NEWS ROUNDUP: BA, US airline bailouts, Virgin Atlantic, American

BA has sent the other 5 of 11 A380’s to Chateauroux for storage – G-XLEG has been in service at Lufthansa Technik in Manila, and got caught up in the Philippine lockdown, where she remains.

American Airlines looks like it’s withdrawn all of its 757’s rather quietly and they’re almost all now at Roswell, with it looking highly unlikely any will return to service.

The terms of a bailout for Virgin Atlantic seem mildly distant but still likely. The airline is said to have just £83m in cash left. Manchester Airport has joined Heathrow Airport and Rolls Royce in pleading with the U.K. government for a bailout for the airline. Manchester said it was crucial to the city as a major trans-Atlantic passenger airline moving 1m people from the airport each year. Sir Richard Branson has said he will put £250m of his own money into the airline with the Government- that’s largely seen as what’s left of his personal wealth, outside of Virgin Group, which actually has few resources.

Rolls Royce is starting to panic about its loss of income. It pioneered pay-as-you-fly engine leasing. Basically it gets a fixed sum of money for each mile the engines fly, so when they’re grounded, it’s earning nothing. In March flight hours were down 50% and some 85% by April.

US airlines aren’t liking the terms of the US treasury bailout. Many of them supported by unions feel they should just be given cash, but the treasury wants at least 30% of it back over time. For the life of me I don’t see why that’s a problem, airlines made big profits recently and if they had spent less time and money buying their own shares back to make investors richer, they’d not need so much bailout now.

The airlines once so valuable share prices have and will continue to nose dive. There is every likelihood that Southwest will join the others as being classed as junk in the coming week. A month ago most airline shares were highly rated as BBB. As their values head towards zero – a real possibility, the longer this crisis lasts, the US Government could well end up being the worlds biggest airline owner. Without government involvement virtually every airline in the US will collapse by June.

Chickens, are, as they say, coming home to roost, in airline and manufacturer boardrooms around the world.

From Boeing to IAG, to Delta and American, they have based their bonus schemes for directors, not on company performance in terms or revenue and profit, but share price.

High share prices incentivised by boardroom decisions to maintain them, meant that billions in profits were spent buying back shares to make owners wealthy, which in turn increased the share price, creating a vicious circle of upward prices and bigger buybacks. Little was held back for a rainy day.

The last big crisis when money was basically printed and dumped in the economy to keep liquidity in the global markets, led to companies not spending it on employees or new equipment to prop up the economy, but on share buybacks to raise their stock prices. A few shareholders got very rich very fast, but little of the money got into the general economy.

There is much concern the same could happen again if the money the US, European and British Governments provide as bailouts isn’t more heavily regulated – it’s also the reason airlines are balking at the idea of having to pay it back. However if they don’t take what’s on offer this time, not one of the giant US airlines will survive, and that can’t be allowed to happen and the Government knows it, which means nationalising them, even temporarily, something nobody wants.

The irony of all of this is that eventually, airlines will almost certainly face tighter regulation across the board, many feel they’ve let everyone down in pursuit of profits, and their survival must have change as part of the survival package.