The UK airline industry should first ask their own shareholders for bailouts

Carriers such as IAG and easyJet have boasted of healthy cash balances – it’s the regional airports more worthy of Treasury help

Rishi Sunak is right: airlines should ask their own shareholders for a bailout before they tap up the Treasury for public money.

The chancellor’s stance can be considered a U-turn since he seemed only last week to be ready to regard aviation as a special case. But a lot can happen in a few days and, in the interim, Sunak unveiled his flagship “furlough” scheme to keep workers in jobs by paying 80% of wages, up to £2,500 a month. That’s a huge help for all service industries, airlines included. It ought to be enough for now.

It will also have dawned on the Treasury that major UK operators can withstand a fair amount of temporary financial pain. EasyJet and IAG, owner of British Airways, have boasted about the size of their cash balances and the depth of their credit facilities. Fine, let them use those resources.

Indeed, easyJet gave a perfectly-timed illustration of its riches when it distributed a £171m dividend to its shareholders, including £60m for founder Sir Stelios Haji-Ioannou in Monaco, last week. Those same investors are free to recapitalise their airline should the need arise.

IAG and easyJet, thankfully, seemed to have absorbed the message and are not asking for bespoke deals or bail-outs. Instead, the difficulty for Sunak will come when he’s presented with pleas from weaker airlines and regional airports.

He can only promise pragmatism. It would be hard, for example, to mount an argument for saving a weak airline that couldn’t make profits in the pre-coronavirus age. There would, though, be a decent case for saving regional airports to boost economic recovery, as long as terms were good for taxpayers. But that’s getting ahead of events. In the meantime, the simple message is correct: shareholders and owners need to look out for their own interests.

Wetherspoons can afford to pay its staff

JD Wetherspoon, even after a near-halving of its share price during the coronavirus crisis, is valued by the stock market at almost £870m. Thus the 32% stake owned by Tim Martin, founder and chief executive, is currently worth about £280m.

Wetherspoon has also made profits every year since 1985, as it boasted in its last year’s financial report, including £100m-plus in each of the last three years. In common with a large part of the pub industry, the company also carries a lot of debt (roughly £800m at the last count) but that, in part, is because it has strong asset backing via its collection of freehold pubs.

In regular times, it also generates a pile of cash, which is how it has been able to spend £513m on share buy-backs since 2013. Normal service will surely resume when the doors re-open. Wetherspoon is the maestro of the decent pint at an affordable price and is a nailed-on survivor.

This is the context in which to place Martin’s plea of poverty. The company cannot afford to pay staff until it has seen the details of the government’s “furlough” scheme, says Martin, because it is not Coca-Cola or McDonalds.

This argument sounds deeply disingenuous. Wetherspoon may not be a multinational, but it doesn’t have to be. It is being asked only to take a temporary cashflow hit to help staff until the Treasury’s retrospective 80% scheme is implemented.

Sunak is committed and the banks are under orders to lend where they can. Martin’s claim that his hands are somehow tied is not convincing. Wetherspoon could surely make the numbers work if it tried.

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Short-selling can be a force for good (sometimes)

The Financial Conduct Authority deserves a small cheer for its decision on Monday evening to allow investors to carry on shorting shares if they wish. A ban might have been popular but it’s not justified by events.

Short-sellers are not exclusively monstrous villains seeking to profit from catastrophe. As the FCA pointed out, some dull and boring investment strategies make use of “short” positions as a way to hedge risks.

Such techniques “benefit a wide range of ordinary investors including the pension funds for employees of companies and local government,” said the regulator. Quite. A ban might simply cause more problems, even for long-term investors.

There are, of course, specific instances when a ban could be justified – for example, if short-sellers sense an opportunity to send a bank over the edge by causing a run. But that’s not the current position, thankfully.


Nils Pratley

The GuardianTramp

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