The world needs airlines — and, barring Armageddon, will still have some when this crisis is over. It will also still have aircraft, pilots and airports. The aviation industry, accustomed to volatility as it is, should be well capable of restructuring and regrowing in response to renewed demand, even if bankruptcies are left behind. I know that sounds glib, but airlines on both sides of the Atlantic have been loud in calling for state aid as traffic has collapsed — and in the cruel process of deciding how governments can equitably relieve the virus’s financial impact on every business and family, all such claims demand scrutiny. The Chancellor says he’s looking at ‘potential support packages for airlines and airports’ but I’m not convinced they should be at the front of the queue.
British Airways set the pace with a memo to staff warning of imminent job cuts. BA is part of IAG, which also owns Aer Lingus and Iberia; the group had €7 billion in cash resources at the end of last year, having clocked up operating profits averaging €4.5 billion for the past five years. None of which guarantees its survival, of course: if I were IAG chief Willie Walsh, I’d be looking at every other European airline with a strong balance sheet as a potential merger prospect and demanding that banks and aircraft leasing companies share the pain with IAG shareholders, who have already seen half of the company’s value wiped out.
EasyJet is another vivid case in point. Its chief executive Johan Lundgren told the Today programme that, although much of his fleet is now grounded, he has ‘one of the strongest balance sheets in the industry’ plus cash in hand, and would go ahead with a £170 million dividend to shareholders (which he says is ‘legally binding’). But he also took the opportunity to say that ‘aviation is probably the most affected sector after healthcare’, thus staking his claim for government loan and liquidity support ahead of other suffering sectors.
The Chancellor, meanwhile, is right to offer help to all threatened businesses, large and small. He’ll just have to learn to close his ears to any lobbyist who claims his industry is a special case.
The unknown governor
What a week to take over as governor of the Bank of England. After a quiet 35-year climb up the Bank’s career ladder, Andrew Bailey succeeded Mark Carney on Monday — while stock markets continued crashing despite news on Sunday night of ‘co-ordinated central bank action’ from the US, the eurozone, Japan, Canada and Switzerland as well as Threadneedle Street. Some traders evidently took that move as a prompt for even greater panic. Carney’s last act, a few days earlier, had been to preside over an emergency base rate cut from 0.75 to 0.25 per cent and a scheme to inject up to £100 billion of low-cost credit into ‘the real economy’.
That has already been overtaken by Rishi Sunak’s £330 billion bundle of loan guarantees and liquidity facilities, but no safety net will feel wide enough and strong enough as the shutdown races to its nadir. Amid the battlefield chaos, the bespectacled, soft-spoken Bailey must rise to his new command. He’s hardly a Paul Volcker, the cigar-chomping US Fed chairman who defeated an early-1980s inflation spike by brute force. But the calm clarity of chief medical officer Chris Whitty offers a role model, and it’s worth remembering that the most formidable governor of modern times, Gordon Richardson, made an uneasy start when he took office just ahead of the 1973 ‘secondary banking crisis’, the Bank becoming known to City wags at the time as ‘the Tomb of the Unknown Governor’. Bailey needs to make his presence and authority emphatically felt.
Let’s buy the pub
Last week’s Budget already feels as though it was delivered in another era and a different country. So there’s little point in delving back into its details. But it’s worth recording that the Chancellor’s axe for Entrepreneurs’ Relief, which I foreshadowed last week, turned out to be less than the full chop. Having described this bonus for sellers of businesses as ‘expensive, ineffective and unfair’, Sunak cut the lifetime limit of £10 million (for sale proceeds that attract a reduced rate of capital gains tax) to £1 million rather than abolishing it altogether. The logic of that token reprieve escapes me — but the £6 billion saving to the Treasury will nevertheless become another welcome redistribution to small businesses through increased research and building allowances and relief from employers’ National Insurance contributions.
Every little helps in these calamitous times but there will also be plenty of every-man-for-himself. More interventions will be needed to deter banks from slashing entrepreneurs’ overdraft lifelines and large companies from easing their own cashflows by delaying payments to smaller fry — as in the case reported by Luke Johnson in the Sunday Times, of a ‘for the moment, nameless’ private equity firm that has instructed its investee companies ‘simply not to pay suppliers and landlords this month’.
Meanwhile, it was good to hear from the Chancellor of extra business rate reliefs and emergency grants for pubs, which have already been closing at a rate of around 14 per week across the country in recent years. And I’m encouraged by this message from one of my locals: ‘We’ve been open since 1498, we’re a tightly knit community-based pub, we’re taking all reasonable precautions — and until the government orders us to bolt the door, we’re staying open.’ How badly will it breach Boris’s guidelines if my neighbours and I club together, buy this much-loved (but, for the moment, nameless) hostelry and organise a three-month quarantine lock-in?
There’ll be winners too
My American tour ended with a selfie in front of the White House, dinner in the Clinton family’s favourite Washington curry house, the Bombay Club, and a surprisingly easy journey home to Yorkshire just ahead of the international lockdown. Since then, while my diary blanked like a zapped laptop, I’ve made several positive discoveries: the Zoom site for online conferencing; the simple utility of the BT landline; the range of entertainment on Amazon Prime; and the fact that Facebook has suddenly become much more interesting. Sad as I am for virus victims, business losers and the suspended animation of my lovely town, I can see there are also going to be winners.