A pilot on unpaid leave was drinking tea at home when his daughter burst into turmoil to relay reports that over 12,000 BA workers were being sacked, more than a quarter of the workforce. It was only a little later that the message from airline general manager Alex Cruz arrived, confirming “possible downsizing.”
Although worrisome warnings about biblical aviation losses and bankrupt airlines have been sounding for weeks, BA’s parent company International Airlines Group (IAG) announced on the stock market shock. Until then, the largest and most profitable carriers had made only smaller cuts, putting staff on leave and reducing fleet orders.
And across Europe, governments were rushing to guarantee the survival of their standard bearers, with billions of state aid. While Air France and KLM sealed a 10 billion euro package between them and the German ministers pledged to support Lufthansa, Cruz told his staff that there was “no government bailout in waiting for BA “. But why?
A refrain taken up by several past and present employees is that BA was never an airline to let a crisis go to waste. The situation was, as Cruz titled in a previous memo to all staff in March, a matter of survival. But, if convincing the government not to bail out all the airlines meant that BA could ultimately survive a crisis that could fatally injure his sworn enemy, Virgin Atlantic, and let him impose unwanted changes on his own unionized workforce – for BA bosses, the recovery would be mild Indeed.
Despite Cruz’s harsh words about state aid, the decision was made by the owners IAG, who also owns Iberia, Vueling and Aer Lingus. So far, he has remained discreet – but on Friday, he accepted a € 1 billion loan backed by the Spanish government, just three days after BA’s layoffs were announced.
IAG’s chief executive, Willie Walsh, has long since blocked donations in the UK. In January, when most carriers still viewed coronavirus as an anomaly that could have an impact on long-haul routes to China, the future of a regional carrier, Flybe, was deemed sufficiently important for the government intervention. But when the ministers seemed ready to offer their help, IAG cried out in scandal. Flybe belonged to a consortium led by Virgin Atlantic, the former BA rival, who had big visions of the doomed airline being its own domestic service network as it became a “second flag carrier” at Heathrow.
Later, when the scale of the coronavirus crisis hit and Virgin-led airlines called for a bailout for the besieged sector, IAG quickly distanced itself from it. Walsh said they had “no dialogue with any government” for the documents, adding, “I think governments would expect airlines to consider self-help before calling governments to provide state aid. “
However, they have “taken advantage of the general facilities” offered as part of Rishi Sunak’s economic recovery: around 22,000 BA employees have been put on leave, worth up to £ 110 million.
Meanwhile, in a sealed IAG office inside BA’s headquarters at Waterside near Heathrow, a team of around 80 people, largely the group’s bean counters, got to work. on contingency plans that would reignite a long-standing vision on how to reduce BA costs.
What emerged Tuesday evening in an email to the unions was a proposal not only to cut jobs, but to dramatically reduce the working conditions of longtime pilots, cabin crew and ground staff.
Far from limiting layoffs or encouraging voluntary layoffs, the airline said it can now afford to pay only the bare minimum.
Unite denounced it as “illegal and immoral”; other staff have described it as “bloodshed” and “being thrown into wolves”.
Staff who keep their jobs will be forced into the lower quality contracts offered to new entrants since 2010. All cabin crew will now be part of the lower-paid “mixed fleet” – set up during bitter strikes because of cuts in the terms and conditions that Walsh hoped to impose when he joined BA. Longtime ground staff at Heathrow are facing similar movements.
For unions, there is no doubt about what they are seeing. Unite National Aviation Officer Oliver Richardson said BA “was a brutal act of smash and grab opportunity … just designed to increase profits in the future and to try to force other operators to leave the British aviation sector. “
However, Andrew Lobbenberg, an analyst at HSBC, says airlines are not expecting stability for two or three years. “You could say they are securing the future of the business. It is clear that those whose terms and conditions are renewed will say that they are making changes under the guise of the crisis – but you can see it both ways. “
IAG is a multinational group based in Spain, possibly complicating BA requests, and any state aid could cause undesirable constraints for shareholders – and IAG’s largest shareholder is the Qatar sovereign wealth fund, which has increased its stake to 25% in February.
However, some in the city and BA believe the airline may still change its focus on state aid once Virgin is bailed out – or will no longer exist.
However, some carriers awaiting state aid are making decisions that Lobbenberg says would be “difficult for unions or governments”, such as Lufthansa closing its no-frills operation, Germanwings.
With the entire industry in such turmoil and no clear and imminent return path to mass travel, it is difficult to see what type of industry, let alone BA, will emerge.
Yet few believe that BA would abandon Gatwick or forfeit valuable slots at Heathrow – and losing a quarter of the workforce does not necessarily mean cutting operations by the same amount.
The Iberia pilots were forced into “productivity improvements” of 20% more hours when they were “restructured” after joining IAG in the aftermath of the financial crisis. As Lobbenberg points out: “Vueling is young, and Aer Lingus was restructured by Willie Walsh after September 11 … That leaves BA.”
Walsh, having received a farewell cake and sent by his fellow airline managers in early March before canceling his retirement, could now finish the job he had started.
Who gets what?
Although BA receives no state aid, around € 30 billion in grants, loans and guarantees are expected to be offered to competitors across Europe.
The main expected beneficiaries are:
Lufthansa Group The German government has pledged to support the standard bearer, although a package of 10 billion euros has yet to be agreed. For its subsidiaries, Swiss Air has a loan guarantee of € 1.4 billion, Austrian was promised 800 million euros and Brussels Airlines can get 290 million euros from their respective governments
Air France-KLM The French government has offered its operator 7 billion euros in loans and guarantees, while the Netherlands is considering a loan of 3 billion euros,
TUI Group The German state bank lent EUR 1.8 billion to the vacation group and the airline.
Alitalia Italy has spent around 1.2 billion euros to nationalize the bankrupt carrier and has planned an additional 500 million euros to help it cross
SAS Loan guarantees received for a total of 800 million euros from the Scandinavian states.
Norwegian Ready to receive € 300 million bailout from government if creditors and shareholders accept debt cancellation plans
In the USA United, Delta, American, South West and others are sharing up to $ 50 billion from the US stimulus package – half of which will go directly to support the wage bill, with an additional $ 25 billion available in loans.