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Iata calls on governments to consider helping embattled carriers

Disruption caused by the coronavirus could cost global airlines more than $100bn in lost revenues this year as carriers slash flights in response to the outbreak, the industry’s body has warned.

The International Air Transport Association said it expects passenger carriers to lose between $63bn and $113bn in revenue in 2020, a much worse picture than it painted just two weeks ago when it predicted a hit of less than $30bn.

“Since that time, the virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China,” Iata said in a statement.

Its new scenarios are dependent on how bad the outbreak becomes, ranging from quick containment to a broader spread of the Covid-19 virus.

Airlines have felt some of the worst economic impacts of the outbreak. Carriers have cut flights and their outlooks as passenger demand has slid, sending shares in major airlines tumbling.

The virus helped push Europe’s largest regional carrier Flybe into administration in the early hours of Thursday morning, while low-cost carrier Norwegian withdrew its financial guidance hours later as it announced plans to cancel 22 flights.

The industry body called on world governments to consider helping embattled carriers through the crisis.

“Airlines are doing their best to stay afloat,” said Alexandre de Juniac, Iata’s chief executive. “As governments look to stimulus measures, the airline industry will need consideration for relief on taxes, charges and slot allocation. These are extraordinary times.”

Flybe collapses after last-ditch talks with government fail

UK airline failed to secure crucial £100m after coronavirus hit travel demand

UK airline Flybe has collapsed after months of talks with the government failed to secure a crucial £100m loan and the deadly coronavirus slashed demand, pushing Europe’s largest regional carrier into bankruptcy in the early hours of Thursday morning. 

Flybe confirmed it had entered administration after holding last-ditch talks with the government on Wednesday afternoon, a move that puts more than 2,000 jobs at risk and raises uncertainty over scores of regional air routes within the UK. 

“All flights operated by Flybe have been cancelled with immediate effect,” the airline said in a statement.

“Europe’s largest independent regional airline has been unable to overcome significant funding challenges to its business,” the statement said. “This has been compounded by the outbreak of coronavirus which in the last few days has resulted in a significant impact on demand.”

EY is handling the airline’s administration. 

The Financial Times revealed earlier on Wednesday that the government had rejected the idea of a £100m state loan to the airline. Meanwhile, Flybe’s management became increasingly concerned that any cuts to air passenger duty might not kick in until 2021, which would be too late for the airline to survive the coming months. 

While Flybe initially had enough money to see the airline past the UK Budget next week, the impact of coronavirus on bookings has “sped things up”, according to one person with knowledge of the matter. 

“The impact of coronavirus has made a bad situation worse,” said another person close to the airline. “It has been in a pretty precarious position for a while — it doesn’t take much to push it over the edge.”

The airline was taken over by Connect Airways — a consortium of Virgin Atlantic, Stobart Air and hedge fund Cyrus Capital — last year to prevent it falling into administration.

Connect agreed to invest £30m into the airline to continue operations as part of a government rescue package in January. 

A potential loan to Flybe was part of a rescue deal announced almost two months ago. But the airline’s request did not meet certain criteria set by the government, according to Whitehall officials. 

Grant Shapps, transport secretary, said it was “very sad” that the company had gone out of business after four decades. The government was working with other transport providers to help Flybe customers get home, he said: “We are also urgently working with industry to identify how key routes can be re-established by other airlines as soon as possible.”

A Virgin Atlantic spokesperson said the consortium of owners had over the past 14 months invested more than £135m to keep Flybe flying for an extra year. This amount includes about £25m of the £30m committed in January 2020, alongside a time to pay arrangement with the Treasury on air passenger duty of £3.8m.

“We are deeply disappointed that Flybe has been unable to secure a viable basis for its continuing operations and has therefore entered administration,” the spokesperson said. “Sadly, despite the efforts of all involved to turn the airline around, not least the people of Flybe, the impact of Covid-19 on Flybe’s trading means that the consortium can no longer commit to continued financial support.”

Mark Anderson, chief executive of Flybe, which has operated since 1979, said: “The UK has lost one of its greatest regional assets. Flybe has been a key part of the UK aviation industry for four decades, connecting regional communities, people and businesses across the entire nation.”

