Few industries have been as hard hit during the pandemic as the airline business and its leading players are still scrambling for months to shore up their finances so they can come through the turbulence unscathed,says Russ Mould, AJ Bell Investment Director.
“easyJet’s management and shareholders will therefore be very grateful for the new, five-year £1.4 billion loan provided by a group of banks with a partial guarantee from the Government-backed UK Export Finance (UKEF). This will supplement the cash the company has raised for itself, via June’s £409 million share placing, the sale and leaseback of aircraft and new debt facilities and provide it with additional breathing room as it awaits the return of passengers to the skies.
“British Airways has already received £2 billion in fresh loans from banks with the partial backing of UKEF as the Government does what it can to support the airline business, although quite what Virgin Airlines, Ryanair and other rivals think of this is not hard to imagine, as they are likely to be livid.
“Ryanair’s Michael O’Leary has regularly railed against the state aid handed out to European airlines such as Lufthansa, which got €9 billion from the German government, including a direct equity investment, and Air France, which received over €10 billion from France and the Netherlands in the form of direct loans and guaranteed loans.
“Such assistance will make it harder for Ryanair to make the market share gains it wants to make at the expense of failing, or at least, flailing rivals, even if a number of European airlines have folded, including Monarch, Thomas Cook, Wow, Primera, Aigle Azur, Adria and FlyBe.
“All of those went under before the pandemic, however, weighed down by overcapacity in the airline industry and European governments have since stepped in to bail-out airlines that were economic before the twin blows dealt by the virus and subsequent recession.”