12 ★ FINANCIAL TIMES Thursday5 March 2020

COMPANIES

W

hat happens when one of the eurozone’s

more leftwing governments runs one of

the region’s fastest-growing economies?

Spain’s businesses are set to find out in the

coming months.

The coalition that took office in Madrid this year is the

first since the Spanish civil war to include communist min-

isters and has a shopping list of planned measures that

business is not best pleased about — including higher

taxes, rent controls and changes to labour laws.

The new government, led by Socialist prime minister

Pedro Sánchez, arrives as Spain’s economy gradually slows

down from its turbocharged recovery from the depths of

recession. Gross domestic product grew by 2 per cent last

year — still well ahead of the eurozone average — but nev-

ertheless the lowest rate for five years.

Business leaders complain that such a sensitive stage in

the economic cycle is hardly the time to experiment with

new rules and taxes — even before taking into account the

possible effects of the coronavirus epidemic. Yet over the

past 10 days, the government has announced plans to

allow local authorities to limit rent rises and responded to

pressure from farmers by banning the sale of food below

cost at almost every stage of the supply chain.

The new government’s position on regulation is all the

more under scrutiny because well over half the companies

in the Ibex 35 index of leading stocks are in highly regu-

lated sectors such as banking, energy, transport and con-

struction. The coalition is also planning to increase taxes

on high earners and set a minimum effective tax rate of

15 per cent for big business.

There is another, broader issue: the chief worry for

many companies is Madrid’s plan for changing Spain’s

labour laws. In 2012, in the depths of the last recession, the

centre-right governmentpushed through changes that cut

labour costs through measures such as slashing severance

pay and shifting to company-level, rather than sectoral,

negotiations on pay and conditions.

Many economists link those changes to Spain’s increase

in competitiveness and its export-led recovery, but Mr

Sánchez’s coalition argues that the nation’s workers paid

too big a price for the coun-

try’s bounce back to eco-

nomic health. It is planning

to reverse the “most damag-

ing effects” of the 2012

labour reforms.

Some manufacturers warn

that shifting back towards

sectoral level negotiations

with unions could push up

costs not so much for the largest groups — which generally

offer workers better conditions than the industry baseline

— but for their suppliers. Others say the real risk is a pro-

posed crackdown on subcontracting.

“The real drama is if they make the rules on subcon-

tracting rigid,” Antonio Garamendi, chairman of the Span-

ish Confederation of Business Organisations, told the FT

last month.

His organisation maintains that business activity in

Spain and the eurozone is based on a decentralised eco-

nomic model that depends heavily on subcontracting.

Spain’s central bank chief has also warned thatunpicking

labour reforms ould hit the country’s competitiveness.c

However, business leaders recognise they cannot reject

the government’s agenda wholesale. Spain’s centre-right

opposition is at a low ebb. Ciudadanos, a pro-market party

favoured by many Ibex 35 bosses, crashed and burnt in last

November’s election and the coalition between the Social-

ists and the radical left Podemos could stay in office for

years, despite its lack of a majority.

The country’s business leaders acknowledge there is a

case to answer on inclusion, worker participation and

transparency. After the government increased the mini-

mum wage in 2019 by an eye-catching 22 per cent, Mr Gar-

amendi took the lead in negotiating a more modest rise of

5 per cent for this year with some of the government’s most

leftwing ministers.

Furthercrucial talks about the labour law hanges arec

coming. Centrist members of the government such as

Nadia Calviño, the deputy prime minister for the econ-

omy, are seeking to provide reassurance, insisting that the

administration will consult business on almost every

aspect of the reforms.

Mr Garamendi thinks the next three or so months will

reveal how much of an effect those changes will have on

Spain’s economic model. “The competitiveness of our

companies is at stake,” he said. “The future of our compa-

nies is at stake.”

