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COVID-19: Airlines in Trouble, BA Asks Pilots to Accept 50% Pay-cut, What about the CEO?

It may be safe to say, the spread and immediate ramifications of the Covid-19 virus has taken most of the Western world by surprise, despite having many weeks to prepare for a potential outbreak. Consequently, a substantial number of companies are now in troubled waters, but the seas may be acutely rough for airlines and travel industry in particular.

British Airways and the unions that represents its pilots are said to have agreed to an emergency deal to offset costs and job losses going forward.  Employees have already been told they will no longer receive company-wide bonuses despite record profits last year.

In stark contrast, CEO Alex Cruz is reportedly not giving up any portion of his wages. I find this rather distasteful. What happened to leading by example? In an age where people really are discovering and becoming more in tune with compassion and togetherness, this is not very together.

Major airline CEO’s such as Alan Joyce at Qantas and Delta’s Ed Bastian have both said they’ll forego 100 per cent of their wages for a few months. I was hoping to see Alex Cruz follow suit, whether that is announced in the week ahead, we shall see.

Global Capacity Cuts

As with most global airlines, International Airline Group (IAG) the parent company of British Airways, alongside Iberia has announced 75% capacity cut across its network through May 2020. This may be extended further.

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Photo Credit Heathrow Airport

Cathay Pacific is currently operating just 4% of its routes. Some airlines such as Austrian have completely ceased operations.

How many months this can go on, none of us can know.

BA Financial Position

As far as company fundamentals are concerned, British Airways was in a healthy (some might say enviable) financial position. The company was finally beginning to turn a corner, with huge investments going to modernise its fleets and improving (sometimes woeful) service standards. It has reported impressive revenue and profits in recent years.

Just a few days ago IAG stated it had a “total liquidity” of 9.3 billion euros (£8.4 billion). “IAG is resilient with a strong balance sheet and substantial cash liquidity,” Chief Executive Willie Walsh said.

To Bailout or Not to Bailout?

Virgin Altantic, on behalf of all airlines and UK aviation industry requested government cash injection to the tune of some £7.5 billion pounds to alleviate some of the immediate pressures.  Amid the current near standstill for most air traffic,  the U.K government is said to be considering how it can help. To some extend, they already are, in that they have now pledged to fund 80% of affected people’s salaries (upto £2500 p/m) for staff who may otherwise be at risk of losing their jobs.

Will this measure be enough for airlines who will have almost all revenue dry up?

Interestingly, BA’s official reaction was to criticise the move by Virgin, stating they are not looking for a bailout, and reiterated their strong balance sheet position to weather through the storm. Ironically, at the same time, it implied it was more than happy to take one, if it was going. Off course, despite this BA had already taken cost cutting measures on the very first opportunity,  i.e cancelling new recruits, asking staff to take unpaid leave.

Nevertheless some sources state B.A is burning through £200m a week. It’s unclear when this figure relates to, or at what stage of the cost cutting measures were in place at that point. If we are talking hundreds of millions, then eventually, even £8 billion may not seem much for sustainability over months or even a year of uncertainty ahead.

Does British Airways Deserve a Bailout?

While B.A may not be in an immediate danger of going bankrupt, the government may decide to inject cash in form of equity stakes. What other conditions might or should be attached to this? It has to be for the greater benefit of the travelling public at large, as well as front staff who run the airline, rather than to sustain cushy executive jobs and bonuses.

Ultimately, we will have to wait and see what shape any bailout out look like. I do hope the government has learnt its lessons from the 2008 banking bailout, and applies this accordingly this time round.