UK’s top airlines make drastic cuts to try to survive coronavirus

Monitoring Desk

LONDON: The owner of British Airways and easyJet, Europe’s no.3 and no.4 airlines, warned aircraft would be grounded on an unprecedented scale in a battle to survive the coronavirus, but while easyJet said state aid was needed, BA’s owner talked of self-help.

Britain’s government said it would discuss how to protect the industry from the coronavirus pandemic after easyJet on Monday joined Virgin Atlantic in calling for government help as people across the world stop travelling.

“European aviation faces a precarious future and it is clear that coordinated government backing will be required to ensure the industry survives,” easyJet’s CEO, Johan Lundgren, said in a statement.

BA-owner IAG did not ask for government aid, however. IAG CEO Willie Walsh, who on Monday deferred his retirement due to the crisis, has long opposed any government aid and told investors that airlines should look at self-help first.

“I think individual airlines have been approaching governments looking for state aid. We have not done so,” he said, adding that the group would however accept any general facilities provided to all companies which would benefit employees.

Shares in both airlines dived in morning trading. IAG, which also owns Spain’s Iberia and Vueling carriers and Aer Lingus, was down 23%, its lowest level since 2013, while easyJet lost 18%, its lowest level since 2012.

EasyJet, which is in regular contact with the UK government, said it wanted governments to provide access to finance to help overcome any short-term liquidity crunches, plus removal of passenger taxes, a holiday from air traffic charges as well as an extension of the relaxation of a rule in relation to airport slots.


IAG said it would cut its flying capacity by at least 75% in April and May, while easyJet (EZJ.L) said it could ground the majority of its fleet on a rolling basis. The airlines are the no.3 and no.4 European carriers on a passenger number basis.

Both airlines said they had strong balance sheets and Citibank research showed that easyJet and IAG would still have much lower net debt to EBITDA ratios than Air France-KLM (AIRF.PA) and Lufthansa (LHAG.DE) after a simulated three-month shutdown.

IAG said it had total liquidity of 9.3 billion euros, while easyJet said it had 1.6 billion pounds of cash plus an undrawn $500 million revolving credit facility.

“IAG has substantial resources to weather the storm,” said Bernstein analyst Daniel Roeska.

Both airlines said they could not provide profit guidance for their current financial years. IAG also detailed cost cuts including a freeze on discretionary spending, working hours reductions and a temporary suspension of employment contracts.

Walsh also told investors that 2021 capacity was likely to be lower than currently planned, and that the crisis would accelerate the permanent retirement of dozens of aircraft including BA’s 747s and Iberia’s A340s.

Courtesy: (Reuters)