[email protected]

INSIDE BUSINESS

EUROPE

Daniel

Dombey

Spanish business

wary of shifting

political priorities

The chief worry

for many groups

is Madrid’s plan

for changing

labour laws

A R A S H M A S S O U D I— LO N D O N
JA M E S F O N TA N E L L A- K H A N— N E W YO R K

The law firmKirkland & Ellis ash
poached a leading Washington adviser
to companies navigating secretive US
foreign investment reviews, in the lat-
est sign of intense demand for such
dealmakingspecialists.

Ivan Schlager will join Kirkland as a
partner from US rivalSkadden Arps
later this year, leaving the firm where he
has worked since 1999.
Mr Schlager is widely seen among US
dealmakers as one of a handful of top
advisers who regularly help companies
on deals that must gain clearance from
the Committee on Foreign Investment
in the United States, or Cfius.

The secretive group made up of repre-

sentatives from across the executive

branch of the federal government vets

whether deals will harm US national

security and has the ability to block

them.

“Ivan is among the top lawyers in the

country for Cfius and national security-

related issues, which are prevalent in

more transactions today than ever

before,” said Jon Ballis, chairman of

Kirkland’s global management execu-

tive committee.

Law firmstry to leverage heir exper-t

tise in navigating Cfius reviews as a

source of differentiation to win new cli-

ent work. Last year, for instance, the UK

law firm Freshfields Bruckhaus Der-

ingerhired Aimen Mir, the former

Treasury department official who co-

ordinated Cfius reviews.

Cfius has become even more impor-

tant to dealmaking during the adminis-

tration of Donald Trump, which has

passed legislation to broaden the body’s

reach as part of an effort to limit the

ability of Chinese companies to acquire

or invest in their US counterparts.

Mr Schlager’s hire marks the latest

high-profile legal appointment by Kirk-

land, which has been aggressively

poaching top talent from rivals in Lon-

don and New York by paying top of the

market salaries.

Kirkland’s hires in recent years

include top private equity lawyers

David Higgins and Adrian Maguirein

London from Freshfields.

Financial services

Kirkland poaches top Cfius adviser from rival

A L E X BA R K E R , N I C F I L D E S , L E I L A

A B B O U D A N D J U D I T H E VA N S

Frederick Barclay as threatened toh

sue members of his family if The Ritz

hotel is sold for less than £1bn, the lat-

est twist in a feud tearing apart one of

Britain’s most prominent business

empires.

In a rare personal statement, Sir Freder-

ick said he had received bids of more

than £1bn for the landmark hotel and

warned that a sale below that price

would trigger further litigation.

Themove comes just weeks after Sir

Frederick took legal action against his

nephews over allegationstheybugged a

room in TheRitz o eavesdrop on his pri-t

vate conversations with his daughter.

Thedispute etween the billionaireb

twin brothers — Sir Frederick and Sir

David — andtheir families has compli-

cated the process of selling The Ritz and

potentially other assets they own, such

as the Daily Telegraph newspaper.

Sir Frederick said he was “deeply sad-

dened” by what he called “unethical

conduct and intrusion into my privacy.

“I hope we can get these family mat-

ters resolved so that we can all move on.”

The Barclay family put The Ritzon

the market ast year and have fieldedl

interest from potential buyers including

wealthy investors from Saudi Arabia

and Qatar, according to people briefed

on the process.

Another possible buyer isLVMH, the

world’s largest luxury group, according

to two people briefed on the situation. In

2018, LVMH acquiredBelmond, the

London-based owner of the Hotel Cipri-

ani in Venice and the Orient Express

train service.

But the divisions between Sir Freder-

ick and his brother’s side of the family —

including Sir David’s sons Aidan and

Howard, who are the operational heads

of the Barclays’ businesses — has meant

potential bidders for the hotel have had

to navigate parallel processes.

Sir Frederick and his daughter have

told friends they fear being cut out of the

proceeds from the Ritz sale.

A spokesman forEllerman Invest-

ments, the vehicle behind the assets

owned by the Barclay family, declined to

comment on Sir Frederick’s statement.

Travel & leisure

Frederick Barclay warns family over Ritz sale

J I M P I C K A R D A N D TA N YA P OW L E Y

Flybewas last night teetering on the
brink of bankruptcywith management
blaming the impact of coronavirus on
the already struggling UK airline,
according to Whitehall and industry fig-
ures.
“The impact of coronavirus has made
a bad situation worse,” said one 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.”
Flybe and the UK government were
holding last-ditch talkslast night.

