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Iberia and Vueling are bailed out by the Spanish Government

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Iberia and Vueling confirmed this morning that they have received a combined €1 billion bail-out from the Spanish Government.

Sister companies of British Airways inside the IAG umbrella, Iberia received €750 million whilst Vueling received €260 million.

These are five year soft loans.  Whilst the money came from commercial banks, 70% of the loans have been guaranteed by the Spanish Government which means that the repayment risk is substantially reduced.  This allows the money to be lent at a lower interest rate than would otherwise have been required.

The money is not allowed to be passed up the chain to other IAG airlines and must be used exclusively for the benefit of Iberia and Vueling.  I would imagine that it cannot be used to fund the €1 billion acquisition of Air Europa, which has unsurprisingly gone very quiet in recent weeks.

You can see the full announcement on the IAG website here.

This structure is different to the one that easyJet and Hungary’s Wizz Air have used to receive bail-outs from the UK Government, which involved the Bank of England directly buying new bonds issued by the airlines.  See our articles here on the easyJet £600m bail-out loan and here for the Wizz Air £300m (TBC) bail-out loan.

Iberia and Vueling are bailed out by Spain

Didn’t British Airways say it wouldn’t access soft Government loans?

In the announcement on Tuesday, BA’s CEO Alex Cruz said that part of the reason that British Airways had decided to make 12,000 employees redundant was that it was not accepting Government money.

The letter to employees said:

There is no Government bailout standing by for BA and we cannot expect the taxpayer to offset salaries indefinitely.

Except, of course, there IS a Government bailout standing by for BA if it wants one – the same one that easyJet and Wizz Air have accessed.  British Airways had investment grade commercial debt in issue on 1st March 2020 which is the key requirement.

What wasn’t clear at the time was why Iberia and Vueling had not announced redundancies.  Why was British Airways cutting 25% of its staff whilst the Spanish subsidiaries were cutting no one?

Now we know.  It is very likely that the terms of these Spanish Government loans including protections for employee rights.

It is quite clear that the IAG board has no problem with its subsidiaries taking soft Government bail-out loans.  A cynic might suggest that the only reason that British Airways has refused to access the Covid Corporate Finance Facility is to give it cover to pursue its redundancy programme, which itself now appears to be cover for finally ridding itself of high-paid legacy cabin crew.

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Comments (155)

  • J says:

    British Airways the flag carrier, makes you so proud to be British!

    • Novice says:

      No companies should be adding or deducting from a person’s self-worth. 😂 The idea that any business could make a person feel proud or not proud makes me laugh. Pride comes from self-achievement or maybe from someone who you know/love achieving something. Someone else achieving something is inspirational eg Captain (colonel) Tom. You can get proud of him because he has accomplished something extraordinary and the pride is more to do with support/inspiration.

      But nobody can ever say and justify the same about a business that belongs to an unknown person. It’s a service to use. I don’t understand what is it to be proud of.

      • J says:

        I’m not a patriotic person but it is called “British Airways” and for many visitors or travellers it is their first encounter with Britain, so it would be nice if they were a half decent company.

        • ChrisBCN says:

          I’ve never understood people being proud or patriotic about where they are from – you didn’t get any say in the matter. And borders are arbritary anyway.

          Much better to treat citizens of everywhere with a modicum of respect.

          • Novice says:

            So true. Well put @ChrisBCN

          • Paul Pogba says:

            You didn’t get a say in the matter but if you were born in the country of your parents and grandparents the culture, politics and general quality of the country is inherited and if you have kids here it will be part of their inheritance. Our forebears protested, worked, went into battle to protect and in some cases literally built it into what it is today (for better or worse).

            There’s nothing wrong with being proud of what they’ve achieved or your own contribution to it now.

          • Pangolin says:

            Sartre once said that he has no more claim to be proud of being French than a horse does.

          • Paul Pogba says:

            Pangolin, Sartre was a supporter of Stalinism and Maoism, political thought that led to more deaths than the holocaust. He was wrong about everything that could be judged objectively.