Flybe’s administration follows last year’s failure of UK travel group Thomas Cook, which was liquidated after it was unable to secure a lifeline from the government. The Civil Aviation Authority had to launch the biggest emergency repatriation in peacetime to bring back about 150,000 UK holidaymakers stranded abroad.

The situation is likely to be very different with Flybe as it largely serves domestic routes. A statement from Flybe confirmed the CAA would not be co-ordinating the repatriation of stranded customers, noting that passengers who had booked flights with Flybe should check the regulator’s website for further information.

The collapse comes after a difficult decade for the carrier, which has struggled with profitability since it floated in 2010. It has undergone several restructurings by successive management teams. 

Flybe’s administration raises questions for the government over the future of important regional air routes in the UK. The airline is responsible for nearly 40 per cent of all domestic UK flights and carries more than 9m passengers annually.

Shadow transport secretary Andy McDonald called the news a disaster: “The collapse of Flybe is disastrous news for passengers and employees alike and will cause real anxiety in many regions throughout the country.”

Arlene Foster, the head of Northern Ireland’s Democratic Unionist party, called the collapse “a big test for government commitment to UK regional connectivity”.

John Strickland, a London-based aviation consultant, said Flybe’s business model “has been challenged for a long time”. “It suffered from previous over ambitious fleet expansion which successive managements have grappled with but still remained too big to be viable in the regional air service market,” he said. “On top of this surface competition and the heavy air duty passenger tax burden added salt to the wounds.”

David Enrich’s salutary tale of Deutsche Bank’s overreaching ambitions

After the second world war, the victorious Allies split Deutsche Bank, which had financed the Nazis, into a network of 10 regional lenders. The German governments that followed later permitted those remnants to reunite, but David Enrich’s new history of the bank suggests — from a business perspective — that the Allied powers got it right the first time.

Dark Towers is a devastating tale of a big bank gone bad. After flourishing as the house bank of a rising West Germany, Deutsche floundered in recent decades as it tried to become a global investment bank in the American style, recruiting managers from the rough-and-tumble trading floor of Merrill Lynch and paying $10bn to buy Bankers Trust, a New York derivatives specialist known for “ripping off” clients.

Deutsche’s transformation had bet heavily on the conventional wisdom of the time: big international banks, it was said, would enjoy economies of scale and provide one-stop shopping for multi­national corporations. But Enrich recounts here the disorder and dysfunction that plagued the Frankfurt-based financial supermarket.

Deutsche became the Zelig of banking scandals. Its employees cooked the books to hide losses, took part in rigging Libor interest rates, manipulated prices for currencies and commodities, violated US sanctions on doing business with Iran and Syria, helped Russians launder money, accepted sex offender Jeffrey Epstein as a customer and enabled the Renaissance Technologies hedge fund to avoid billions of dollars in taxes. It even switched off the smoke detectors in executive offices so that bank bigwigs could satisfy their tobacco cravings.

Size wound up translating into inefficiency. Computers in New York could not communicate with those in London. Traders recruited from other firms were allowed to use their own financial models, giving them the leeway to pitch the same products at different prices — all the while without adequate capital to cushion against a fall. One part of Deutsche made a loan to Donald Trump — depicted by Enrich as the quintessential Deutsche client because no other big bank would have him — so the future US president could pay off his debts to another part of Deutsche.

Ten little Deutsches would never have had the same opportunities for mayhem; nor would traders operating without the imprimatur of a bank — as hedge funds, for instance — have enjoyed the same licence to misbehave.

To Enrich’s credit, his review of decades of complicated Deutsche debacles is easy to read — suitable for a spot under the tree next Christmas. As was the case in his book on the Libor scandal, The Spider Network, he draws the reader in by focusing on the people in his story, displaying an Arthur Miller-like eye for the worn-down Willy Lomans of today’s Wall Street.

His central character is Bill Broeksmit, a Deutsche banker who killed himself in 2014 after saying in a suicide note that he looked back on his career “with shame”. An ex-Merrill risk manager and derivatives specialist who could be found at the “low end” of banking’s avarice spectrum, he is portrayed as Deutsche’s tortured conscience — “forced into defending an institution he no longer believed in” and “concluding that banks of Deutsche’s size were simply too big to manage”.

Enrich knows this because of Broeksmit’s stepson Val, a musician with a history of drug addiction. Seeking to understand his stepfather’s death, Val explores the elder Broeksmit’s computer, unearthing troubling Deutsche documents that he shares with reporters, including Enrich.

