BA owner IAG’s new chief executive Luis Gallego must feel like the replacement bank bosses parachuted in after the financial crisis.
After running up an eye popping £5.6billion loss in the first nine months of the current financial year, it may seem like it can only get better for IAG from here.
The scale of the deficit places in some perspective the bonkers description of BA as ‘national disgrace’ by the Commons Transport Select Committee, which appeared to have no grip on the existential crisis facing the UK’s flagship carrier.
Planning ahead: The UK needs the infrastructure in place for a third runway at Heathrow to compete
If BA and IAG’s other global airlines Iberia and Aer Lingus continue to fly at capacity – down 78.6 per cent in the third quarter – the 10,000 jobs that already have been sacrificed at BA could multiply several times over. It is hard to imagine now that less than a year ago BA was at war with cantankerous unions after it has the temerity to produce annual profits of £2billion, and workers demanded a share of the loot.
No one could have seen the pandemic coming, but it has always been the case that the aviation sector is highly cyclical and good times are followed by bad, so it is useful to have decent reserves. IAG has taken action to conserve cash, raise new equity and put in place borrowing.
But net debt has rocketed to £10billion, from £6.8billion at the same stage last year. In the small print of the nine-month statement, the group warns that if its scenarios for an end to Covid-19 turn out to be too upbeat, then it will have to look for new finance.
Large swathes of Europe are back in variations of lockdowns and there is the strong possibility of a new US president, Joe Biden, who has campaigned on a more forceful response to the pandemic. So a greatly worsening outlook cannot be ruled out.
The most frustrating aspect of the BA crisis has been the impervious response of the UK authorities to demands for airport testing. IAG issued a clarion call for affordable pre-departure testing and the option of post-flight testing to release passengers from the burden of quarantine, lost wages and entrepreneurship.
As the carrier notes, such simple steps would ‘open routes, stimulate economies and get people travelling with confidence’.
The scarring caused by failure to recognise this is immeasurable.
Rolls-Royce and UK aerospace are tottering on the brink. Income and cash flow at Rolls is directly correlated to flying hours.
As a services dominated economy, the UK’s core creative, finance and life sciences require global travel.
Businesses do not sign up clients that easily when their principals are holed up in back bedrooms.
The UK runs a big trade surplus with the country’s single biggest market, the US.
As fond as Americans may be of shopping at Fortnum’s, or buying stylish Burberry trench coats, it is financial services which offer the greatest opportunity.
New mandates don’t often come knocking on the door, they have to be earned.
The wider impact of failing to address testing at UK airports was seen this week when Charles de Gaulle, which has four runways, overtook Heathrow as Europe’s busiest hub.
That cannot be good for the UK’s role as financial, exhibition and commercial entre pot. The terminals may be empty, but when the virus nightmare is over the UK cannot justifiably compete with Frankfurt or Schiphol in Amsterdam without putting in the infrastructure for a third runway.
All of us as taxpayers own a chunk of Natwest. So it is encouraging that under the guidance of chief executive Alison Rose, it is back in the black.
Rose deserves plaudits for strengthening the bank during lockdown.
She has watched the number of clients on mortgage holidays plunge from 22 per cent of the home loan book to 4 per cent.
She is comfortable with exposures to property, which have come down from 120 per cent loan-to-value in the Fred Goodwin era to 46 per cent now.
The bank is rising to the digital challenge with 9.3m customers accessing banking via mobile devices.
It is using video links for clients’ visits and processing bounce back and other government-backed loans speedily.
Ideally, Natwest would like to use some its surplus reserves to pay a dividend. That, in turn, could unlock some of the government 62 per cent stake.
Are you listening Andrew Bailey?