British Airways Receives Huge £2BN UK Bailout Loan

Is British Airways, British? In many ways, yes, but in many ways, no. It’s an internationally owned airline, with the main shareholders based in Qatar and Spain, as part of the International Airlines Group (IAG).

The airline is a massive employer in the UK, and represents a key framework for international travel from the UK, and perhaps that’s why the airline just received a £2bn loan, backed by the UK Government. Does it create an uneven playing field? Perhaps, but what isn’t uneven these days.

British Airways £2BN Loan

British Airways has played a treacherous game of ‘bailout’ during covid-19, which a cynic could easily call hypocritical. Willie Walsh, former head of IAG actively sought to keep the UK Government from bailing out the sector in the early days of the covid-19 pandemic, in hopes that other airlines would fail, thus strengthening the cash rich IAG Group’s position in the UK with British Airways.

But then, quietly, IAG began to realize the catastrophic scale of the pandemic, the long term impacts on business travel and the existential crisis ahead. A swift new series of bailout loans in Europe began across the IAG group, and now an additional £2BN loan specifically for cash-strapped BA was quietly filed in the midnight hour of New Years Eve.

The airline recently resorted to selling excess first class crockery, in an amusing gag to tighten up finances, and has retreated from global gateways in recent weeks.

Complex Aviation World

The new £2BN loan gives British Airways a waft of cash to strengthen its position, which creates a somewhat uneven playing field in the UK itself. Yes, many European countries have bailed out national carriers, including Lufthansa in Germany, Air France in France and KLM in the Netherlands, but as an airline predominantly owned by Qatar Airways via the airline’s majority share in BA parent company IAG, propping up BA is a different game, with more entanglement.

Other airlines in the UK have not benefited from state backed loans of this magnitude to date. The new British Airways loan is £2BN in funding from global banks, but mostly backed by the UK Government via its Export Development Guarantee. British Airways recently pulled out of 18 international gateways, in a signal that the airline will be smaller in the long term.

The new funding should help British Airways continue to invest in seats, fleets and technology to boost sales and efficiency as travel begins to rebound in the second half of 2021, rather than continue its retreat out of key cities.

Whether other airlines will be able to draw cash and access credit facilities with backing from the UK Government remains to be seen, and British Airways promises not to issue any dividends to parent company IAG until the loans are paid off.

Government Backed Loans And Bailouts

Globally, airlines using bailout funds to prop up share buybacks, or reward investors has been a key issue as the public gives more scrutiny to the appropriation of funds, or state backed loans. The UK Government, and therefore its taxpayers would be on the hook for either all, or a very large percentage of the loan, if BA were to default. Given IAG’s £8BN in cash and credit reserves, it’s highly unlikely though.

US based Airlines, including BA joint venture partner American Airlines (AA) have been in the crosshairs recently, after it emerged that bailout funds from the 2008 crisis were primarily used to strengthen shareholder value, rather than to protect jobs or innovate in any meaningful way. In fact, much of the money was spent on government lobbying to stymie efforts from new competitors.

As airline continue mass layoffs in 2021, the same questions of public benefit remain.

For British Airways fans, it means the airline will be in a stronger position financially than much of the competition heading into 2021 travels, and if the funds are used well, it could be an exciting year for the airline, and its customers.