The drawback of Enrich’s up-close-and-personal approach is that it puts great weight on psychological factors to explain Deutsche’s woes. Broeksmit is the “superego of the investment bank”. Edson Mitchell, the ex-Merrill executive who steered Deutsche’s turn to investment banking before dying in a 2000 plane crash, led traders whose “collective id [had been] unleashed”. Josef Ackermann, the Swiss chief executive who pushed Deutsche to become more profitable, is described as a “desperately insecure . . . narcissist”. His successor, Anshu Jain, who quit in 2015, is said to suffer from “chronic insecurity”.

The book would have benefited from a more thorough discussion of the business challenges that Deutsche faced as it switched gear. Its old business was in decline; as Enrich notes, traditional banking was becoming “commoditised” and Deutsche’s “run-of-the-mill lending businesses were not very lucrative”. Against this backdrop, Enrich says Deutsche was “seduced by the siren song of Wall Street riches”. But what other options did it have?

Deutsche was hardly the only European bank to try its luck on Wall Street and fail. Perhaps the world had no more need of an international investment bank run out of Germany than it did a British search engine or a US textile mill. Or maybe Deutsche and its European brethren were just late to the party.

In any case, Enrich’s book ends with Deutsche Bank moving in a new direction. Under a plan revealed in July, it will scale back trading operations, unload tens of billions of assets and cut 18,000 jobs. It has decided — on its own — to shrink.

Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction by David Enrich, Custom House, $29.99/ HarperCollins, £20, 416 pages

Appointment of former European co-head of Goldman Sachs follows fundraising that valued the fintech at $5.5bn

Michael Sherwood, the former European co-head of Goldman Sachs, has joined the board of Revolut, a week after it completed one of the continent’s largest fintech fundraisings.

The five-year-old company also appointed veteran retail banker and risk specialist Ian Wilson to its board, as it ramps up efforts to transform from a provider of pre-paid cards for overseas travel into an international bank.

Mr Sherwood’s appointment as a non-executive director was widely expected, and was initially set to be announced as early as last July — part of efforts by Revolut to improve corporate governance after mis-steps. Revolut declined to comment on why his arrival was delayed.

Once considered a potential successor to ex-Goldman chief executive Lloyd Blankfein, Mr Sherwood quit the investment bank in 2016 to focus on personal investments and philanthropy.

Mr Wilson worked in risk roles at banks including Royal Bank of Scotland and Abbey National, before setting up a risk management consultancy. He has advised Revolut in the past, and was chief risk officer at fellow digital challenger bank Monzo when it secured its banking licence.

Over the past year Revolut, which once prided itself on being staffed mainly by technology specialists, has attempted to drastically increase the amount of financial services experience among its top ranks. Thursday’s hires follow the appointment of City veteran Martin Gilbert as its first chairman, and two more non-executives last year.

It has also poached executives including a new chief financial officer, deputy CFO, director of financial crime risk, and “chief executive of banking” from other banks.

The company received a European banking licence in late 2018, but only recently began transferring customers to the banking entity in Lithuania. It said last week that rolling out banking operations across central and eastern Europe would be a key priority after it confirmed a long-awaited $500m investment that valued it at $5.5bn.

Revolut operates in the UK using an e-money licence, which means customer deposits are held by a third-party bank and not protected by deposit insurance schemes. It has said it will eventually apply for a full banking licence in the UK.

Nik Storonsky, Revolut chief executive, said: “As we continue to grow our offer and expand into new territories, having Michael and Ian’s vast experience and knowledge will be invaluable. Both are major assets to Revolut and our customers as we work to become the world’s first truly global bank.”

Coronavirus and the $2bn race to find a vaccine

The start-up leading the US fight to develop a treatment will need state backing and up to 18 months to make it work

Juan Andres woke up three times during the night after putting his precious vials of vaccine on the back of a delivery lorry. In late February, Moderna, a biotech group based outside Boston, smashed the record for the fastest time between identifying a virus — in this case Covid-19 coronavirus — and creating a vaccine ready to test in humans: just 42 days.

In the lab, the team had been excited but in the early hours Mr Andres, a 30-year pharma veteran in charge of manufacturing, was nervously checking his phone to track the lorry carrying the potential vaccine to a discreet location where the US National Institutes of Health would start the trial to test whether it works.