          • ChrisBCN says:

            Paul, why would you allow an arbritary border drawn a long time ago to determine that you only pick up the culture etc from within that border? Why wouldn’t you want to learn about cultures from the other side of the border? You might find another culture that fits your beliefs and lifestyle choices better, or take the best from multiple.

            It’s never a case that one arbitrarily drawn area is the best at everything and has the answers to all.

          • Novice says:

            As I already said it’s like religion and cult. They don’t need a true reason or proof as they live in the belief that they are superior to everyone else who is different 😂

        • Novice says:

          I get the whole first impressions thing but my first impression is the reason I am not keen on BA. But still my point stands we shouldn’t use up our sense of belonging and identity or self-worth on companies or businesses that use the word British to instill this very sense.

          I guess I’m too logical and pessimistic optimist for this world.

          • Paul Pogba says:

            ChrisBCN, most national boundaries aren’t arbitrary, they’re in the first instance defined by geography (seas, rivers, mountain ranges,etc), anything that would have prevented regular contact and competition between different ethic groups for resources. Where there was no geographic boundary you got regular conflict. In Europe this was a settled by the creation of agreed national boundaries via the Peace of Westphalia around ethnic groups following the Thirty Years war.

            Where you have straight line borders you tend to have drawn them around more than one ethic group and you get war and genocide. What puzzles me is why cosmopolitans that crave multiculturalism think things will end any different in the developed world.

            My interest in other cultures and desire to experience them is met through aeroplanes, hence why I frequent this site.

      • ChrisA says:

        I think you have underestimated the power of belonging and national identity.

        • ChrisA says:

          That comment was for Novice, btw.

          • Novice says:

            Doesn’t mean I understand it as a very logical person. It’s same as a religion or cult.

      • Lady London says:

        Oh dear. @Novice I think you might change your mind if you decided to watch how branding and loyalty marketing work.

        For instance, does anyone think that the overpriced tat sold as LV luggage is really worth its price a in time in the last 20 years? (sorry LV). Or the more recent fashion-aspirational-status makeover old name Goyard’s shoulder bags? (And made over Prada, before that?). Not that I don’t look at those in airports….

        This is not about value it’s about branding and image. As is(was) Virgin.

        • Novice says:

          I know what you mean @Lady London but I usually base my opinions on my experience/belief and that is what I meant by the religion/cult comment. What is branding, if not a cult/religion?

          Ppl buy into products/lifestyles in the belief that it will improve their life somehow, just like a religion.

          Logically, it’s better to never be loyal to anything that uses imagery or your sense of self to attract you. It’s better to be logical.

          We are getting philosophical here 😂

          • Novice says:

            Also it’s about keeping up with appearances etc. If you just don’t care about appearances, you have defeated the serpent 😂

          • Lady London says:

            How many of us are as pure as that, @Novice?

          • Novice says:

            As long as I’m pure 😂 To each their own. I can only be the judge of my own choices. That’s why it’s hard ; this world for a person like me but I take it as a challenge 😂

  • Nick_C says:

    I’m glad I’m a UK Taxpayer and not a Spanish Taxpayer.

    If BA implement a long term plan (which they seem to be) that gives them a reasonable chance of surviving, employing UK staff, making profits, and paying Corporation Tax, then at that stage they deserve a loan.

    It would be utterly pointless for UK taxpayers to fund BA if it didn’t have a road map to future profitability.

    A bail out at this stage would be more likely to result in well paid staff being protected against economic reality.

    • J says:

      You’re only a taxpayer if you’ve still got a job (ignoring indirect taxes).

      • Darren says:

        Loving the in brackets to stop the pedants in their tracks 🙂

      • Nick_C says:

        Not the case. You pay income tax if you have sufficient taxable income. Whether your income comes from a job or not is irrelevant

        The tax on jobs is NICs.

        • Lady London says:

          * especially Employers NICs. Which are really a block to employment.

          A key reason why IR35 is so onerous for employers.

