Questions about Virgin Atlantic and British Airways as the Bank of England publishes its bailout list

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The Bank of England has published the list of businesses which have received a taxpayer-funded bailout under the UK Government’s Coronavirus Corporate Finance Facility (CCFF).

You can download it as an Excel spreadsheet here.

This is the list of companies who have applied for AND DRAWN funding from CCFF.  It does not include, for example, Jet2 which we know has applied and been accepted but has not yet asked for the money to be paid.

easyJet, Ireland’s Ryanair and, erm, Hungary’s Wizz Air are on the list as you can see, as is British Airways.

(Before we go on, I accept that not everyone defines taking CCFF money as a ‘bailout’.  That’s up to you.  It depends if you see lending up to £1 billion of taxpayers money to struggling companies, with no security, for as little as 0.2% interest as a ‘bailout’ or not.)

The reason I am looking at this is because of the inconsistencies in the Virgin Atlantic and British Airways positions.

Let’s look at Virgin Atlantic first.

Virgin Atlantic is unable to access the CCFF for technical reasons.  There are rules about how your existing debt should be structured and Virgin Atlantic does not meet those requirements.  This is despite the fact that the company is hampered by Government restrictions – most recently the new quarantine requirements – which stop it trading as it would like.

You may or may not feel that Virgin Atlantic should receive a virtually interest free loan from the UK Government.  However, let’s look at some of the companies which HAVE been given your money via the CCFF – is Virgin Atlantic any less deserving than any of these?

BASF – German chemicals group employing just 800 people in the UK – £1 billion, which is being used to part-fund a €3 billion dividend payment to shareholders on 23rd June

Bayer – German pharmaceutical group – £600 million, which was used to part-fund a €2.6 billion dividend payment to shareholders on 4th May

Chanel – French maker of luxury goods – £600 million

CNH Industrial – an Italian / Dutch / US maker of agricultural machinery which is UK-domiciled for tax only – £600 million

Tottenham Hotspur – £175 million

Take a look at the full list which also includes Burberry and shopping centre owner Westfield.  It’s hard not to feel sorry for Virgin Atlantic, its employees and its suppliers when you see so much taxpayer money being handed out to companies with few (in some case virtually no) UK employees or activities.

The British Airways position is confusing too ……

There is something odd, on the face of it, about the way that British Airways is included on this list.

On 7th May, when BA’s parent IAG published its 1st Quarter results, it was announced that it had taken £300 million from the Coronavirus Corporate Finance Facility.

It was vague about which group entity had taken this money.  We assumed that it was IAG at the parent company level.  British Airways has been constantly pushing the fact that it is refusing to take Government money and so must force through its redundancy programme, including cuts in pay and conditions for those staff who remain.

Even the Bank of England is being vague about who actually took the money.  The spreadsheet released shows that £300 million was taken by:

“British Airways PLC (International Airways Group PLC)”

This is as clear as mud.  Was it BA that took the £300m?  Or was it International Airways Group PLC?

International Airways Group PLC doesn’t even exist.  The immediate and ultimate parent company of British Airways plc is International Consolidated Airlines Group S.A, which is incorporated in Spain.  On the balance of probability, it does seem that it was British Airways plc that took the £300 million.

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Comments

  1. Philip says:

    I wonder if similar lists are available from other countries for us to see ? It would be interesting to know if any British companies are receiving aid from other govts.
    I got a bounce back loan , which I didn’t presently need , but I read of an example on the BBC web yesterday of a lady who clearly does but was turned down , unfortunately they did not ask the essential question , why ? When it seemed getting the loan was the easiest application for funds you could ever hope for .
    This is a fearfully complex situation and one size will never fit all and trying to account for all circumstances is impossible , I ask for example if I am employed with secondary income that exceeds my salary why I can still get the furlough pay , wheras if I am self employed in the same situation I can get nothing ? Sorry going off topic a bit .

    • The Savage Squirrel says:

      I can only think she was an individual and not a business, or failed to fill the form out correctly and ticked yes to some loan-preventing box?

      They literally gave them away – with no risk the banks did not care. Think my application took about 90 seconds…

  2. Duck Ling says:

    Hi Rob, any chance you could update the article with what ‘technical reasons’ regarding VS’s debt structure that forbid it from accessing the government loans?

    • It needed to have existing rated corporate debt in place, which it didn’t.

      • Richard says:

        Possibly a little more than a technicality, however. Prior to lockdown, VS did not have an investment grade credit rating, making provision of a state guarantee for them a more risky proposition for Government (ie. HMG would presumably have been advised that they needed to understand Virgin’s complex corporate structure in more detail to assess who would own what if ever the airline went pop). VS had reportedly been trying to arrange a c£750m loan to provide more liquidity, secured against Branson’s remaining 51% shareholding, apparently as an alternative to getting a rating (which would now be near impossible). In other words, the £750m would provide a cash buffer making it much less likely that the guarantee would be needed. If the guarantee has now been agreed, what security has VS been able to offer? If all this means that VS will survive, then that will be good news for customers.

      • I’m not sure this is correct.
        The CCFF specifically has routes for those companies who haven’t issued commercial paper.

