Given the longstanding critique of the cruise industry's business model, some critics were pleasantly surprised when U.S. Congress declined to give federal assistance to the industry back in April. Few noticed when the UK did just that as part of its Covid-19 corporate recovery package.
Back when the CARES Act was passed in April, much was made over Congress’ somewhat surprising decision to leave the cruise lines out of its massive fiscal stimulus program. The act stipulated that recipients must be “created or organized in the United States or under the laws of the United States and has significant operations in and a majority of its employees based in the United States.” The cruise lines plainly do not fit that bill.
But in the United Kingdom, it appears no such distinction was made. Carnival plc and RCL Cruises Ltd. (both UK entities of the global companies) received millions of pounds of state assistance as part of a program known as the Covid Corporate Financing Facility, according to Bank of England documents, and first flagged by UK-based investigative think tank TaxWatch.
Carnival has received £25 million ($31.3 million), while Royal Caribbean received £300 million ($375 million). Other travel companies to benefit include easyJet and Ryanair. In Carnival’s earnings call last week, Carnival Corp. Chief Financial Officer David Bernstein mentioned the program to investors when describing the company’s liquidity position, saying it had qualified for $700 million from the UK. A spokesperson for the company confirmed for Skift that while the company had the opportunity to claim up to the equivalent of $700 million, only £25 million had so far been used.
Though some have called the mechanism a bailout, that’s not strictly accurate. The so-called commercial paper program issues short term liquidity support on favorable terms to corporations to help them survive the crisis. The interest rate secured by each company is not made public, but is assumed to be appealingly low.
The Bank of England’s criteria for receiving the federal aid is rather broad: any company that makes “a material UK contribution” is eligible. One could certainly argue that the contribution that cruise lines make in terms of indirect employment — buying food from British suppliers, say, and providing work for travel advisors who help Britons book cruises — passes that threshold.
However, critics point to a broader issue about using government funds to support companies that have ties to tax havens. While Royal and Carnival both have UK entities and operations, the former’s parent company is incorporated in Liberia, and the latter is dual-listed in Panama and the UK. In addition, Britain’s Foreign Commonwealth Office has advised that UK citizens avoid cruise ships as recently as July 9. The Telegraph reports that the cruise industry has been lobbying for the blanket ban to be softened to allow for river cruises.
TaxWatch has been tracking the companies that have received government aid despite having controversial tax practices, including the use of tax havens. (Panama is on the European Union’s list of tax havens; Liberia is not on that list, but is considered by TaxWatch to fit the definition of a tax haven.) The group has also pointed out the lack of transparency and accountability when it comes to how this assistance is used.
“It’s incredible that the UK is bailing out companies that are using tax havens, with minimal strings attached,” Alex Dunnagan, a researcher at TaxWatch, said. “We have £300m going to a company ultimately owned by a Liberian corporation, and a further £25m going to a company dual-listed in Panama.”
He added that both heads of state in the U.S. and UK signaled support for the industry, but only one granted state aid.
“Despite similar rhetoric from President Trump and Prime Minister Johnson about how ‘great’ the industry is, it appears that major cruise operators don’t qualify for assistance in the US under the CARES act, but can receive hundreds of millions of pounds in Bank of England CCFF funding, with scant detail made available to the public,” Dunnagan said.
Skift reached out to Her Majesty’s Treasury, which sets the risk parameters of the scheme, to respond to these critiques. A spokesperson said: “We have acted at unprecedented speed to support jobs and the economy. The Covid Corporate Financing Facility directly protects hundreds of thousands of jobs in the UK, supports some of our biggest companies’ cashflows and enables them to support their suppliers.”
“We continue to be at the forefront of global action to tackle tax avoidance, with a series of robust measures in place to tackle profit shifting arrangements. That is the right way to challenge rule-breaking, rather than punishing British workers who pay their taxes by denying access to measures that support the British economy.”
Neither Carnival nor Royal responded to a request for comment on the question of accepting state aid despite incorporating their companies in nations associated with tax avoidance. Carnival did, however, make it clear it is seeking financing elsewhere, too. On Wednesday, it announced the pricing on more than $1 billion in senior secured notes due 2026.
UPDATED: This story was updated after publication to add comment from HM Treasury.
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Tags: carnival, coronavirus, cruise, royal caribbean cruises, uk
Photo credit: The Harmony of the Seas in the port of Southampton, UK Robert Pittman / Flickr