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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.

  • Super Fede says:

    The deleted comments were mostly someone trying to be funny but also some serious criticisms of Virgin were deleted at the same time.

    • Rhys says:

      People are more than welcome to criticise Virgin without being a pain in the arse 🙂

      • Doug M says:

        Days like today should focus you on the need for a more formal posting system, at least registering in some way. I hate days like this and mostly just stay away once I’ve seen how the comments are going.

        • Rhys says:

          It’s Shoestring.

          • ChrisBCN says:

            It’s quite amazing how Shoestring can go from posting very helpful comments on certain schemes, to stupid childlike comments and then to grand proclamations on matters of life and death that he knows nothing about, as has been evidenced in recent times. There’s enough replacement knowledge for him here now if you were to boot him forever 😂

            Happy for this to be deleted as you see fit!

          • Rhys says:

            It astounds (and wearies) us all, trust me

          • ChrisBCN says:

            I feel your pain! Well done on keeping on top of it all though.

          • Spaghetti Town says:

            could make a good guest speaker at the next HFP party 😀 has he ever been to one?

          • Rhys says:

            Not to our knowledge

        • Crafty says:

          The ability to mute a particular user would be very welcome too. (No, I’m not talking about Harry!)

      • Mikeact says:

        Again, I don’t understand…. Why wouldn’t the real Shoestring set up a free and unique Avatar ? End of problem.

  • Rhys says:

    If you want to make substantiated criticisms be our guest, but making facetious comments and generally spamming will get deleted for obvious reasons 🙂

  • SilverInSix says:

    I think both HM Gov and us as taxpayers should be told where that money is actually being spent.

    I would not find it acceptable for even a, comparitely, small loan taken out by IAG to be used to prop up Iberia especially when BA is making massive job cuts and Iberia is not.
    ( If I’ve missed a 1/4 job slashing at IB then I stand ready to be corrected on that part)
    Any UK Taxpayer money needs to be spent on BA alone as far as I’m concerned as all other airlines are domiciled in other nations so it’s, imho, those governments and taxpayers that should be footing the bill even on a temporary basis.

    • ChrisBCN says:

      It’s acceptable for a UK government loan to be given to non-UK companies with a decent sized employee base in the UK as has happened here. I don’t know why you wouldn’t like that? And I’m sure you are aware how many ‘British’ companies are foreign owned…..

      Don’t forget that IAG runs IT and cargo functions (amongst other things) from the UK.

      You are right that Iberia hasn’t fired people, but I’m pretty sure that under Spanish furlough rules (ERTE) means they can’t, at least until furlough ends.

  • Simon says:

    Interesting that everyone else sees accessing the BoE facility as worthy of a RNS announcement but IAG feel able to leave it under wraps for three weeks. Questionable whether a £300m cheap loan is price sensitive for IAG given their liquidity pile, so probably not an issue, but definitely out of line with market practice.

    • Save East Coast Rewards says:

      I wonder else who’s claimed the loan without making it public. There’s probably quite a few companies.

  • Joan says:

    “It seems remarkable that British Airways cannot find anyone with sufficient responsibility to join others from the aviation sector for our Select Committee inquiry this Wednesday. With so many questions, this would be an ideal platform for BA to set out its challenges, to reassure and seek Parliamentary support should it need more assistance from the UK authorities.

    “In March, BA’s parent, IAG, warned against the UK Government bailing out its competitors and said it would administer ‘self-help’ before seeking support. BA’s UK staff are now facing mass redundancies or working on vastly reduced terms. BA’s passengers are not being given flight refunds they are entitled to.

    “In Spain, it would appear that BA’s parent has adopted a different strategy of seeking substantial Government financial support and maintaining its operations and employee numbers.

    “It’s vital that BA reassure their staff and passengers that they are not using this epidemic to reduce their UK wage bill and competitors, in order to maximise future profits if and when the market returns.

    “Judging by the huge volume of emails which MPs are receiving from concerned staff and passengers, it is more important that we hear from BA and IAG than demonstrate their lack of delegated responsibility. We therefore intend to proceed with a separate session for British Airways and Mr Walsh on Monday 11 May in the event the limited resources in Parliament can accommodate. We look forward to meeting Mr Walsh and hearing his strategy for BA in these challenging times.”

    • Rob says:

      They got Simon Calder to give evidence this week, unbelievably.

    • Trevor says:

      Walsh before the Committee on 11th, isn’t he?

      • Kruggs says:

        i doubt he will say much about job losses. The consultation has to be done in good faith, so he will use that line that he doesn’t want to prejudge any result, and hence he won’t be able to talk much about it, which is correct.

    • Lady London says:

      I hope they question strongly on basis for selection for redundancy and get assurances from BA that those whose contracts will be chosen to be terminated will not indirectly discriminate on the basis of age. By definition that should keep a substantial portion of legacy contracts untouched?

