U.K. Airline Bailout in Flux With Range of Steps Under Review

(Bloomberg) -- /

Britain will pin down a plan to bail out airlines plunged into crisis by the coronavirus outbreak, with measures set to be revealed in the next few days, according to people familiar with the matter.

The proposals remain in flux, ranging from simply paying the wages of idled workers to state-backed loans to potentially purchasing equity stakes in carriers, according to the people, who asked not to be named because the discussions are private.

Loans convertible into stock at a later date might be an option, one of the people said, though partial nationalization wasn’t raised on a call last week between Transport Secretary Grant Shapps and the heads of carriers including IAG SA, EasyJet Plc, Virgin Atlantic Airways Ltd., Jet2 and TUI. More modest grants that wouldn’t be repayable are another possibility.

One obstacle to the government buying equity stakes is that some of the U.K.’s biggest operators are foreign owned. Former flag carrier British Airways still dominates London Heathrow but its parent IAG is incorporated in Spain. Ryanair Holdings Plc, with its U.K. hub at London Stansted, is Irish, and Scandinavia’s Norwegian Air Shuttle ASA has a big presence at London Gatwick airport.

The government is consulting with banks including Rothschild about options for propping up airlines, said the people, as it assesses how 350 billion pounds ($407 billion) of state support already set aside should be carved up between industries and individual companies. The government is also considering whether the sum will be enough to prevent an avalanche of business failures across the U.K. economy.

A government official declined to comment. Rothschild declined to comment when contacted by Bloomberg.

European airlines have announced some of the deepest schedule cuts anywhere as the virus prompts people to stay home and countries close their borders. EasyJet said last week it would ground at least 90% of flights from Tuesday, while Virgin Atlantic has announced that fourth-fifths of its timetable will be shuttered from Thursday.

Virgin Atlantic Chief Executive Officer Shai Weiss told Prime Minister Boris Johnson in a letter that the U.K. airline industry will need as much as 7.5 billion pounds of state support to weather the crisis.

The government still has a structure in place from the 2009 global financial crisis that owns a majority stake in Royal Bank of Scotland, that could be used for further equity purchases, one of the people said.

Airlines could hear what’s on offer as early as tomorrow, another of the people said, adding that a package of proposals is likely rather than a one-size-fits-all solution. Measures including pay freezes and layoffs, as well as the route cuts, mean most carriers have bought themselves a short breathing space, though the situation is still critical, that person said. Companies that also offer package tours are also burdened by the cost of pre-booked hotel rooms.

The biggest concern is that the crisis drags on through the whole summer, wiping out the high season for travel during which most northern hemisphere operators make the bulk of earnings.

Virgin Atlantic founder and majority owner Richard Branson said in a statement Sunday that the chances of securing a widespread economic recovery in the wake of the coronavirus “will depend critically upon governments around the world successfully mobilizing various newly announced support programs.” He said his Virgin Group will provide $250 million over the next weeks and months to proect its business.

Virgin Atlantic is also 49% owned by Delta Air Lines Inc., though the U.S. carrier won’t be able to provide support if it taps federal aid, as American carriers are expected to do.

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