Nick Jessup takes a look at the impact coronavirus is having on the aviation industry, the chances of a bailout, and what it all might mean for the Government’s levelling up agenda.
Even before the coronavirus crisis, Britain’s aviation industry was facing challenges, including delays to airport expansion in the south-east, the increasing importance of decarbonisation and the collapse of regional airline Flybe.
The Government has made clear that it does not intend to appeal the Court of Appeal’s decision on Heathrow expansion. Some have speculated that the decision plays into the Prime Minister’s hands, as it provides him with the opportunity to halt the expansion of Heathrow (having been extremely vocal in his opposition to such a plan, vowing to “lie in front of the bulldozers” ahead of any construction) without becoming directly involved. However, Government will need to find a way to square questions raised around the impact of aviation on climate change with its repeated commitment to aviation as a component of the levelling up agenda.
Given the intense scrutiny that the climate crisis has put on aviation, incorporating aviation into the ‘levelling up’ agenda was always going to be a difficult challenge; but this was before coronavirus took a battering ram to the economic performance of the sector. With the demand for flights falling to unprecedented low levels, Virgin Atlantic has appealed to the Government for a bailout (with Sir Richard Branson offering to put up his private island as collateral), while EasyJet has received Treasury support worth £600 million.
The Treasury has repeatedly poured cold water on the idea of an industry-wide bailout but has expressed openness to bailouts on an individual basis. Rishi Sunak has told airlines that they need to exhaust all options and engage first with shareholders before the Government will intervene. From a political point of view, it is easy to understand Mr Sunak’s trepidation – bailing out the airline industry could prove unpopular, especially if perceived by the public to be a handout to businesses owned by wealthy billionaires, and an industry which contributes significantly to the carbon footprint. The Treasury undoubtedly remembers the furore that surrounded the bailout of the banks, which fuelled public ire by paying large bonuses to top executives while supported by taxpayers’ money.
Moreover, the increasing indignation that has surrounded the cancellation of flights may contribute to making a bailout politically unpopular. Britain’s major airlines have been accused of making it difficult for passengers to obtain refunds for their cancelled trips, meaning that a bailout for the industry may not be popular among disgruntled customers, many of whom are not satisfied with the offering of travel vouchers.
From an economic perspective however, the case for the bailout is stronger, especially since coronavirus has impacted airlines large and small. Equally, the repercussions of failing to save businesses like Virgin Atlantic could be significant, especially if Rolls Royce, Heathrow and Airbus are all to be believed in their statement that a Government bailout is the only way to “safeguard the future of the sector”. The Chancellor, who is undoubtedly considering the shape of the post-coronavirus economy, understands that the complete collapse of the airline industry in the UK is hardly a desirous outcome for an injured economy seeking to rebound quickly, and longer term, for the success of a Global Britain. Indeed, the levelling up agenda that Boris Johnson’s government is committed to might struggle to become a reality if businesses like Airbus are closing or scaling down their operations in places like Broughton in north Wales, where a Virgin contract for a fleet of Airbus 330 aircraft with Rolls-Royce engines, is set to be fulfilled.
To avoid the potential political fallout that a bailout might cause, the Government will need to consider how the bailout is a good deal for taxpayers, and moreover, how they can sell the idea of a bailout to the public. A smart solution might be to make a bailout contingent on key performance targets, which could include the simplification of the refund process for customers affected by coronavirus’s cancelling of flights. Equally, the Government could use the bailout as an excuse to impose more stringent environmental targets upon the aviation sector, thereby demonstrating both the ability of the industry to be incorporated within the levelling up agenda, and the Government’s commitment to making net zero a reality. A cap on executive pay for the length of the government’s financial involvement could also be considered, to avoid the appearance of wealthy airline owners profiting at the expense of the taxpayer.
The coronavirus crisis has indisputably added a new dimension to the challenges the aviation industry is facing. How well the Government manages to walk the tightrope between environmental concerns, the levelling up agenda, and the economic and political considerations of a bailout, will determine how well the aviation industry picks itself up once the coronavirus situation has abated.