      • Mr(s) Entitled says:

        Genuine question, why would the promise not to discriminate on age save anyone? You can still let people of a certain age go without discrimination based on a whole host of metrics. Can’t you?

        • Lady London says:

          It’s illegal to use the usual criteria such as race, religion, age, gende orientation as a basis of selecting positions/staff for redundancy. Indirect discrimination (such as if your rules for selection don’t include those things, but the application if whatever selection rules does turn out to disproportionately mean people with above characteristics end up redundant, that is indirect discrimination and therefore that is unfair selection for redundancy.

          Given that anyone with a legacy contract is likely to be in an an older age group disproportionately compared to the spread of ages in the total workforce eligible to be selected for redundancy, I was thinking that this age effect would amount to unfair selection for redundancy (and therefore illegal) if it would miraculously turn out that staff on legacy contracts somehow end up disproportionately
          selected to be made redundant.

          Don’t get me wrong. I agree that some legacy staff still earn compensation that is now excessively high compared to compensation levels in the industry today. This cannot be sustained. However I believe all previous commitments should be honoured by the employer, any accrued benefits preserved, and generous notice given of changes (and an option of as decent a redundancy package as can be managed, provided for all staff whose roles are no longer needed in existing numbers or where the role exists but compensation needs to be brought in line with the industry.

          I know that threatening only statutory compensation for redundancy was probably just an opening ‘softening up’ tactic by BA. However we all know that even in these sure industry circumstances BA still has the resources available to be more decent than that to employees. Some redundant employees will never work again but BA will come through this and have long term strength. So BA can afford to treat employees decently and speak to them decently now.

          • Mikeact says:

            What is ‘ excessively high ‘? I still have no idea what legacy pay amounts to…just interested to know.

          • Lady London says:

            Excessively high according to the sort of employer we’re talking about is if you have longstanding highly competent willing crew who happen to be on a base pay of £36k that would never be offered now, plus allowances of £8k, decent pension scheme etc. Also let’s say 5 weeks holiday plus Bank Holidays.

            Compare that to new staff being freely available to recruit on £13k base pay, about £12k of which you can get paid by the government by calling the crew member an apprentice, maximum allowances earnable 4-6k, 4 weeks holiday, lowest possible pension contributions to money purchase mastertrust only, and many other airlines offering still worse pay such as Ryanair. Still 7 applications for each job. These pay differences have existed for, what, 10-15 years?

            Wouldn’t most British employers say the former employee was excessively compensated and be willing to try to go through complicated procedures, possibly several times, in good times risking strikes, to lower the package or get rid of those longstanding employees?

            This is not my opinion but it’s what I see.

          • Rob says:

            Many other differences. Worldwide tend to get an extra day off before coming home vs Mixed Fleet for example IIRC. Costly on hotels for BA.

      • marcw says:

        Can they not make the “legacy” position redundant, rather than each individual employee?

        • C77 says:

          No because the job role of the legacy fleet crew pretty much mirrors the role and tasks which is now being recruited for under mixed fleet contracts.
          I mean they could but there’d be few thousand in line for unfair dismissal in employment tribunals as a result.

    • Dubious says:

      “..and said it would administer ‘self-help’ before seeking support..”

      Not nice and maybe there is a better/fairer way they are implemented, but aren’t redundencies to remove your outgoings (for the short and long-term) self-help?

      • Lady London says:

        I think by saying they would administer self help before getting any support, BA was trying to say self-flagellation. What they really intend sounder awfully like flagellation of longserving crew on legacy contracts that they’ve tried hard to eliminate apparently but had failed previously.

  • Annette Thomas says:

    Let’s hope we get our refunds now for 6 return flights with Iberia from April

  • Steve says:

    I’m surprised that Rob, with his financial background, is mixing a govt backed loan with a bailout. The loan needs to be repaid. What the likes of Norwegian have done is a bailout, an equity stake that is not repayable. I’d class this £300m as simply a liquidity grab. Not even close to being in the realms of a bailout.

    • Ralph says:

      Well said! ‘Bailout’ is not the correct term for this.

      IAG has simply accessed a loan facility open to any qualifying company in any sector. It is totally different to the bespoke cash handouts, part nationalisation etc. of airlines happening elsewhere in Europe.

    • Rhys says:

      A loan that wouldn’t be available under normal circumstances is a bailout of sorts.

      • marcw says:

        But it´s available to virtually or companies with tradeable debt, it´s not specific to a certain sector/company.

  • NigelthePensioner says:

    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.

    Yet more proof that Cruz hasnt an iota of a clue what is happening at BA and that it is his puppeteer Walsh who is manipulating the airline(s) – does he really believe that people dont see this??

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