Finally! The UK Government Has The Right Way To Deal With Airlines Begging For Taxpayer Money

Some links to products and travel providers on this website will earn Traveling For Miles a commission that helps contribute to the running of the site. Traveling For Miles has partnered with CardRatings for our coverage of credit card products. Traveling For Miles and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone and have not been reviewed, endorsed or approved by any of these entities. For more details please see the disclosures found at the bottom of every page.

One of the bigger news stories surrounding the effect the current crisis is having on businesses has been the news that airlines worldwide are begging their respective governments to bail them out now that most people are not flying anymore.

In the US we have seen the major airlines demanding billions of dollars from the federal government on the grounds that they’re key to the success of the economy, while in the UK we have seen the likes of British Airways, Virgin Atlantic, and easyJet threatening to make thousands unemployed unless the government hands them a huge lump of cash to keep them going. It has been remarkably eye-opening.

One of the key things that I’ve noticed in amongst all of this begging is that the airlines don’t really want to give up very much in return for the colossal amounts of taxpayer cash they claim to need and, more importantly, it’s starting to look like what the airlines really want is for governments to keep them afloat AND and preserve the wealth of their shareholders.

All the suggestions coming from the UK and US airlines have, so far, involved their respective governments bailing them out with huge loans and/or grants that would see them safely through the next few months…but why should the governments agree to this?

I doubt many would disagree with the idea that we need to preserve as many jobs as possible (it’s not the workers’ fault that the airline bosses failed to save for a stormy day) but why should taxpayer money be used to bail out the shareholders?

The shareholders are the people who gambled by buying airline stocks in the first place (it takes a special kind of idiot not to know how unstable US airline stocks are) and they’re the ones who benefited from the multiple share buybacks that have left the airline balance sheets in the weak position they’re now in, so why on earth should these guys be bailed out?

I wrote on Monday that one of the 3 key conditions that should be attached to any airline bailout is that stockholders should be wiped out and that governments should take a significant equity interest in any airline that receives taxpayer funds and now it would appear that the UK government agrees.

Yesterday afternoon, the UK’s Chancellor of the Exchequer (the UK’s equivalent of the Treasury Secretary) wrote to the major UK airlines to tell them that the government was not prepared to bail them out…at least not in the way they’d like to be bailed out.

The chancellor told the airlines that the government would only consider supporting them “as a last resort” and that he expects them to seek help from their own shareholders and exhaust all other options of funding before coming to him for help.

In the letter, the chancellor wrote:

“The priority for all companies should now be to reassess their cashflow positions in the light of Friday’s announcements. We would expect all companies to be pursuing all possible actions to preserve cash and maximise liquidity, including engaging with shareholders, lenders and the markets and utilising all available assets and facilities.”

“Given the significant importance of the aviation sector to our economy and economic recovery, the government is prepared to enter negotiations with individual companies seeking bespoke support as a last resort, having exhausted other options. However further taxpayer support would only be possible if all commercial avenues have been fully explored, including raising further capital from existing investors and discussing arrangements with financial stakeholders”.

“Terms would be structured to protect taxpayers’ interest, and the government would expect to have regard to factors including but not limited to whether the business makes a material contribution to the economic activity of the UK, the importance of maintaining a thriving competitive aviation sector in the UK to deliver connectivity and the equitable and fair treatment across businesses in the sector.”


That’s how you deal with airlines who want everything their own way – you tell them to go and get the money they need from their shareholders or the free markets they all claim to love (but only during good times) before bringing their begging bowls to the government.

The suggestion here appears to be that the UK government will not be handing out the huge loans that the airlines are asking for but will consider taking significant equity stakes should the airlines exhaust all other options…and that seems fair. Let the airlines try to raise what money they can and, should they fail to save their own hides, the government will step in (at great cost to the shareholders) and protect the jobs the ordinary workers need.

That sounds perfect to me.

I should also add how interesting it has been to watch how the UK government’s attitude has rapidly changed the messaging coming out of the country’s biggest carrier – British Airways.

When the current crisis first started to hit home, IAG (BA’s parent company) was quick to point out how strong its balance sheet is and how it wouldn’t be needing any help to weather the storm. Then, when it thought that there may be some government cash on the table, it quickly had its snout in the trough along with the other airlines and was loudly declaring how key government funding would be.

Now that no-strings-attached government cash is no longer looking like an option, IAG has returned to pointing a spotlight at its robust balance sheet and claiming that it doesn’t need help after all – it’s amazing how an airline’s attitude can change when a government stands up to it, isn’t it?

Bottom Line

A government’s job isn’t to preserve shareholder wealth (that’s the job of a board of directors) so there should be absolutely no airline bailouts before the shareholders have been bled for all they’re prepared to put up and governments have taken significant (majority) stakes in the troubled corporations.

Airlines and their shareholders should not get to feast in the good times and then have the taxpayer bail them all out in the bad times and there have to be serious consequences for failure – that how capitalism and capital markets work.

It’s fantastic to see that the UK government apparently grasps this concept so now let’s hope the US manages to find the courage to follow suit.



Please enter your comment!
Please enter your name here