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IAG takes UK Government funding, despite British Airways saying it wouldn’t as an excuse for job cuts

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The British Airways redundancy saga took a new twist this morning as IAG, BA’s parent company, announced its results for the three months to March.

When British Airways announced its 12,000 redundancies, it was partly pitched as a way of keeping the airline from having to take UK Government funding.

Given that BA’s sister airlines, Iberia and Vueling, have been happy to accept a bailout worth €1.0 billion from the Spanish Government, this always sounded a little odd.

IAG takes a UK Government bailout

It was revealed this morning, however, that IAG HAS accessed the UK Government’s Coronavirus Corporate Finance Facility.  This provided a £300 million bailout in the form of a ‘soft’ loan, underwritten by the UK Government and taxpayers.

For clarity, this is what Alex Cruz said in his statement last week to justify both 12,000 job cuts and the huge salary cuts (over 50% in many cases) proposed for legacy Eurofleet and Worldwide crew members at Heathrow:

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

Except, as we said at the time, there was.  As IAG has taken the loan directly (it is allowed to do so, even though it is a Spanish company) BA can continue to claim that it is not seeking UK Government funds.

Interestingly, IAG took this money in the second week of April, according to Bloomberg, which means that it was already in the bank when Alex Cruz made his statement about British Airways not getting a bailout.

In a call, Willie Walsh clarified that IAG has never been opposed to accessing government support that is available to “all” companies – although the CCFF is not open to all.

Where this leaves Virgin Atlantic in its attempts to secure UK Government support remain unclear.  As a reminder, it is only due to a technicality – that it had no traded bonds in issue before coronavirus struck and so did not have a credit rating – that it cannot take its own bailout from the Coronavirus Corporate Finance Facility.

What else was in the IAG financial results?

I won’t dwell on the financial results for Quarter 1 since they are irrelevant in the scheme of things.  These are the key points:

The Group is burning €200 million per week albeit with a €10 billion cash cushion

‘meaningful’ scheduled flights will operate in July, subject to travel restrictions being removed

2019 passenger volumes are not expected to return until 2023

68 aircraft deliveries across the group have been delayed 

The group has lost €1.3 billion on its fuel and currency hedging strategy

Outside of the official results statement, it was confirmed that:

IAG is proceeding with its €1 billion acquisition of Spanish airline Air Europa, depending on what conditions are attached by the European Commission (it would give IAG 73% of the Spanish domestic flight market).  The purchase agreement contains a mechanism for adjusting the price.

The Letter of Intent to acquire 200 Boeing 737 MAX aircraft remains in place

The full results document is here.  A further article on Friday will look at what was covered in the conference call that followed.


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Comments (134)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Chrish says:

    Hope Virgin aren’t given favorable Bailout conditions over any other struggling British Business.
    The best option would be for the tax payers, let Virgin go under completely and another Airline emerge to pick up the pieces.
    One would eventually come along if not for 2/3 years
    If they needed/got government support (Grant/Loans ect) then at least the government could dictate terms conditions.
    Rather than Virgin getting a bailout & beiing in the exact same position 2/3 years time

    • Mervyn Miller says:

      Well said Chrish. Thanks.

    • Sam says:

      Which is that ‘another airline’ do you actually a mean BA? If so do you really think that’s a realistic idea? Anyone who’s economically literate would never advise something along the lines of ‘letting one company go blown up’. Once a company blows up it is not as simple as ‘buying it up again’ and people need to understand this.

      • Chrish says:

        Sam Not at all saying buy back up Virgin, No one would want to restart Virgin its to unprofitable to survive any restart.
        what would need to happen is bits of Virgin that are salvageable could be bought from administration
        (Not by BA) As your implying but by a new player (unknown)
        Before you say it can’t happen cause it can, but might be 2/3 years down the line.
        things are always changing nothing stands still for ever

    • Lady London says:

      I agree with you but for the sounder concern that Virgin Atlantic has not been a profitable business over at least a 10 year period. So they’ve proved even in the boom years that were within that they still were not a viable business.

      Why on earth should taxpayers help out such a lost cause. Nothing to do with the virus Virgin was not viable anyway.

      I am astounded at the support in some parts of HfP when there simply isn’t s business case for anyone and all to give any money to the entity currently licensed to use the Virgin name. Let it die and look sympathetically at any sensible proposition from a newly constituted business that may or may not license the Virgin brand name.

      • Helmut Schmidt says:

        Ignores the fact that many if not most airlines are not profitable. Having a UK base is more difficult than many other countries due to the higher fees. BA have the advantage having been established for so many years prior. Criticism seems to be driven by lack of understanding on this simple fact. Does this person think that no longhaul competition for BA is a good thing for UK passengers? Logic dictates that direct flights would go up significantly with little to no competition from uk based airlines.