The Financial Times revealed earlier

yesterday that the government had

rejected the idea of a £100m state loan

to the ailing airline, leavingFlybe’s man-

agement clinging to the hope of a cut to

air passenger duty in next week’s

Budget to help it survive.

But Flybe became increasingly con-

cerned that any cuts to APD might not

kick in until 2021, which would be too

late.

“They are in last-ditch talks today.

They have enough money to get to the

end of the week but a decision is likely to

be made later today or in the next 48

hours,” said one person with knowledge

of the matter. “Flybe initially had

enough money to see them past the

Budget next week, but because of the

impact on coronavirus which has hit

bookings, it has sped things up.”

Flybe, which is Europe’s largest

regional carrier,employs 2,000 people.

It is responsible for nearly 40 per cent of

all domestic UK flights and carries more

than 9m passengers annually.

It was taken over by Connect Airways

— a consortium ofVirgin Atlantic,Sto-

bart Air nd hedge funda Cyrus Capital—

last year to prevent it falling into admin-

istration.Connect agreed to invest

£30m into the airline to continue opera-

tions as part of a government rescue

package in January.

The company’s shareholders are

increasingly preoccupied with the

threat to their own businesses from the

spread of coronavirus.

Virgin Atlantic’s chief executive is to

take a 20 per cent pay cut for four

months as part of emergency measures

designed to protect the British carrier’s

profitability as coronavirus hits passen-

ger demand.

The airline — which has suffered a 40

per cent drop in customer demand com-

pared with a year ago — is also freezing

recruitment and offering ground-based

employees unpaid leave. Rival airlines

are also pausing recruitment and invest-

ment.

Flybe has warned that if it were to col-

lapse, most of the routes itoperates

wouldprobably be abandoned entirely.

Its executives have told the government

that 88 of its 120 routes are not flown by

any other airline.

Whitehall officials are drawing up

contingency plans to keep critical routes

going in the event of Flybe’s failure,

according to rival airlines.

Flybe and the government declined to

comment.

Airlines

Flybe in last-ditch talks to avoid failure

UK carrier seeks solution

as bankruptcy looms after

virus weighs on bookings

100 £ m

State loan that the

UK government

rejected for Flybe

9 m

Passengers carried

annually by the

regional airline

TA N YA P OW L E Y
T R A N S P O RT C O R R E S P O N D E N T

Virgin Atlantic s cutting the pay of itsi
chief executive by 20 per cent for four
months as it becomes the latest airline
to take emergency measures to protect
profitability after the coronavirus hit
topassengerdemand.

The British carrieryesterday said chief
executiveShai Weiss ad agreed toh
reduce his pay between April and July,
while its executive leadership team will
take a salary cut of 15 per cent.
Virgin Atlantic’s move comes as air-
lines around the world arefreezing
recruitment nda slashing the number of
flights n the wake of the spreadingi
virus.
Iata, the airline trade body, willtoday
significantly increase its estimate of the
hit to global sales because of the virus.
Just 13 days ago it e stimate d a
near-$30bn impact, but this was based
largely on the impact in Asia.
The FT reported on Tuesday that Vir-
gin Atlantic had suffered a 40 per cent
drop in customer demand compared
with March 2019, in a sign concerns
were hitting demand on long-haul
flights, not just short-haul flights in
Europe.
European airlines have stepped up
flight cancellations n recent days, withi
British Airways slashing more than 400
flights between March 16 and 28 to
countries including Italy, Germany and
the US.
Ryanair as also cut short-haul flightsh
to Italy by up to 25 per cent between
March 17 and April 8, whileLufthansa
andeasyJet ut capacity last week.c
On Wednesday, Hungary-based car-
rierWizz Air aid it would reduce itss
flight schedule, mainly to Italian desti-
nations, over the coming month.
The low-cost airline said it would also
consider a further 10 per cent capacity
reduction in the quarter beginning in
April, depending on how much further
demand is hit by the spread of the virus.
Wizz has already cut overheads,
relocated staff and implemented a hir-
ing freeze in a bid to keep spending
down.
Virgin Atlantic said itwould delay the
start of its London Heathrow to São
Paulo service, which was due to begin on
March 29, until the winter season with
services commencing from October 5.
The carrier has already suspended its
London Heathrow to Shanghai service
until April 19 and reduced the fre-
quency of its Hong Kong route.
Additional reporting by Myles McCormick

