.  The money will, most likely, to be used to repay more expensive bank and bond debt.

How can a Hungarian company borrow £300m at 0.6% from the UK Government?

Companies are allowed to borrow from the Covid Corporate Finance Facility, according to the Bank of England website, if:

In practice, firms that meet this requirement would normally be: UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK; companies with significant employment in the UK; firms with their headquarters in the UK. We will also consider whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK. 

Whilst its head office and management team are based in Budapest, Wizz Air is listed on the London Stock Exchange because its domestic stock market is too small and illiquid.  It also has a UK operating subsidiary which is the legal operator of the ten aircraft it bases in the UK.

You can see the Stock Exchange announcement here. 

Given the relatively soft criteria for accessing this money, as long as you have traded debt, Wizz Air may not be the last foreign airline to seek a UK-funded bailout whilst Virgin Atlantic teeters on the brink.

PS.  The UK Government will make a profit on this loan, of course, assuming that Wizz Air survives.  The current 3-year UK Government bond yield is 0.1% so there is a profit to be made by raising money to lend to Wizz Air at 0.6%.

Comments (204)

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  • Stuart Winstanley says:

    Why would the UK Government bail out a Hungarian Airline when the 2nd biggest Airline in the country can’t get a soft loan of £500 million. Something doesn’t seem right there to be honest.

    • Tim says:

      Answered this in more depth in an earlier comment.

      Remember BA isn’t actually British, IAG is Spanish. Virgin is 49% owned by Delta (American). Even that is a misnomer because you don’t control who actually owns the public shares.

      British government only cares about if you actually make substantial impact to UK economy, i.e. jobs, presence, use of our other services like land, rent etc etc. We tend to focus too much on profit tax and relevant media outcry, the reality is international companies operating in UK bring much more than that.

      Bailouts comes in different form. The current CCFF initiative (aka “I will buy your low risk bonds”) is a low risk initiative which Virgin Atlantic, based on international and independent credit rating authority is now considered as high risk does not qualify for. Money that they loan out, the government is very likely to earn money from (0.6% interest) and will be paid back next year. This is why it sounds like only the companies who don’t need it gets it, because it is designed that way.

      Next bailout stage means stock holding (how TSB/Lloyds was bailed). Virgin Holding (51%) and Delta (49%) may offer some of the shares to the UK Govt to buy and hold. Virgin also make this is more complex than it is. You need 2 separate parties to agree to sell enough to not disrupt majority ownership, or maybe UK govt demands to be the majority.
      That will only happen if there is actually a chance that the shares will return in value so government can sell it back to private sector in unknown number of years. This is an iffy situation at the moment (can Virgin actually bounce back?). UK govt is basically saying we will not even consider this until you have tried your hardest to qualify for the lower risk CCFF initiative.

      The final stage nationalisation (Northen Rock situation). This is last resort, only happens when ridiculous amount of jobs are at risk + collateral damage to economy. Which other articles has eluded to is a very complex subject and is unlikely with highly competitive airline industry. Nationalisation stifles competition, creates conflict of interest in government policies, in the end everyone loses. It can make sense for monopoly industries like utility and infrastructure, but not airlines. Yes people will lose their jobs if VA folds but it’s not like the vacancy will disappear, other airlines will eventually fill the gap and hire the skills again. (Macro economy is generally inhumane)

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