European Airline Bailouts. Tom Otley, Editor of Business Traveller interview with John Strickland, Aviation Consultant.
Tom Otley, Editor of Business Traveller interviews John Strickland, Aviation Consultant about European airline bailouts.
– Hello, my name’s Tom Otley from Business Traveller, and welcome to the latest of our videos. Today we’re talking about aviation, and specifically, the bailouts that are being considered by many European countries. To discuss this, I’m talking with John Strickland, aviation consultant at JLS Consulting. So at the moment, we’ve got a situation where nearly all European airlines are looking for a bailout. Obviously, the situation differs from one country to the next, but I was wondering what your opinion was about whether they’re likely to be given those bailouts.
– I think the likelihood of bailouts is going to vary very much by country, although we have the European community still including at the moment, the UK. Government attitudes are very different. We go from very small countries, maybe the east of Europe who’ve got national flag carriers, which really are another world, even before this crisis. They shouldn’t be there if you look at market commercial terms, and some of those governments may still want to protect their national airlines. Whether they have the financial means to do so is another matter. Of course, we have the ongoing situation with Al Italia, which has been bailed out many times in the past and left to market forces, that would’ve disappeared. And again, whether the government initially can do that this time around, we’ll have to see. We have the big European groups like Air France, KLM, and Lufthansa, both of whom are asking for government support, and it looks like both of them are going to get it. Now those two airline groups are not any major players, but they have been going down the track of very much improved commercial efficiency in recent years, and that will undoubtedly continue. And I think the structure of any support there, while it will raise shackles of other completely privately run airlines, is likely to be structured in a way that there’ll be obligations to pay back or commercially-based market loans. And then if we look at the UK, it’s different again where the government has made it clear that they’re not likely to give anything like your blanket bailout to the industry here. And some of the largest players, in particular IAG, which is by the way not a British company, but a European group based in Spain, but of course its biggest component is British Airways, is not actually looking for bailout. And perhaps last of all we have some private companies in Europe who themselves are certainly looking for government money because they find themselves in difficult financial straits at the moment.
– It’s very difficult though because if any European government gives help to any airline that immediately means it’s not a level playing field. So even when you’ve got Willie Walsh, who’s in charge of IAG, which is in charge of British Airways and Iberia saying, “We’re not looking for money now,” the moment money is available to his competitors, that changes things, doesn’t it?
– It’s really a very delicate matter, the governments. And of course, the EU framework, not just in aviation, but across other industries embodies very clear legislation about state aid. So we’ve seen in a number of countries that airlines around Europe have been known to take advantage of more general measures introduced by government across the board, for example, job protection where jobs have furloughed and different percentages of pay are picked up by the state. But it is, as you said, far more sensitive when particular funds are put into a company. There has to be a very defendable rationale for doing that. It can’t just be a government wish. It can’t just be a request by a company. There would have to be something defensible because as we saw recently, when there was talk that Flybe was possibly going to get government support in the UK, it nearly didn’t. There was a massive backlash from other airlines of industry calling foul on that, and I think the same would apply here.
– I mean, the airlines make some good arguments about why they ought to get government money. I mean, for one thing, they’ve been told not to fly by their governments, so it’s destroyed their business or certainly put it on hold for three or four months. But when it comes to actually bailing out companies, surely there ought to be a requirement that they go to their shareholders first. I mean, a lot of money’s being returned to shareholders, well, particularly in the US. What do you think the situation there is? Do you think that there will always be a requirement to go to shareholders before governments and taxpayers bail them out?
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