Charlotte Street Partners



A fly in the ointment

Written by Katie Stanton, associate partner
Edited by Kevin Pringle, partner
9 October 2020

Good morning,

Although the title might suggest it, fear not another diatribe about Mike Pence and the now viral fly that perched atop his silvery, lacquered mane during Wednesday’s vice-presidential debate – although that was pretty funny. No, today I turn my attention to a different fly in the ointment: coronavirus and the airline industry.
Air travel has, over the past eight months, become a novelty; the reserve of only the most indispensable of business leaders, along with the occasional wily holidaymaker who managed to find a rare window of escape within the restrictions. Airlines have suffered hugely. The summer of love is over; winter is coming; new coronavirus lockdowns are popping up in holiday hotspots across Europe and beyond. Without fresh finance, airlines will run out of money.
EasyJet warned yesterday that it is going to make its first annual loss in the company’s 25-year history. In fact, the airline is set to lose more than £800m and is expecting to fly at just 25% of normal capacity into next year. It is burning cash at a rate of £700m per quarter and is relying on the recovery of air travel in Easter or summer 2021 “at the latest” for its survival.
Chief executive Johan Lundgren said, “aviation continues to face the most severe threat in its history and the UK government urgently needs to step up with a bespoke package of measures to ensure airlines are able to support economic recovery when it comes.”
But, while the impact on the industry has been undoubtably huge, easyJet does not necessarily represent the most compelling case for a big wedge of state cash. The company has already secured £600m from the government’s big-company coronavirus borrowing facility, and there was £2.3bn of liquidity at the end of last month.
It is true that, in April, the company might need to secure some more funds, but there is no reason easyJet can’t assemble its own self-help financial package from the capital markets. An extra boost from the chancellor, Rishi Sunak, would be a nice-to-have but not a deal-breaker. And Lundgren knows this – he just wants clarity on government policy.
The crux of the issue is this “when it comes”, and the fact that industry, government, scientists, experts, forecasters, your neighbour Eileen, and John the butcher haven’t a clue when exactly we will see recovery and what “recovery” looks like, let alone how to implement a coherent plan for industry. The pandemic is unpredictable, as is a potential vaccine, as are consumer habits. We’re all stabbing in the dark here, even if it is the government’s job to at least pretend to know what it’s doing.
In the absence of a plan, businesses must rely on guess work. If Lundgren’s punt at state aid fails, the board still has six months to strategise. Just how much debt to take on or how much capital to raise via a rights issue is another question, considering Covid-19 could diminish cash flows for an undefined period of time.
But still, the harsh reality is that ensuring the efficacy of a self-help package relies on the government setting out in clear and defined terms what its plans are for the industry. I’ve a feeling a hotchpotch ‘taskforce’ and wait-and-see attitude isn’t quite going to cut it.


US president Donald Trump has completed his treatment for Covid-19 and can return to public engagement this weekend, according to his physician. Dr Sean Conley said the president had responded “extremely well” to medication and had “remained stable”.
Vulnerable people face being told to stay at home this winter, as UK government ministers plan to resume shielding in infection hotspots to quell the spread of the coronavirus to high-risk groups. This advice could be included in the top tier of a simplified lockdown system to be announced next week, as concern mounts about rising infection rates in the north of England. (£)
France reported 18,129 new coronavirus cases on Thursday and is placing more cities on maximum alert, with restrictions to expand beyond Paris and Marseille. The country’s seven-day rolling average of new infections climbed to 13,448, the highest since the start of the outbreak.

Business and economy

The UK economy expanded by 2.1% in August, below expectations, despite the government’s Eat Out to Help Out scheme.
Tens of thousands of UK businesses are still not prepared for the end of the Brexit transition period, amid growing fears of severe disruption at the Calais-Dover crossing. Alex Chisholm, permanent secretary of the Cabinet Office, warned MPs yesterday that he had concerns about the preparedness of companies, with the latest government polling indicating that about one-third of businesses still believed there would be an extension to the transition. (£)
The chancellor will reportedly be announcing a local furlough scheme today, providing support for businesses that could be forced to close. The scheme will apparently be made available to employers “as long as pubs, restaurants and other businesses” are shut, and will subsidise two thirds of staff working in those establishments. (£)
UK house prices are expected to rise by more than 20% by 2024, according to the latest research by estate agent Savills. Prices in north west England will grow the fastest compared to other regions, followed by Scotland and Yorkshire and Humber. Meanwhile, house price growth in London is forecast to be weaker in the years to 2024, with the worst result out of all UK regions, at just 12.7%.

