Without Virgin on the brink of collapse, British Airways wants bailouts…
There’s never been any love lost between Virgin Atlantic and British Airways, or their respective leaders. In the swan song of his historic career, Willie Walsh, boss of British Airways parent company, IAG, wanted that long held love affair to end in heartbreak, with the folding of Virgin Atlantic into bankruptcy. It almost happened.
But after Virgin Atlantic managed to convince creditors and stakeholders to accept a £1.2 billion recapitalization package and provide a meaningful lifeline, Walsh’s legacy as an airline strong man went out on a whimpering note in his retirement this week. He’ll always be an icon for shareholders, but his tenure was nothing but turbulence for competitors and employees.
Just days after his retirement, the iconic airline exec is being chastised by shareholders for accepting huge bonuses in a time of crisis, while becoming a hypocrite on the issue of government assistance as British Airways and IAG receive credit downgrades.
As a retirement gift, Moody’s credit rating agency downgraded the debt rating of both British Airways and IAG to a coincidental “BA2” rating, citing an over dependence from the group on corporate travel. Big spending corporate travel is the sector expected to experience the slowest recovery, and Walsh built the IAG airline strategy on an investor deck titled “show me the f**king money”.
Government Support: No, Then Yes?
The United Kingdom has been a conundrum in the economic recovery and response to covid-19, with virtually no support for airlines, or the travel industry at large. Countries including the USA, France, Germany, Netherlands, UAE and Singapore, have poured in billions in support, mostly with no strings. Germany handed Lufthansa alone €9 billion in support, asking little in return.
Throughout the crisis though, blame for the UK’s lack of airline industry support couldn’t be placed solely on the shoulders of government. Willie Walsh, CEO of IAG, the company that owns British Airways and Iberia, but is actually majority owned by Qatar Airways, took every soundbite opportunity to criticize the concept of government support, stating that only solvent airlines should survive.
Walsh had held back on previously announced retirement plans, wanting one last swan song before he called it quits. The hope was that the last tune would result in bankrupting long time rival Richard Branson’s beloved airline, Virgin Atlantic, and any other others that stood in the way.
Walsh took every media opportunity to say that IAG’s balance sheets were strong, and that government support would only prop up failing airlines. Whenever the statements were made, the proverbial press always craned their necks towards Virgin Atlantic, an airline rumored to be on the brink, which Walsh held long standing beef against.
Now, Moody’s believes British Airways could survive 450 days if the world remains the way it is today, before facing its own crisis. Ryanair, EasyJet and others are expected to have a longer window, as are American, Middle Eastern and Asian airline rivals.
While sparring with UK Parliament over so called “unnecessary” job cuts at British Airways and insisting government assistance was a for the weak, Walsh was forced to cop cop to the fact that IAG, British Airways, Iberia and LEVEL benefited from over €1.5 billion in overall support, when IAG financial disclosures hit the books. British Airways was not wrong to seek headcount reductions, as the airline industry recedes, but the optics weren’t well managed.
It was never a secret that Walsh’s hard nose line against government support in the UK was intended to force Virgin Atlantic into bankruptcy.
Walsh’s now hypocritical campaign to limit government support had previously proven successful in the UK, with the administration of regional airline FlyBe, at the beginning of the pandemic. The demise of Flybe resulted in a windfall of lucrative slots returned to British Airways as gifts from the UK Government. The subject of British Airways slot awards became inflammatory in Parliament.
Few believed that Virgin Atlantic could survive without a significant cash injection from the government and Willie Walsh banked on it.
But Virgin’s £1.2 billion in recapitalization was ratified last week, and within hours of news that Virgin Atlantic was unlikely to fail imminently with or without government intervention, Walsh publicly put his hands out for government support. His big gamble to drive airlines underwater, believing that IAG could breath longer did not pay off, and government support now appears attractive.
Walsh told CNN’s Richard Quest…
I have changed my views a little bit because as you know I’m strongly opposed to state aid, and I’ve always defined state aid or a bailout as something to help a company or in this case an airline that has failed or is failing. I think in this situation, many of the airlines that have received state aid were in good financial shape before this crisis and deserve to be helped.Willie Walsh, former CEO IAG Group.
Basically, now that every other airline has received their handouts, and Virgin isn’t in imminent danger of collapse without it, British Airways and IAG want in on the “free” money. Speaking of which, Walsh decided to keep his £883,000 bonus as he made his way to the exit door, bringing his final year compensation to £3.2 million, despite the objections from shareholders.
For a luminary of the aviation industry, and one of the most impactful leaders in the history of the airline business, Walsh’s exit won’t be marked with as much fanfare as it merits, or approvals of the job done, either. GSTP wishes Walsh all the happiness in his retirement.