Two of the world’s biggest aerospace manufacturers are lobbying the UK government on behalf of Virgin Atlantic as the airline seeks a £500m bailout package of commercial loans and guarantees to survive the fallout from the coronavirus pandemic.
Rolls-Royce and Airbus have sent letters to Grant Shapps, the transport secretary, highlighting the importance of Virgin Atlantic to the UK’s manufacturing supply chain.
Heathrow airport has also sent a letter to the government on behalf of the airline, said a person with knowledge of the situation.
It comes as the airline made its submission to the government for a package of financial support of about £500m, according to a person familiar with the matter.
In the letters, seen by the Financial Times, Warren East, chief executive at Rolls-Royce, wrote on Wednesday that “Virgin’s business is of significant importance to Rolls-Royce, our extensive UK supply chain, and manufacturing operations.”
Meanwhile, John Harrison, general counsel at Airbus and a board member, warned that Virgin’s collapse could have an “extremely negative impact” on the manufacturer’s A330 aircraft programme, which has its wings designed and manufactured in the UK.
In a letter sent on Tuesday, Mr Harrison wrote: “I hope that the government will do all it can to support Virgin in these extremely difficult times so that it can continue to provide choice to its consumers and support the important work done in the regions by Airbus and its suppliers.”
The UK chancellor last week warned the cash-strapped aviation industry that it would not offer an industry-wide bailout to airlines and airports.
Instead, the government expects the industry to explore options to bolster cash before asking for state aid, which would be considered on a case-by-case basis.
Richard Branson, the billionaire founder of the carrier, has already pledged to inject $250m into the Virgin Group — a portion of which will go to the airline.
Talks between the government and Virgin Atlantic are expected to start this week. Virgin Atlantic is asking for about £500m, which would come from a split of commercial loans to cover fixed costs over the coming months, such as ticket refunds and airport parking charges.
The remainder would come in the form of a credit guarantee that would stop credit card companies from holding back passenger revenues for future bookings from the airline, which has hit its liquidity further.
The sum would help the carrier get through the coming months, according to a person familiar with the matter.
But ministers are acutely anxious about the political ramifications of giving targeted help to either Virgin or easyJet, even though they have not ruled out doing so.
“There are obvious reasons why Virgin and easyJet aren’t the first in our wishlist of companies to help,” said one government figure. “There are the perennial questions over Richard Branson’s tax affairs and then there’s the fact that Stelios [Haji-Ioannou, founder of easyJet] took that massive dividend. I’m not saying it’s impossible but the optics aren’t great.”
Sir Richard, who has lived in the British Virgin Islands for 14 years, has repeatedly denied the reason for his residence there is for tax purposes.
By contrast, the Treasury is more relaxed about giving help to regional operators such as Loganair, which has also signalled that it will ask for state aid, that provide essential connections to remote areas of the country.
Both Rolls-Royce and Airbus stressed Virgin Atlantic’s leading role in helping the UK aviation industry meet its targets to reach net zero emissions by 2050.
It was a “key partner” to Rolls-Royce in promoting the deployment of sustainable aviation fuels, Mr East said. Last year the UK passed a law requiring all greenhouse gas emissions to reach net zero by 2050.