Columns of note

Professor Mariana Mazzucato of University College London has strong words for Boris Johnson in the Financial Times today. At the Conservative Party conference this week, Johnson had advocated the state taking a back seat and letting the private sector, with its “rational interest” in competition, market share and sales, get on with it when it comes to science, research and innovation. To the contrary, argues Mazzucato: to truly unleash the UK’s capacity in innovation, Johnson must finally acknowledge the critical role the state can play to fuel research and develop a “symbiotic innovation system fit to solve the greatest challenges of our times.” (£)
Writing in the Evening Standard, Philip Collins fears that the north-south dividewill only be exacerbated by erratic centralised decisions from Downing Street. Instead, he suggests, coronavirus policy should be conducted locally – and London should be used as a template for other cities, rather than a rival. 

Cartoon source: Telegraph


What happened yesterday?

US stock markets advanced yesterday, with the benchmark S&P 500 closing at its highest level in over a month, as investors anticipated fresh stimulus after the election. Polling gains by Democratic presidential candidate Joe Biden have boosted hopes that the party, which has passed in the House of Representatives a $2.2tn plan to revitalise the economy, could turn on the spending taps soon after the election.
European equities also advanced due to a positive global mood amid renewed stimulus hopes. The region-wide Stoxx Europe 600 index gained 0.8%, while the FTSE got off to a lacklustre start before closing up 0.5% at 5,978 points. Meanwhile, British mid-caps rose to their highest in two months after Bank of England governor Andrew Bailey said he believed that the UK and European Union should reach a trade deal. The FTSE 250 finished 0.8% higher. Still, concerns over more coronavirus restrictions in the UK kept a lid on gains.
On the currency markets, the pound was up slightly against the dollar at $1.29, and down 0.02% against the euro at €1.10.
In company news:
Morgan Stanley has agreed to pay $7bn in cash and shares to buy investment manager Eaton Vance in a deal that will create one of the world’s largest asset managers.
Telecoms group Talktalk is in negotiations over a £1.1bn buyout offer from Toscafund, a hedge fund which has become one of its largest shareholders. Its shares surged 17.1% on the news yesterday.
British investment firm, Centricus, has emerged as a surprise bidder for TikTok, as the Chinese company’s partnership with Oracle awaits US and Chinese government approval.
Netflix is investing in a new London headquarters as part of its aggressive expansion plans in Britain. The streaming service will treble its office space in the capital to 100,000 sq ft when it moves into the Copyright Building in the west end.
London Stock Exchange Group is nearing the sale of Borsa Italiana to Euronext NV and two Italian institutions for around €4.5bn euros including debt, according to people familiar with the transaction.

What’s happening today?

Baillie Gifford

Premier Global

UK economic announcements
(09:30) Manufacturing Production
(09:30) Index of Services
(09:30) Industrial Production
(09:30) Balance of Trade
(09:30) Gross Domestic Product

Int economic announcements
(05:00) Wholesales Inventories (US)

Source: Financial Times

did you know

Venezuela is launching the biggest denomination note in its history – the 100,000 bolivar note – but, owing to delays in printing and hyperinflation, it will be worth less than 18p by the time it enters circulation. (Source: The Times)

Parliamentary highlights

House of Commons

No business scheduled.

House of Lords 

Private notice question
To ask the Government whether they will seek Parliamentary approval for new local Covid-19 restrictions before they come into force – Lord Hunt of Kings Heath
Orders and regulations
Health Protection (Coronavirus, Restrictions) (Obligations of Hospitality Undertakings) (England) Regulations 2020 – motion to approve – Lord Callanan
Health Protection (Coronavirus, Restrictions) (Obligations of Hospitality Undertakings) (England) Regulations 2020 – motion to regret – Lord Stevenson of Balmacara
Health Protection (Coronavirus, Restrictions) (Obligations of Undertakings) (England) (Amendment) Regulations 2020 – Lord Callanan
Insolvency (Moratorium) (Special Administration for Energy Licensees) Regulations 2020 – Lord Callanan
Charitable Incorporated Organisations (Insolvency and Dissolution) (Amendment) (No.2) Regulations 2020 – Baroness Barran

Scottish Parliament 

No business scheduled.

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