Airlines

Virgin chief

takes pay cut

as outbreak

hits demand

ST E P H A N I E F I N D L AY —N E W D E L H I

B E N JA M I N PA R K I N —M U M BA I

India’s solar companies are banking on

state support if a prolonged coronavi-

rus shutdown of businesses in China,

their top component supplier, makes it

necessarytodeclareforcemajeure.

The fledgling industry sources about

80 per cent of its solar modules from

China, making India’s expansive clean

energy goals heavily dependent on its

northern neighbour.

ut the spread of Covid-19 in China,B

where the virus originated, has closed

factories and halted cargo shipments,

putting the Indian companies at risk of

missing deadlines for projects and

exposing them to penalties.

The finance ministry said in February

that businesses with supply chains dis-

rupted by coronavirus in China could

invoke the “act of god” clause that frees

them from contractual obligations due

to unforeseeable events.

This gave solar companies the green

light to invoke the clause if they were

unable to meet deadlines — many of

them for government energy projects.

But analysts say that beyondforce

majeure, companies may need financial

support to deal with working capital

costs and interest payments due to the

delay.

India has outlined ambitious clean

energy targets. It aims to increase its

renewable energy capacity to more than

175GW by 2022, with 100GW of that

coming from solar energy. Progresshas

been slowed lready by policy confusiona

and land acquisition issues, with the

virus posing a new threat to its plans.

Raman Nanda, chief executive ofSB

Energy,SoftBank’s renewable energy

arm, said: “Coronavirus will impact

projects to be commissioned in the next

three to four quarters as we and other

developers scramble to meet commis-

sioning deadlines.

“We have a plan to deliver on time,

but given the rapidly changing situation

no plan is 100 per cent guaranteed.”

Mr Nanda said “the government has

been supportive”, and he expected

authorities to recognise force majeure

should SB Energy be unable to meet

deadlines and invoke the clause.

Sumant Sinha, chairman ofReNew

Power, the renewable energy company,

was also considering the clause. A pro-

longed disruption “can impact some of

our projects due for commissioning

later in the year”, he said. Allowing com-

panies to declare force majeure “will

provide much needed relief”.

Crisil, a local arm of S&P Global, the

rating agency, said deadlines on almost

3GW of solar projects worth more than

$2bn risk being missed as soon as July.

Fines for a 100MW project, for example,

start at Rs200m ($2.7m) and increase

thereafter, he said.

Subodh Rai, a senior director at Crisil,

said companies had limited options to

mitigate the risk. Prices for parts from

other suppliers, such as Taiwan or

Malaysia, were 15-20 per cent higher.

If the coronavirus outbreak becomes

protracted, there will be “more and

more projects coming at risk”, he said.

Vinay Rustagi, managing director of

Bridge to India, a renewable energy con-

sultancy, said that even in an optimistic

case businesses might not return to nor-

mal for two or three months.

Events underlined the need to shift

from Chinese imports, not least through

local production, Mr Rustagi said. “We

are extremely dependent on China for

meeting our numbers,” he added.

Energy

China gloom hangs over India’s solar sector

Beam engine: sunshine is not in short supply in India where companies are worried about a scarcity of components from China —Aijaz Rahi/AP

‘We have a

plan to

deliver on

time, but

given the

rapidly

changing

situation

no plan

is 100%

guaranteed’

MARCH 5 2020 Section:Companies Time: 4/3/2020- 18:35 User:alistair.fraser Page Name:CONEWS1, Part,Page,Edition:USA, 12, 1