“The pride comes from this [being] a race,” he says. “Doing this as fast as possible is something that is a duty.” Once they were sure the vaccine had arrived safely, the team celebrated with ice cream. At least 100 Moderna staff worked on the project but Mr Andres says everyone is excited to be involved, even people’s families. “I can’t remember the last time my 15-year-old thought I did something cool,” he laughs.

Moderna is one of more than 20 companies and public sector organisations worldwide racing to develop a vaccine against Covid-19, which in little more than two months has exploded from a few people suffering from respiratory disease in the Chinese city of Wuhan to a near-pandemic with 95,000 cases and 3,300 deaths worldwide so far.

The Coalition for Epidemic Preparedness Innovations — a partnership of governments, industry and charities, created three years ago to fight emerging diseases that threaten global health — is already sponsoring four Covid-19 vaccine projects, including Moderna’s. It is also on the point of signing contracts for four more, says Richard Hatchett, CEPI chief executive. He estimates that developing Covid-19 vaccines at the speed required will cost about $2bn over the next 12-18 months.

Moderna is off to the fastest start, Dr Hatchett believes, but several others are close behind. “We received 48 applications from all over the world following our call for proposals in February,” he adds. “There is a real sense of urgency . . . because the threat we are facing is unprecedented in the last 100 years in terms of its speed and potential severity,” he says, referring to the 1918 Spanish flu pandemic.

The trigger for Moderna came when Stéphane Bancel, its chief executive — who had worked on the 2009 H1N1 swine flu pandemic which came from Mexico — called a contact at the National Institutes of Health. In the autumn, the two organisations had agreed to run a test at the company’s manufacturing plant to see how quickly they could respond to a pandemic. But before any dry run was possible, coronavirus — part of a family of viruses that cause respiratory diseases ranging from mild colds to fatal pneumonia — provided a real test.

Nestled on a hill outside Boston, Moderna’s Norwood factory is smaller than a standard pharmaceutical plant. It was built to be quickly adaptable, as some of its potential products are personalised for each patient. Work at the Massachusetts facility and at other early entrants in the Covid-19 vaccine race began in earnest as soon as Chinese scientists published online the genome of coronavirus — all 30,000 biochemical “letters” of its genetic code — on January 10.

“With the genomic sequence, we were off to the races,” says Anthony Fauci, head of the US National Institute of Allergy and Infectious Diseases.

Ahead of an outbreak, it is impossible to predict what virus is coming next. “Instead of trying to develop a vaccine for a pathogen [virus], which is kind of tough . . . you have to try to develop platform technology to facilitate rapid development of vaccines,” Dr Fauci says.

One such platform is Moderna’s production of vaccines based on viral genetics. By February 7, the company’s scientists had manufactured dozens of doses of clinical grade vaccine, enough for the NIH’s early trial in healthy volunteers, scheduled for April. Researchers then had to wait to see if the batch was sterile, giving any bacteria two weeks to grow. Staff quickly completed other necessary tests in case they needed to start again. Fortunately everything went right, every step of the way.

Despite the rush, vaccine experts say that it will be at least a year to 18 months before one is available for widespread use. After an initial safety trial, there must now be larger clinical studies to test efficacy. Meanwhile, the epidemic is likely to spread across the world, killing many more thousands or even millions of people.

The work of Moderna and its competitors may only be useful if coronavirus comes back again in another outbreak next year or becomes an endemic infection like seasonal flu. With commercial returns uncertain, industry’s response to epidemics carries elements of corporate social responsibility and excitement in meeting a scientific challenge — though sometimes there is a big pay-off, as Wellcome, later part of GlaxoSmithKline, found with its pioneering zidovudine Aids drugs in the 1980s.

Moderna may be the first to test in humans but many more are trying to create a vaccine, from big pharma companies such as Johnson & Johnson and Sanofi to academics including those at the University of Queensland. Genetic sequencing and new structural biology tools are transforming vaccine development, allowing scientists to create their own synthetic versions of viruses — rather than waiting for someone to FedEx a specimen.

This is opening the field to new players, says Paul Duprex, director of the Center for Vaccine Research at the University of Pittsburgh. “You have more people thinking about the problems in different ways, not limited by having to grow the virus in a particular lab,” he adds.