      • Spaghetti Town says:

        Not really. You still pay VAT, Stamp duty and fuel duty. The government claims it’s all for certain things but HM treasury is the ultimate beneficiary.

        • J says:

          Those are called indirect taxes. The point is without massive government help to businesses (some with very viable business models, some less so) there’ll be a lot less people paying income tax (commonly known as taxpayers).

          • Nick_C says:

            Absolutely. And that is why we need to support viable businesses in the longer term; so those businesses will in future pay Corporation Tax and their employees will pay Income Tax and NICs.

            The changes BA are planning will, hopefully, secure their future as a profitable company, paying UK taxes, and continuing to employ thousands of UK residents.

          • John says:

            Well yes, as BA has been systematically getting rid of all its cabin crew who are not UK residents in its typical uncaring manner.

  • Spaghetti Town says:

    Well played BA, well played. This is shocking what they’re doing, but it’s so crafty you can almost admire it.

    • TGLoyalty says:

      From day 1 I have said companies will use this situation to their advantage to cut unprofitable parts of their business and to cull staff because staff will feel there’s no other choice.

      Crafty, calculated and foreseen.

      • Lady London says:

        So British workers remain the “coolies” of the English speaking world then?

        • TGLoyalty says:

          Unfortunately I don’t think it matters what your nationality is when it’s comes to cutting unskilled/semi skilled workers.

          There is short termism at play here as high attrition leads to high recruitment cost and ultimately poor service. If BA were to pay slightly higher wages to MF they could see improvements unfortunately some senior managers/executives don’t make those correlations until it’s too late.

  • BSI1978 says:

    Was prepared to give BA the benefit of doubt [colour me naive] yesterday but this news is more than a tad depressing, if not surprising. I don’t necessarily blame Madrid for this but how will Cruz/WW justify their stance if staff abroad are being protected whilst a swathe of UK based staff are being binned?

  • Nick_C says:

    Frustrating really that BA is inextricably linked with Iberia and Vuelling. If these were purely Spanish Airlines, then we wouldn’t really care about the Spanish Taxpayer’s bailing them out.

    In 2018 British Airways made an operating profit of €1.952 billion, with Aer Lingus making €305 million, Vueling €200 million, and Iberia €437 million. I am genuinely sorry for the BA staff. (And for everyone else who will lose their job or business because of Covid 19).

  • Anon says:

    Maybe a condition of the loans would have also stopped the Air Europa acquisition? (Are AE also receiving help from Madrid that would stop that?)

    My options for OW to less fancy destinations in South America are getting more limited (i.e. outside of Brazil, Argentina, and Chile). I go at least 10-12 times in a normal year. So I hope the Air Europa transaction does go through selfishly.

    I can do – expensive BA flights to Brazil / Argentina and maybe codeshare onwards to places like Paraguay or Bolivia? But harder to justify on expenses for work.

    Or Iberia from Madrid (although they don’t go to a lot of places Air Europa go to)?

    Royal Air Maroc if I’m willing to add an extra connection UK – Morocco – Brazil onwards?

  • ChrisC says:

    These sort of shenanigans make me think less highly of BA than I have in the past.

    No correct that they make me think less highly of the management.

  • Chrish says:

    There should be a cost to any business who asks/receives for a loan/ bailout
    “More than Interest Alone”
    whether it be employees receive higher rights/wages than “The Norml”
    I understand that business may or (maynot) need in normal circumstances
    But some business will apply for whatever is on offer whether they need it or “Not”
    The bottom line for them is can we exploit the system
    (i worked for a firm who employed people to do just that)
    On thing you can be sure off with time something else of a crisis will emerge

    • Interestingly, the Scottish Government’s Covid Tourism, Hospitality and Leisure help fund asks:

      Are you, or working towards, a Fair Work First Employer. This covers things like investment in skills and training, engagement with the workforce including where appropriate unions, appropriate use of zero-hours contracts, action on gender pay and Living Wage minima.

      So this is a chance for society – through its government – to make real changes.

      But I suspect most political parties can’t be are*d – or don’t want to offend their paymasters