Thank you for your recent query about British Airways and COVID-19.
I appreciate that this must be an uncertain and worrying time for you and your family.
I recognise the extreme disruption the necessary actions the Government has taken are having on people’s lives, jobs, businesses, and the nation’s economy. This is especially apparent for the aviation sector, as in keeping with the Government’s guidance on how to slow the spread of the disease, routine flying is no longer an option, and may not be for the foreseeable future.
However, the aviation sector remains essential to the UK, both in strategic and economic terms, and the Government is committed to supporting it in any way it can through this emergency.
I would encourage airlines to make full use of the unprecedented support made available by the Government to assist with wages and financing. Support is on offer through the Coronavirus Job Retention Scheme, the Time to Pay scheme, the Bank of England's COVID-19 Corporate Financing Facility, and other schemes. Today, it was announced that the Job Retention Scheme will be extended, for four months, until the end of October and employees will continue to receive 80% of their salary, up to £2,500 per month.
The Government has also taken action to help airlines specifically in dealing with the financial pressures they are currently facing. For instance, the UK voted in favour of giving airlines the ability to defer payment of charges for European air navigation services for February-May 2020, for 14 months. Given that in February alone the UK's ten largest airlines would have been expected to pay a total of £47.2 million for flights in European airspace, this deferral should go some way to help airlines manage their current financial burdens.
However, if airlines do find themselves in trouble as a result of coronavirus and have exhausted these measures already available to them, the Transport Secretary has made clear that the Government will be prepared to enter discussions with individual companies seeking bespoke support as a last resort, having exhausted all other options.
This is a very difficult time for airlines, the presence of the Coronavirus Job Retention scheme provides a ready means to keep the business ready to fly again when things change for the better. I understand the Department for Transport has been in contact with British Airways regarding their position. The Transport Secretary and Aviation Minister are also meeting regularly with the aviation sector, unions, and other bodies to discuss the challenge employees and airlines are facing. They will continue to do so throughout the crisis and as we begin to recover to ensure support for businesses and employees.
Finally, I want to reassure you that my team and I are available to support you in any way if you require any further assistance.
Please rest assured that I am monitoring the situation very closely and listening to the views of all those here in our constituency. I will convey the concerns fed back to me to my Ministerial colleagues.
I continue to be disappointed by the behaviour of British Airways.
I understand that the company is in a difficult position but it is very disappointing that British Airways seem determined to press ahead with devastating cuts to their workforce despite the Government Coronavirus Job Retention Scheme being extended until the end of October. British Airways has made generous use of the CJRS, which was designed to allow employees to keep their staff through this crisis and to help companies avoid redundancies. With the CJRS extended until October, ending the consultation period at this stage is premature and it should be paused and any plans for redundancy and restructuring should be put on hold.
Last week, Aviation Minister Kelly Tolhurst made the below statement on behalf of the Chancellor in response to an urgent question from Huw Merriman MP who said that he was concerned that many companies are using the pandemic to cut staff and impose new pay and conditions on those that don’t lose their jobs. “The scheme was not designed for taxpayers to fund the wages of employees only for those companies to put those same staff on notice of redundancy within the furlough period”
In regards to the legacy landing slots, Kelly Tolhurst has told MPs that, “The Government is legally prevented from intervening in the slot-allocation process.” Then also stated that: “Shareholders and employers should consider their responsibilities.”
This action that British Airways is taking is also disappointing as IAG owns a number of other airlines and we have heard no similar plans for their other companies. The singling out of British Airways for this action is unacceptable, especially as IAG has stated publicly that they have almost 7 billion Euros in cash or equivalent reserves, with easy access to additional borrowing.
Many colleagues have received new information on this matter and the points below have been made by the Chair of the Transport Committee, Huw Merriman MP, on developments with Willie Walsh and British Airways.
Firstly, I would like to thank those who contributed in the Urgent Question on Wednesday. Following on from this I believe that Mr Willie Walsh, Chief Executive of BA parent-group, IAG, has written to all MPs. In this letter Mr Walsh addresses some of the comments made during the Urgent Question. I hope the following observations to his comments will help you with any constituency casework.
You should note in particular the development over the weekend to add all 4,300 BA pilots to the ‘fire and rehire’ terms which apply to crew and other staff.
“No contact with Ministers”
Contrary to Mr Walsh’s claims, I understand that Mr Walsh has not responded to invitations to meet with Government Ministers and has not asked for any specifically. Last Thursday, Mr Walsh failed to attend the roundtable which the Home Secretary and Aviation Minister held with the CEOs of Heathrow, EasyJet, Virgin, and other aviation industry figures. Added to this, I believe that BA’s Chief Executive, Alex Cruz, or his senior managers, join weekly calls with the Aviation Minister. I understand that Mr Walsh has subsequently now agreed to a meeting with a Government Minister.
“Exaggerated fire and rehire claims”
Mr Walsh took issue with the claim that his entire workforce were under consultation and threatened with redundancy and/or a change to terms and conditions which would lead to dismissal should a worker refuse to accept. Over 35,000 employees (out of approx 42,000 in total) will be subject to ‘fire and rehire’ or redundancy. In addition, intra company transfers and overseas workers are not included. The vast majority of staff are subject to ‘fire and rehire’.
