The government has drafted in City bankers to scrutinise the finances of Britain’s biggest airlines as they put the finishing touches to a multi-billion pound rescue plan.
Sky News has learnt that Rothschild has been asked to advise ministers on a package of measures expected to be unveiled in the coming days.
Sources said airlines including easyJet, British Airways’ parent International Airlines Group, Ryanair and Virgin Atlantic had held talks earlier this week with Grant Shapps, the transport secretary, during which they had made a series of requests for financial support.
Industry bosses are understood to be pressing for support in the form of:
- A state-backed credit facility to provide billions of pounds of liquidity to airlines whose cashflow has been paralysed by the coronavirus pandemic.
- A freeze on air traffic control charges, totalling hundreds of millions of pounds annually across the industry.
- A four-month moratorium on EC261, the European law which requires airlines to compensate customers for flights which have been cancelled.
- A months-long cancellation of air passenger duty once the industry resumes normal flying schedules, with the aim of stimulating customer demand.
- Help from government with employee costs during a protracted period when thousands of industry workers are being forced to take unpaid leave, or work on reduced pay.
- Financial guarantees that would release the money hoarded by credit card companies amid fears about airlines’ potential insolvency.
Insiders said it was possible that not all of the measures requested by the industry would be approved as part of a rescue deal.
However, they added that officials had been “stunned” to be told how rapidly some of Britain’s largest airlines would run out of cash if they operated on near-zero revenues but with their current fixed costs for more than a few weeks.
“It genuinely would be Armageddon for the industry – and now the government can see that for itself,” the director of one airline said.
There was also speculation on Thursday night in the aviation industry that taxpayers could end up owning a stake in some carriers, although such a move would be particularly contentious.
In return for providing an aid package, the government is expected to extract a public guarantee that the airlines will repatriate hundreds of thousands of Britons who remain overseas.
The industry regulator, the Civil Aviation Authority, is also involved in the talks.
The moratorium on EC261 is said to be a particular priority for the industry, because the volume of administrative work involved during a period of depleted staffing would make fulfilling airlines’ legal obligations virtually impossible.
Airlines are understood to have written to Mr Shapps to reinforce that point following their talks on Wednesday.
The active participation of IAG and Ryanair in any of the rescue measures – such as a large credit facility – would be ironic given their legal threats against the government for proposing to support Flybe before its recent collapse.
A number of airline executives, including IAG’s Willie Walsh, Virgin Atlantic chief Shai Weiss and Johan Lundgren, easyJet CEO, have taken temporary pay cuts in the last week as the scale of the crisis facing their industry became apparent.
Mr Shapps said on Wednesday evening: “Coronavirus is having a crippling impact on the aviation industry and we cannot allow it to force world-leading, well-run, profitable firms out of business.
“We are extremely grateful to airport and airline teams who are continuing to help passengers get home safely.
“We stand firmly behind the sector and expect to announce a series of support measures shortly.”
Mr Walsh has insisted that IAG would have no need for state aid because of the strength of its balance sheet.
That message was at odds with a memo issued by BA’s chief executive, Alex Cruz, last week when he referred to making cost reductions that were necessary to ensure the company’s survival.
BA staff were recently informed that they would not be paid bonuses for last year, despite reporting a near-record financial performance.
One insider said that that decision had been the result of the cost of the pilots’ strike that triggered the cancellation of thousands of flights last September.
IAG did, however, pay bonuses to its executives, including Mr Walsh, for last year, it recently disclosed in its annual report.
In recent days, BA staff have also been asked to take one month’s unpaid leave in an effort to save cash.
None of the airlines would comment, while the Department for Transport also declined to comment.
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