U.K. Government Rules Out Broad Bailout for Aviation Sector

(Bloomberg) --

Britain has ruled out immediate direct aid to the aviation sector as the coronavirus outbreak wipes out all but a handful of U.K. flights.

In a letter to airlines and airports seen by Bloomberg News, Chancellor of the Exchequer Rishi Sunak said Tuesday that firms must first tap all commercial avenues to raise funds, and that any assistance the state does provide will be structured to protect taxpayer interests.

“The government is prepared to enter negotiations with individual companies seeking bespoke support as a last resort, having exhausted other options,” Sunak said.

The International Air Transport Association said earlier that airlines worldwide could take a $252 billion hit to revenue this year from the pandemic, warning that a liquidity crunch is just around the corner and urging governments to take “massive action” to keep the industry functioning.

Sunak held out some hope that carriers will qualify for assistance through the government’s Covid Corporate Financing Facility, part of a 330 billion-pound ($390 billion) national program that’s being led by the Bank of England.

He said he understood there was some confusion about whether airlines can access the funds, which are for companies with an investment-grade credit rating, and that he’s in discussion to resolve the uncertainty.

British Airways has the lowest non-junk rating, with discount carrier EasyJet Plc ranked higher. TUI AG, parent of U.K.-based TUI Airways, is five or six ranks below investment level with different agencies.

In contemplating support for airlines, the government will consider factors including whether a company makes a material contribution to the U.K., how important it is to connectivity, and whether aid would be fair to other firms.

The aviation industry will benefit from measures including wage support and deferred tax payments, and Sunak said that Transport Secretary Grant Shapps is open to discussing some industry-wide measures.

EasyJet said in a statement it was reviewing the letter alongside last week’s measures, and that its “immediate focus is on liquidity and protecting jobs.”

The U.K. Airport Operators Association said the government had performed a “disappointing” u-turn over support for the industry.

Airlines UK, which represents 13 British carriers, took a more positive view, saying it welcomed the acknowledgment of “the fundamental importance of the aviation sector” and urging the government to apply bespoke or sector-wide measures as appropriate.

Virgin Atlantic Airways Ltd., which has called for as much as 7.5 billion pounds in U.K. aid for the industry, said it couldn’t immediately comment, as did British Airways.

The Treasury press office didn’t have an immediate response.

©2020 Bloomberg L.P.