Sunday 22 March 2020 7:24 pm

Coronavirus: UK airlines await government rescue package

The UK’s airlines are hopeful that the government will unveil its special package of measures to combat the financial impact of the coronavirus outbreak in the coming days as they struggle to remain airborne due to the slump in air travel.

The aviation sector remains in talks with transport secretary Grant Shapps over the shape of the much-anticipated rescue package, with speculation rife as to what the measures will entail. 

Read more: UK government considers buying equity in airlines to keep them afloat

Although some economy-wide measures already announced, such as new rules on financial support for employees, have eased the burden, the industry has been vocal in calls for more extensive protections.

Not all carriers have the same demands however. Whilst Virgin Atlantic’s bosses have called for £7.5bn in state aid to be made available for the industry, IAG boss Willie Walsh has remained adamant that the airline does not need state cash.

Aviation consultant Chris Tarry said that while there was a potent economic case for intervention – with every $1 of airline revenue producing $4 of direct economic benefit – creating the right package for the whole industry contains “real issues of moral hazard”:

“Any support should not be open ended, and it is clear that either the quantum or the nature of the support that is given does not convey a structural competitive advantage when normal times return given that not all airlines will seek or be in receipt of such assistance.”

Independent analyst John Strickland said it was important aid be given on a case-by-case basis, adding that some form of natural selection should be allowed to happen:

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“Competition should not be an excuse for already existing weaklings to survive. The shadow of the industry that returns should at least be the strongest possible shadow.

“We might go back 20 years or so to the national carrier model, which would be a retrograde step but which might be a means to protect some essential capacity”. 

Tarry added that chancellor Rishi Sunak would be watching his counterparts in the US with some interest, due to the ramifications for the fiercely competitive Transatlantic market.

US airlines have called for $50bn in state aid, which will reportedly be divided half and half into loans and grants.

Read more: Coronavirus: Emirates Airlines suspends all passenger flights

“There is a real  issue in the distortion that could arise if the US uses grants rather than loans. In that case it could be a case of matching what the US does but that may be difficult to sustain as an argument”, Tarry said. 

Banker Rothschild is working on the government’s offer. As collateral for potential loans, Tarry said, airlines will be able to offer securities over landing slots and unencumbered planes, with the proviso that aircraft values are “likely to be far away from normal market conditions”.

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