        The problem for Virgin Atlantic is that it seems highly unlikely that either Virgins own banks will state that it’s debt is investment grade or the ratings agencies will provide a sufficiently high rating.

  3. Pretty shocking to see some of these companies paying out massive dividends yet still receiving bailouts. What’s even more annoying is that there will no doubt be many years going forward of 1% or 0% pay rises in the public sector to pay for it – we’re still paying off all the money squandered on paying massive bankers bonuses over the past decade, with 30% cuts in pay in real terms over the period. The Thursday clapping was all very nice but it’ll be for naught if we’re then left paying for it for years to come.

    • Secret Squirrel says:

      We will be paying for all Govt aid to businesses and persons off work for decades probably.

    • jamesj says:

      Most local authority pensions are paid from their own schemes it is the likes of nurses, police, fire, civil service that are paid from tax – and many of the Westminster departments still have non contributory schemes which is the real scandal

      • I can see this from both sides, as of course I am now retired! Rates of contributions differ wildly, from police officers who currently pay 14% of salary into their schemes, down to some Whitehall mandarins who reportedly pay 0%. And of course MPs are guaranteed a pension regardless of how long they are in post. The government does nobody any favours, of course, by ham-fistedly implementing reforms which are going to cost more in the long-term, having been ruled to be discriminatory (as in the case of judges, fire fighters and the police). The problem is, of course, that public sector pensions were intended for folk who were worked into the ground and only lived for 5 years after retirement, not chief officers on 6 figure salaries retiring in their early 50s and going to have lucrative second careers as “consultants” in various areas.

      • Harry T says:

        Well, there’s few perks to working in the public sector these days, and a pension that’s hacked away at every few years is sadly what we have left. Years of effective pay cuts and worsening working conditions are perhaps slightly mollified by job security and a robust pension. But the previous generations have a much better pension than I have to look forward to.

    • I’m afraid that just doesn’t make sense. Can you imagine if the likes of the NHS scheme was a funded scheme and then the stock market dropped? The amount required to pay for it would be astronomical given the number of staff involved. There are also strict cost caps involved. Plus staff receive sub-inflationary pay awards for many years on the basis that they’ll receive a decent pension in retiral (this is quoted in multiple DDRB reports as a justification).

  4. Sandra Crawford says:

    A lot of people are saying Virgin shouldn’t have a “bail out” because Richard Branson is wealthy. But it’s not about that it’s about how many jobs are at risk if Virgin Atlantic is allowed to fold?
    Yes Branson is wealthy but so are a lot of people who have benefited by furloughing staff taking grants and loans etc.
    It definitely needs rethinking any technicalities can be sorted as I’m sure they have been for a few others!

    • Chris Heyes says:

      [email protected] Nothing to do with Branson being Wealthy more or less
      Two Schools of thought Virgin Very badly run always on the edge of going bust even in really good trading times (and probably will one time), Branson tax exile a lot of people don’t like the fact he won’t pay what people perceive his fair share of “Tax”
      OOOooo and a third a lot of people don’t like him whereas before they did lol

  5. [Deleted as wrong!]

    • Dividends cannot be paid, if the borrowing is for more than one year and as long as the money is unpaid.

      • I think, having had a dig, that only the actual subsidiary which took the money cannot pay dividends. So, for example, IAG can pay dividends because British Airways plc took the money.

        • Genghis says:

          Though more difficult to get cash up to the top of the tree given BA makes most of the cash.

  6. David the 1st says:

    Bit harsh to imply CNH is a tax domiciled company only. They are the UK’s largest manufacturer of tractors, and a major employer and exporter.

  7. You state that the money is loaned at 0.2%. I’d be interested in a source to confirm that fact.

    I see the BoE has loaned £16billion so far. Now we know it doesn’t just have that amount of cash sitting in the bank, and so must borrow the money from elsewhere. Thus, I’m curious if the BoE is paying out a higher rate of interest that it gets back at 0.2% It wouldn’t surprise me in MugUK.

    • It is 0.2%, 0.4% or 0.6% based on your credit quality.

    • Mr(s) Entitled says:

      Thank Bank of England’s reserves are far far far greater than £16bn. The bank rate is now 0.1% p.a. so they should be making on the loans. The Govt (100% owner of BoE) can borrow 5yr money at 0.086% in the open market. I think these are a max of 6yr loans, hence picking the 5yr yield. Either way, MugUK is doing just fine in at the moment. Defaults may change the math however.

  8. I reckon the Government is determined to not allow Virgin to get money due to Sir Richard having runs in with the Government in the past. He sued the NHS (who aren’t a sacred cow – If they were wrong then they were wrong), I’m sure he also declined to take failed asylum seekers back on Virgin branded planes, he’s had loads of public spats about the trainline contract allocation set up. There’s other examples too I’m sure. So I believe that the Government just simply don’t like him, and there will forever be technicalities against his brand.

  9. Sanjay says:

    Tottenham Hotspur exploiting government schemes again. This one will get through without criticism. No doubt Levy will use the funds to invest in ENIC and make a killing at the expense of the taxpayer. This winds me up even more than the airlines tbh.

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