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easyJet follows BA and takes a £1.4 billion loan guaranteed by the UK Government

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As we covered here, British Airways snuck out an announcement to the Stock Exchange on New Years Eve to say that it had secured a £2.0 billion five year loan.

This is a soft loan which carries a UK Government guarantee.

easyjet has now followed suit. It seems that Government has sanctioned a bailout of the airline sector but is unwilling to publicise it or even call it a Government bailout.

easyjet £1.4 billion Government bailout

easyJet has borrowed £1.4 billion.

As with the BA loan, it is technically a 5-year Export Development Guarantee Facility, partially underwritten by UK Export Finance. This means that it will be priced very low – how low depends on what percentage of the loan is covered.

easyJet will borrow the money as usual from a group of banks, but the Government is on the hook for the bulk of it if easyJet fails to make repayments. I would expect that the Government guarantee would cover 80% of the money. The airline has also agreed to put up certain aircraft as additional security.

Some reports have said that easyJet has agreed not to pay shareholder dividends for the next five years or until the loan is repaid, whichever is sooner. I have not been able to find any direct confirmation of this. British Airways has agreed not to pay dividends to its parent, IAG, whilst its £2 billion loan is outstanding.

This loan is on top of the £600 million that the airline borrowed from the UK Government under the Covid Corporate Financing Facility last year.

easyjet £1.4 billion Government bailout

UK Export Finance is the UK’s export credit agency and “provides the Export Development Guarantee to support the working capital and capital expenditure needs of UK exporters that meet certain criteria”.

As easyjet does not “export” anything, it is unusual for it to qualify to get a Government guarantee for its bank loans under this scheme.

Such guarantees exist because exporting is good for UK jobs and the balance of payments. These guarantees are usually given to companies such as Rolls-Royce who need, for example, to fund a contract to sell engines made in the UK to an overseas airline which has credit risks.

As we said when the BA loan was announced, cynics could see this as a way for the Government to quietly prop up the airline sector.

It will be interesting to see if Virgin Atlantic is able to raise funds this way. It was blocked from raising money under the Covid Corporate Financing Facility, even though Hungary’s Wizz Air was given £300 million of UK Government money.

(That said, given that luxury goods company Chanel was given £600 million by the UK Government, Wizz seems to have missed a trick. German chemicals group BASF, which employs just 800 people in the UK, took £1 billion from the UK Government which was used to part-fund a €3 billion dividend payment to shareholders. German pharma group Bayer took £600 million which was used to part fund a €2.6 billion dividend.)

No doubt Wizz Air will announce another UK Government bailout under the Export Development Guarantee very soon …..

Reuters has more information on the easyJet loan here.

Comments (16)

  • Colin MacKinnon says:

    Dividends? From an airline?
    Take Easyjet, annual profits for the past five years:
    2015/16: £437m (net interest £3m)
    2016/17: £305m (net interest £19m)
    2017/18: £358m (net interest £18m)
    2018/19: £349m (net interest £36m)
    2019/20: Loss of £1,079m (net interest £374m)

    Latest figures are to year end 30 Sept. Easyjet used to pay out half their income as a dividend. But last loss has wiped out the previous three years’ profits. Paying back the new loan will wipe out four or five more years of profits if they can trade like pre-Covid times.

    So now there’s an extra £1.4bn of UK govt debt, their aircraft are grounded or flying empty, and they’ve sold and leased back their aircraft – so fewer assets and higher bills.

    Where’s the money coming from for dividends? I can’t see them surviving.

    Maybe Stelios should sell his stake and start up a new airline – there are plenty of airframes, pilots and slots available!

    • ChrisC says:

      There is no extra UK Government debt. Just as there is no extra debt because of the BA loan

      This is a guarentee for the banks not a direct loan from taxpayers.

      The government is only on the hook if BA and Easyjet default on the bank loans.

      • Colin MacKinnon says:

        Ah, you see I am not an economist. Just a simple chap.

        So when I guaranteed my daughter’s mortgage, I thought of it as my debt. Even though the mortgage was in her name and with me as a guarantor.

        Apologies if I caused confusion.

        My point is, it is not just dividends being paid that people should worry about – it is the very survival of businesses with virtually no assets and absolutely no profits! And no “moat”.

        (But again, that is very old-fashioned of me. Why I have never invested in – and why I have missed out on!! – all these tech companies that don’t make money!)

        • TGLoyalty says:

          EasyJet actually had quite a few assets before this year, they owned rather than leased a number of their planes.

          Perhaps they’ll switch back ownership with this new Lon, I have no idea.

          But I’m very confident easyJet will survive.

          • kitten says:

            I have constantly had confidence BA, Easyjet and Ryanair will survive this and all will return to making obscene profits. Unless we get another worldshattering event on a much bigger scale.

            However in the bath last night I was thinking some airlines would do much better to take the money, fold and reincorporatee as new entities thus dumping any rerouted seat obligations. There will still be finance players willing to fund same management team new entity.

            Not doing myself any good as regards my own cancelled flights but definitely a practical solution.

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