      • Kip says:

        Virgin Atlantic have made profits in two of the last 6 years according to the graph I’m looking at. In fact netting out their profit/loss over that period only leads to a tiny loss.

        https://www.statista.com/statistics/1010514/virgin-atlantic-airways-ltd-net-profit/

        • Kruggs says:

          …which implies it’s not a well run business. Viable maybe, but not very well run. These business generally have to have some level of profitability to fund their growth plans

          • Kip says:

            Ah.. so we’ve gone from “never making profits” to “not viable” to “not well run”…
            How about a rule where owners who have a beard aren’t allowed state backing?
            The state is helping all sorts of business in all sorts of financial positions. Hopefully VS won’t need Government loan guarantees but if it does – given the vast state aid afforded BA and countless others around the world – there’s clearly no reason to deny it.

        • AJA says:

          I had a look at the accounts submitted to Companies House for Virgin Atlantic Airways Ltd for the last 10 years filed ie 2009 to 2018 (the accounts for the year ended Dec 2019 have not yet been filed). The company made profits before tax in 2009, 2011,2014, 2015 and 2016 ie 5 out of the last 10 years. However the losses in 2010, 2012, 2013, 2017 and 2018 are greater than profits made in the other 5 years. Also if you exclude profits from Exceptional Items in 2015 and 2016, the two most profitable years, the cumulative losses are quite significant and as at 31 Dec 2018 cumulative retained earnings are negative. I wonder what 2019’s accounts will show?

          https://beta.companieshouse.gov.uk/company/01600117/filing-history

  • Sam says:

    How about Virgin?

    • flight101 says:

      Have you not read the terms and conditions on this site? The number one rule is ‘thou shall not criticise Virgin’

  • Heathrow Flyer says:

    Interesting on the call they said all flights that are currently operated are cash positive, with cargo unit revenues offsetting any/no passenger revenues. In some circumstance, cargo flights can be cancelled up to 24h before the flight if they are not cash-accretive.

    • jamie says:

      If that’s the case how are they losing so much money?

      • AJA says:

        I would guess that the number of cargo and passenger flights BA is currently operating, whilst cash positive, is insufficient to pay all of their current liabilities.Hence they are haemorrhaging cash.

  • marcw says:

    They love Virgin, but (almost) everyone flies BA!

    • Neil says:

      I’ve never stepped on board a BA plane in my life as they will only fly from London.

  • insider says:

    Slightly off topic, but also looks like the CMA have provisionally agreed to BB/AA’s commitments on the Atlantic Joint Business

    https://assets.publishing.service.gov.uk/media/5eb3f862d3bf7f5d404392ea/Notice_of_intention_to_accept_binding_commitments.pdf

  • Pat says:

    Lol, 300M is minor compared with the 9B Lufthansa asking from the Germany and KLM-AF got from the Dutch and the France. Plus the money goes to IAG not BA.

    • Ralph says:

      Yes, LH still looks on track to get Euro9bn and the German state will give a cash infusion by buying 25% + 1 share at 2.56/share vs current share price of 7.92 and state representatives on the supervisory board so it is quite punitive on existing shareholders. On top of loan guarantees etc. – doesn’t look like any cash handout as has been given to AF.

      This is an individual rescue package which is very different to IAG taking a relatively small loan (half that taken by Easyjet) which isn’t a ‘soft’ loan as described by Rob as this implies a loan that may not need to be repaid (ie like a family loan) whereas this is a contractual loan obligation on the parent entity (much better security than the BA subsidiary) which the government guarantees the bank it will repay if all other avenues for repayment fail.

      • Adam says:

        Sorry, you’ll have to explain why you think a structurally subordinated loan to the IAG parent entity is “better security” than a loan to BA? Presumably the bulk of the assets are held at operating entity level…?

        In my experience the term soft loan is used to encompass a much broader universe of loans other than those that might not be repaid. It also covers loans not at a market rate of interest. Seems fairly arguably that would apply here…

  • Dan Hodges says:

    We have now reached the UB40 charity single stage of this crisis. Not the end, or the beginning of the end, but definitely the end of the beginning.

  • ASA says:

    Why are all the comments criticising Virgin being removed???

    • Rhys says:

      One person (or some people) were filling the comment section with inane spam under the names of Cruz, Branson etc. I deleted them. Unfortunately, genuine comments disappear if they are a response to a deleted comment.

      Substantiated criticism of any company is welcome here, but doing so in a spammy way is not. Use a consistent username.

This article is closed to new comments. Feel free to ask your question in the HfP forums.

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