Prior to this weekend, BA pilots were subject to redundancy but not ‘fire and rehire’. On Saturday, BA increased the number of pilots for redundancy to 1,080 (with another 175 pilots to leave via ‘efficiencies) and added the same ‘fire and rehire’ threat to pilots who do not accept new, and reduced, terms and conditions. The ‘fire and rehire’ term now applies to all 4,300 BA pilots. This is another new development.
“Financial challenges it now faces”
Undoubtably the current situation will have had a financial impact. However, parent company IAG have agreed to purchase rival airline Air Europa for over €1billion. This does not appear to accord to the actions of a company on the verge of bankruptcy. Additionally, BA’s cash reserves and deposits stood at £2.6bn and shareholder equity £5.8bn in 2019. This could be deemed a more secure business than others who are not taking such drastic cuts to workforce jobs and terms and conditions.
If required, BA could also raise funds through IAG’s Qatari shareholders, by issuing bonds, by accessing debt or by taking up any further loans from Government. Indeed, the FT has reported this weekend that two board members of IAG’s bought stock in the group at the lower prices from March; suggesting confidence in the group. It may not be necessary for IAG to cut labour costs so substantially either; In 2019 UK labour costs were 11-12% of IAG group revenues. Cutting BA labour costs by 30% will realise cost savings of less than 3.5% for parent company IAG, which surely cannot equate to the difference between solvency and insolvency.
“Unite has not engaged in consultations”
I understand that Unite’s General Secretary has explained the union’s willingness to negotiate and assist BA through this short-term crisis. I believe that Unite’s only condition is that BA removes the dismissal threat from the Section 188 notices (‘fire and rehire’). BA / IAG have refused to meet on this basis. BALPA has been meeting with BA but did not have the same ‘fire and rehire’ threat of dismissal over its pilot-members. From this Saturday, pilots now have this same condition attached.
In the chamber, many of us raised the point that if BA are seeking to reduce operations then perhaps the Civil Aviation Authority should review landing slots, once the state of the competition is known. BA has 51% of Heathrow’s landing slots. Many of these are legacy gains. BA holds the most lucrative; including to New York JFK. If BA cuts 25%+ of its workforce, as planned, it would be questionable whether they could manage the slots they have. It is a fair presumption to make that when the slots holiday is over (expected Oct), BA will need to hire new workers on the cheaper terms to manage the slots and ramp back up. If BA, via rehiring on new terms, are effectively creating a new low cost airline, it is a fair point to ask why BA should continue with legacy slots. It could be said that there are steps the CAA should take to allocate the slots more equitably and reconfigure competition.
With best wishes,
I have received the below update from Jonathan Bailey, Head of Corporate Affairs of IAG.
I wanted to update you on two recent important developments regarding the future of British Airways.
1. Pilots vote in favour of a deal to save jobs
British Airways pilots have voted in favour of a package of measures that will help prepare the company for the future challenges and save as many jobs as possible as the company faces in to the worst crisis of its 100 years. The fact we are making difficult decisions to reduce the number of posts within our highly professional and dedicated workforce is necessitated by the Covid-19 pandemic. The losses we are facing far outstrip the tragedy of 9/11 and the financial crisis in 2009. On Friday the group posted almost E4bn losses in the first half of the year.
The deal we have agreed is the result of three months of intensive negotiation between BA management and BALPA representatives which has resulted in an improved plan that means the number of redundancies originally proposed has been reduced considerably. In addition to options for voluntary part time working, voluntary redundancies and voluntary external secondments, we are creating a holding pool of the equivalent of 300 pilots employed on reduced pay ready to return to flying as demand picks up. This deal highlights the value of negotiation.
Whilst any job losses are very regrettable, BA management and BALPA have worked to develop a creative proposal that protects jobs and provides a route back to work for many pilots as the global aviation market recovers.
Sadly, UNITE and GMB refused to engage in negotiation in a similar way for some time, but after more than 76 days of non-engagement, they are now holding meetings and finally providing us with feedback to our proposals with more mitigation ideas. After these discussions over 4,000 staff have requested to leave BA on voluntary terms, which will help us reduce the number of compulsory redundancies.
2. International Airlines Group Half Year results
Last week, International Airlines Group announced an operating half year loss of £1.7 billion (£3.8bn after exceptional items). As a result of international government travel restrictions, passenger traffic in the second quarter of the year fell by 98.4 per cent and we are now only operating at 15% capacity.
We expect that it will take until at least 2023 for passenger demand to recover to 2019 levels. This means that all the airlines in the IAG family have taken action to adjust their business and reduce their cost base to reflect reduced demand, not just to get through this crisis, but to ensure they remain competitive in a structurally changed industry. The fight to survive means, as our financial results show, we have borrowed hundreds of millions of pounds that must be paid back. Unlike other hard-hit industries such as hospitality there is no tailored government support for aviation.
We are also proposing to raise capital from our current investors. On Friday we proposed a capital increase of up to €2.75bn to strengthen IAG’s financial position and ensure it is resilient to any further shocks.
British Airways is struggling to survive this crisis, which is not of our making but is one which we must address. We are doing everything we can to get through so that we can help the UK recover by providing essential connectivity that supports trade with key markets across the world.
We will continue to work to save as many jobs as possible as we make BA fit for the future in an even more competitive market and with a weaker UK economy.