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British Airways Awaits Government Response to Airlines
Following last week’s memo to employees entitled “The Survival of British Airways”, the U.K. carrier continues to implement strategies to deal with the continuously changing environment. BA has announced capacity cuts of 75% for their April and May schedules which will have a significant impact on the resources needed to operate the network.
All staff at the airline have been advised that there is a risk of redundancy with some media reporting that up to 30,000 jobs are at risk. BA’s official Fact Sheet dated October 10, 2019, states that it “currently has approximately 45,000 employees, including 16,500 cabin crew and 3,900 pilots. Pilots and cabin crew have an average of 15 years’ experience. The airline’s 4,700 engineers have an average of 19 years’ experience each. “
British Airways’ parent company IAG announced this week that some of the measures which will be undertaken to reduce operating expenses would include the grounding of surplus aircraft, freezing recruitment, implementing voluntary leave options, temporarily suspending employment contracts and reducing working hours.
On Thursday the Financial Times (FT) reported that BA had reached an agreement with the union representing its pilots which would result in each pilot taking two weeks of unpaid leave in both April and May. The deal would see the salary reduction spread over three months to lessen the impact on the pilots and address “the immediate threat to the business in the face of Covid-19 and the unprecedented impact this is having on the airline.” As of the time of writing, there have been no other notifications from BA with regard to other employee groups.
IAG has stated that the group has “strong liquidity with cash, cash equivalents and interest-bearing deposits of €7.35 billion as of 12 March. In addition, undrawn general and committed aircraft backed financing facilities amount to €1.9 billion, resulting in total liquidity of €9.3 billion.” However, it is expected that the U.K. government will be assisting the nation’s airlines with a multi-billion pound recovery package.
Sky News reported late on Thursday that negotiations were taking place between airline executives and the government in conjunction with representatives from Rothschild & Co, a financial advisory group, on a bailout package. The report listed a number of measures that airlines would be asking for though not all are expected to be granted. These included:
- A state-backed credit facility to provide billions of pounds of liquidity to airlines whose cashflow has been paralyzed by the coronavirus pandemic.
- A freeze on air traffic control charges, totaling hundreds of millions of pounds annually across the industry.
- A four-month moratorium on EC261, the European law requiring airlines to compensate customers for flights which have been canceled or delated.
- A months-long cancellation of air passenger duty once the industry resumes normal flying schedules, with the aim of stimulating customer demand.
- Help from the government with employee costs during a protracted period when thousands of industry workers are being forced to take unpaid leave or work on reduced pay.
- Financial guarantees that would release the money hoarded by credit card companies amid fears about airlines’ potential insolvency.
According to the Sky News report, officials had been “stunned” as to “how rapidly some of Britain’s largest airlines would run out of cash if they operated on near-zero revenues but with their current fixed costs for more than a few weeks.”
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