Shane Crotty, a professor at La Jolla Institute for Immunology in California, says one approach being pursued is to search for the best immune response in a patient with the disease — and try to copy it so the vaccine can elicit a more robust defence. “That’s been the biggest, most exciting advance in the past five years. Several of those have gone into human trials looking good. It’s a much more sophisticated way to make a vaccine,” he adds.

Mr Bancel signed the Cepi contract that helped fund Moderna’s vaccine in January on an iPhone at the World Economic Forum in Davos, where the coalition had been founded in 2017to help quash epidemics quickly. He told Dr Hatchett that in this case “quickly” meant now — and the agreement was signed two days after their first conversation about the outbreak.

As a nine-year-old lossmaking company with several candidate vaccines and treatments in trials but none on sale, Moderna could not shoulder the costs of creating a new Covid-19 vaccine on its own. Even profitable big pharma groups have shied away from investing in vaccines for outbreaks without public funding, because the chances of cashing in are small. Several companies have lost money over vaccines developed for past outbreaks, such as Ebola and Sars, which were almost over before any products were ready.

Now Moderna is over the first hurdle, it must start preparing to scale up. The Norwood facility could produce a larger batch for the next trial but not create a vaccine for all those who might need it. Mr Bancel is in talks with governments about how they would manufacture millions or even billions of doses. Inevitably Moderna will have little option but to strike a deal with a larger manufacturer.

Production capacity will be key if and when licensed products emerge successfully from clinical trials, says Roger Connor, president of global vaccines at GSK. “Everybody will want it immediately. It may then take a period of time to create the supply organisation after that,” he warns.

GSK, the world’s largest vaccine maker, has announced a partnership with Clover Biopharmaceuticals of China, which runs one of the country’s largest in-house biopharmaceutical manufacturing operations. GSK has also made its “adjuvant” technology, which proved effective in the H1N1 flu pandemic, available free to any company that it judges can make use of it.

When added to a vaccine an adjuvant agent can trigger a stronger immune response. “The dose that you have to give of the vaccine can be smaller, which means you can get it to more people faster,” he says. GSK has had “lots” of approaches since announcing it would make the technology available, and is running a “structured assessment” process to determine who receives it.

Not all vaccines “will technically benefit from an adjuvant, so we do a technical scan, first of all, that their candidate vaccine will actually benefit, and our experts can tell. Then we want to understand how capable they are and what’s their probability of success to bring it through,” he adds.

For now any commercial gain from involvement in creating a successful vaccine is a secondary concern to the drive to find a treatment, Mr Connor says. “At the minute we’re completely focused on the science and focused on who to partner with . . . to bring together a vaccine fast.”

Negotiations over commercial terms can wait, he says: “We think the priority is to get the scientific collaboration together, get the product to them free, get it tested pre-clinically and let’s see if this thing can work.”

In the US, where politicians and patients are railing against high drug prices, more than 40 members of Congress wrote to Donald Trump in February to demand that the president ensure that any government funding of a vaccine or treatment came with an important string attached: everyone will be able to access it.

“If we manage to find, at taxpayer expense, some treatment or cure through a vaccine, we need to be able to afford it everywhere,” says Jan Schakowsky, a Democratic congresswoman from Illinois, who led the initiative. “It should not be turned over to private pharma companies.”

“We are very concerned about access,” says Cepi’s Dr Hatchett. “With H1N1 flu in 2009, the wealthiest countries put contracts in place and monopolised vaccine supplies.”

Cepi has done a lot of scenario planning, including asking whether a Covid-19 vaccine will be needed when it is ready next year. “I don’t think it is plausible any longer that containment will be a success and the disease knocked out,” he says. “There is a business case that there will be a long-term commercial niche for these vaccines.”

Back at the Moderna headquarters, Mr Bancel says Covid-19 proved the company’s technology was faster than anyone imagined. And next time he thinks it could be even faster still.

Yet as the death toll rises, his colleague Stephen Hage, the company’s president, worries that even quicker is not quick enough. Just when he thought Moderna would have time to breathe after the first batch of its potential vaccine was out the door, he watched the outbreak spreading to South Korea, Europe and beyond.

Like Mr Andres, he has had his own sleepless nights. “I’m going to bed thinking we made some progress”, he says, “and waking up every morning feeling further and further behind.”