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British Government Mulls Taking Equity Stakes in Airlines to Stave Off Collapse

British Government Mulls Taking Equity Stakes in Airlines to Stave Off Collapse

The British government is considering taking equity stakes in several airlines as part of a rescue package to inject much-needed capital according to sources quoted by the Financial Times. Last week, executives at Virgin Atlantic wrote to the government asking for a £7.5 billion bailout to be spread across the aviation industry but this sum is now likely to fall far short of whats actually needed to prop up many struggling carriers.

Shai Weiss, the chief executive of Virgin Atlantic along with the heads of easyJet and IAG, which owns British Airways, took part in a conference call with the Department for Transport on Wednesday to discuss their needs and what form a bailout could look like.

Photo Credit: British Airways

Government ministers were said to be shocked at how much money airlines could haemorrhage while they are not flying and now believe that loans will not be enough on their own. If the equity plan comes to fruition, the government would plan to eventually sell off the shares to private investors.

“There are certain industries where there will need to be an infusion of capital in exchange for equity,” a source who is said to have briefed on the matter told the FT.

According to the paper, some airlines had been hoping for a “more conventional rescue” that would simply involve loans and tax relief. Willie Walsh, the chief executive of IAG, even claimed his airline group didn’t need a bailout and argued Virgin Atlantic shouldn’t be given a handout.

He is said to have substantially reconsidered his position in the last week. British Airways is expected to announce the grounding of all remaining aircraft in the coming days and may accelerate the retirement of its Boeing 747 fleet – many of which may never fly commercially again.

While British Airways and IAG have refused to comment on the discussions, easyJet said it fully supports the government intervention. easyJet is expected to ground the vast majority of its fleet within the next few days.

Although the measure would be unprecedented for a British government, the idea of taking equity investments in airlines is far from uncommon. In February, the Dutch government took a 14 per cent stake in Air France-KLM – Just short of the 14.3 per cent stake that the French government holds in the airline group.

Within the last week, Italy announced plans to renationalise Alitalia and other European governments have announced major bailouts for their national carriers including Finnair, SAS and Norwegian.

In the United States, Congress is still debating a $58 billion rescue for the U.S. airline industry. Talks are set to resume on Saturday.

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