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British Airways lands £2bn taxpayer-backed loan for post-Covid expansion

Alan Tovey
·3-min read
Ground BA jets - NATIONAL POLICE AIR SERVICE
Ground BA jets - NATIONAL POLICE AIR SERVICE

Taxpayers are to underwrite a £2bn loan to British Airways in a major show of support for the beleaguered UK flag carrier.

The cash will be used to bolster the airline’s finances and help it take advantage of a hoped-for recovery in travel driven by the roll out of coronavirus vaccines.

It is being provided by a syndicate of banks, with the Treasury pledging to cover some losses if BA defaults through state-backed credit agency UK Export Finance (UKEF).

Last year half of BA’s revenues were raised outside the UK, and it also plays an important part in international freight operations.

It is understood the airline could use some money to launch new routes and services as demand for flights recovers. With much of its fleet still grounded, the credit is unlikely to be spent on new aircraft.

BA owner IAG has been hammered by coronavirus after the pandemic brought a golden age of air travel to a crashing halt.

Results posted in October for the first nine months of the year showed revenues down 66pc to  £6.5bn and a £6.2bn pre-tax loss. IAG is also cutting 12,000 staff - one in four of its workforce.

The UK has come under criticism for its lack of targeted support for the airline industry compared with European rivals such as France and Germany, which have pumped billions of euros into supporting key players.

Before Thursday’s UKEF announcement, BA had received £300m over a year from a Bank of England loan programme for Britain's biggest companies. It also claimed support from the taxpayer-funded furlough scheme.

BA under IAG - a decade of turbulence
BA under IAG - a decade of turbulence

BA's new loan has a five-year term and it expects to start drawing down money in January. The lending deal imposes restrictions on BA paying dividends to its parent business.

Prior to the agreement, IAG had €8bn of cash reserves. Backing from UKEF is expected to help it raise further funding in commercial markets.  

 John Strickland, an aviation consultant, said: “Although IAG is one of the strongest airline groups financially, it still continues to burn through cash at a huge rate because of coronavirus and any extra funding is helpful.

“UKEF backing the BA is an acknowledgement of how important the airline is both to exports and tourism. Until now there has been not much support for it from the Government.”

As well as new routes, Mr Strickland said the loans could be used to modernise aircraft with new cabin layouts. They could also help BA adopt more digital technology and automation after the mass lay-offs.

A spokesman for UKEF said: “British Airways is one of the UK’s most important airlines, and its only hub carrier. This support will ensure that British Airways can bounce back after the pandemic and continue providing critical connections between the UK and the rest of the world.”

Aerospace tariffs

The US is imposing new tariffs on some imports from Europe as part of a long-running dispute over state support for Airbus and Boeing continues. The US Trade Representative said new levies of up to 25pc will be imposed on imports of aircraft parts and some alcoholic drinks such as cognac.

The levies are being introduced after the WTO ruled both European firm Airbus and its American rival Boeing received unfair state support, with each side's government then applying sanctions to redress the situation.

However, the US said the EU had calculated tariffs that were too high and that it was adjusting its penalties to reflect this.

Although the UK has said it will not impose tariffs on US imports as it is leaving the EU, the latest US tariffs appear to include Britain.

Items targeted include wings for Airbus aircraft, which are made at in the UK. Most of these are sent to Europe where they are mounted onto airliners, with a small number going to Airbus's factory in Alabama.