Following reports that the UK government is drawing up plans to provide a cash injection in exchange for equity stakes in airlines hit by the economic fallout of Covid-19, it is vital that any bailout includes strong conditions that safeguard the interests of workers, the public, and the environment. This briefing note examines the recent corporate behaviour of the aviation sector – and argues that any bailout of the sector must be contingent on ensuring job security, action on climate change, and a strategic public ownership stake. In particular, support should guarantee five outcomes:
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The economic response to Covid-19 must involve both unprecedented measures to support incomes and provide economic security for all in the short-term, as well as long-term steps to restructure the economy so that it emerges from the crisis geared toward justice and sustainability. With the Chancellor’s package of labour market measures and support for business set out on March 20th, an important, though not complete, step towards the first goal has been taken; the news that the UK Government is drawing up plans to buy into stricken airline companies, injecting cash in return for shares, presents an opportunity for the second.
The broad approach of significant state intervention amid the crisis is to be welcomed. The economic shock induced by the public health emergency and ensuing policy response is plunging the economic viability of many companies and sectors into doubt. With the pandemic radically reducing demand for flying, the aviation sector – both airline and airport companies - is particularly at risk of collapse, with many aviation companies having already requested state support.
Public support, though, should not be unconditional. A state bailout must not be a blank cheque, allowing the sector to return to business as normal as and when the crisis passes. On current trends, aviation is likely to be the largest emitting sector in the UK by 2050; emissions are forecast to grow both in real terms and as a proportion of total UK emissions. Meeting the UK government’s net-zero 2050 target, let alone a more ambitious target necessary to combat climate crisis, will be difficult, if not impossible, absent deep shifts in the behaviour of the aviation sector. The Covid-19 emergency and the climate emergency together pose a monumental threat to a healthy, sustainable future for all and action now should wherever possible seek to address both together.
Nor is it just the sector’s environmental record and future trajectory that must improve. Our analysis demonstrates that airline companies and airports have prioritised the interests of external shareholders over the long-term success of the company or the interests of their workforce, the environment, and wider society. This includes favouring the distribution of retained earnings via dividends or share buybacks over increased investment in green technologies or higher wages; soaring executive pay; and a poor track record overall on alignment with the aims of the Paris Agreement.
Despite requesting a state bailout, EasyJet still intends to go ahead with its £174mn dividend payout for shareholders, which includes £60mn to its founder. This is in keeping with a wider pattern over the past few years, with Easyjet and British Airways together paying out dividends in excess of £2.6 billion since 2014. While the dividends are not the reason why the sector is in urgent need of support, it is indicative of a business that prioritises the interests of shareholders even real wages stagnant and business investment – vital to improve productivity and decarbonise the economy - has been sluggish.
Airlines not alone in this trend; over a five year period, the holding companies owning Heathrow, Gatwick and Manchester airports have paid out a staggering £4.4bn in dividends, of which £3.3bn was paid by Heathrow Airport Holdings alone. In fact, dividend payments by these companies were regularly in excess of 100% of the companies’ net income over this period.
In addition to these substantial dividend payments, several companies in the UK aviation industry are paying low effective tax rates. Most notably, Wizz Air maintained an effective tax rate averaging just 3.5% between 2015-2019.
The chart below shows the average effective tax rates paid by the six UK-domiciled aviation industry companies included in this analysis over the period 2015-2019. Though not an exact comparison, as a point of reference the average statutory corporation tax rate over the same period (19.4%) is also shown.
Any public support must be conditional on ensuring these behaviours change permanently. It is vital a bailout takes the form of cash for equity that is used to effect deep structural change in the behaviour of airlines and airports receiving a substantial public cash injection. This should mark a departure from the strategy pursued by the UK government in the wake of the financial crisis, where banks were bailed out but major public stakes were not used to drive transformation in the operation or performance of publicly-owned banks. To that end, we recommend five broad conditions for public support:
This is an unprecedented moment that requires unprecedented action. These five steps should be a condition of any public support in the form of cash for equity – and should serve as a model for any wider public response to the unfolding crisis, anchored in extending democratic ownership, reducing inequality, and securing social and environmental justice.
With special thanks to Dr. Joseph Baines and Dr. Sandy Hager for compiling the data for this briefing.
 Committee on Climate Change (2019) Net Zero – The UK’s contribution to stopping global warming, https://www.theccc.org.uk/publication/net-zero-the-uks-contribution-to-stopping-global-warming/
 The Times, 'EasyJet seeks state loans - but pays Stelios £60mn', 20 March 2020. https://www.thetimes.co.uk/article/easyjet-seeks-state-loans-but-pays-stelios-60m-d26jghjtx.
 Note that due to limitations in data availability, data for British Airways is included from 2014-2018, while EasyJet includes data from 2015-2019.
 Her Majesty’s Revenue and Customs, Rates and Allowances: Corporation Tax. Accessed March 21, 2020. https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-corporation-tax.
 High Pay Centre (2020) Conditions are critical: why publicly-funded bail-outs for private companies must include social and environmental conditions, http://highpaycentre.org/pubs/conditions-are-critical-publicly-funded-bail-outs-for-private-companies