Rishi Sunak has resisted the urge to extend his hand to airlines. Quite right. These are the same companies that squealed when the government toyed with bailing out Flybe in January.
Politicians then made the right choice not to throw a lifeline to a business with too much debt, high costs and which was on the edge of collapse.
IAG, easyJet, Ryanair et al are no Flybes. But the International Air Transport Association has declared that without state aid, Europe’s airlines could be bust by May. Nonetheless, Mr Sunak is right to insist that they first tap investors and banks for cash before running to him for help.
Wizz Air and Ryanair don’t need emergency funding in any case, according to Mark Manduca at Citi. IAG and easyJet are strong enough to hold off for a while, too. Even with a three-month shutdown, net debt to ebitda might only rise to 1.2 times at easyJet and 2.6 times at IAG.
Lufthansa and Air France-KLM are in a much worse state. Virgin Atlantic — owned by billionaire island owner Richard Branson and Delta Air Lines of the US — is noticeably more nervy. It made a plea for £7.5bn for the industry in emergency state support.
But the government — which has already promised £330bn in loan guarantees, VAT deferrals and wage support — must not be seen to make a special case for airlines or to chuck money into the pockets of the tycoons, private equity consortiums and infrastructure funds that have mopped up British airports and airlines.
easyJet has just bunged £174m in dividends to its shareholders, including founder Sir Stelios Haji-Ioannou whose family still holds a third of the company. If it needs cash, it should ask them first before going cap in hand to the taxpayer.
The government may have to step in eventually with sector-specific support if the crisis is prolonged. Raising funds from cash-strapped investors and overburdened lenders will be tricky. Even so, the British government — like the banks — must discriminate between viable groups caught up in the maelstrom and those for which coronavirus was just the final straw.
And a bailout is hardly a panacea — as the banks can attest after their rescue in 2008. Government support is usually accompanied by punitive equity dilution, debt subordination, high interest charges, stringent conditions and restrictions on executive pay, dividends and spending plans that can last decades.
The next few months will undoubtedly be turbulent. But it is still better to fly solo.
Sir Nigel not overboard
When you’ve spent 40 years at the top of British business, another year or so in the hot seat doesn’t make much difference.
Nigel Rudd, knight of the realm, is currently chair of no less than three public companies, including Meggitt, the FTSE 100 aerospace and defence group. Last month, Meggitt announced his retirement. Now everyone has thought better of the plan. Meggitt is in flux. Its core business supplying aerospace parts has evaporated and it is turning to designing ventilators. It is not the time to install a raw recruit to lead the group as the coronavirus crisis escalates.
It was hard enough to find a decent candidate to fill septuagenarian Sir Nigel’s shoes before. Now it is tougher as the world locks down. Headhunters can’t just ring around and meet at the club as they did in days of yore.
Nor is it time for Willie Walsh to turn International Consolidated Airlines over to a new chief executive. The group is putting on hold a planned management shuffle for the time being. Management stability is the priority, it says. No one wants an inexperienced pilot at the controls right now. And both Mr Walsh and Sir Nigel have experience in spades.
It makes Centrica’s decision to shut the door to its chief executive Iain Conn seem that much harsher. Mr Conn’s departure was announced in 2019 but accelerated last week once Scott Wheway was confirmed as new chairman. The board and shareholders plainly didn’t see Mr Conn as the man to see the gas group through the crisis. But then Centrica’s shares have tanked 70 per cent during his five year tenure.
Meggitt’s board has more faith in Sir Nigel, chairman since 2015. That said, delaying his exit will worry governance watchers who fret about multiple chairmanships and overboarding. More than a quarter of Meggitt’s shareholders voted against his reappointment a year ago. Leading one company through a crisis is tough enough, let alone three.
Extraordinary times merit extraordinary measures. Nonetheless, it shouldn’t serve as a blueprint for others to sidestep guidelines that investors hold dear. Multiple chairmanships, like extended stints on a board, make for weaker oversight of executives. Tenets can be broken but only with extreme care.
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