Focus: Lehman grounds global commerce

By KARL WEST
Updated: 04:17 EST, 15 September 2009

In the final instalment of our investigation into the collapse of Lehman Brothers, Karl West reveals how the shockwaves fanned out from Wall Street to hit the factories, pubs and shops of Britain.

Dark clouds: British Airways has been left fighting for its survival since Lehman's collapse last year

IT seemed just like any other Monday morning. Then, just before 7am on September 15, 2008, British Airways chief Willie Walsh received a text from his finance director that was to change everything.

Keith Williams's message told Walsh that Lehman Brothers had collapsed. The BA boss's instant reaction was to find out what the airline's direct exposure was.

It was okay though, BA had a fuel hedging contract with Lehman that was only going to cost it $5m.

However, Walsh's momentary feeling of relief was soon tempered by a growing realisation that the implosion of the world's fourth biggest investment bank would have a huge impact on the wider economy.

Walsh had little time to digest the shattering news, because he was soon on the road to a speaking engagement at the City offices of Swiss investment bank UBS, where he was to share a platform with Air France boss Jean-Cyril Spinetta and Lufthansa's finance chief Stephan Gemkow.

The questions were dominated by Lehman, and how the Wall Street titan's failure might affect their companies.

Walsh told the Daily Mail: 'I think it was a very pivotal moment. It was one of those things that people thought would never happen. But it pointed to problems that were there before the collapse. The collapse was a trigger event.' The airline industry was already struggling to cope with soaring fuel costs as the oil price had recently topped $147 a barrel. But, Lehman's demise effectively turned the taps off and the airline's lucrative business-class traffic slowed to a trickle.

Walsh recalls that premium bookings in the first two weeks of September 2008 were 'normal'.

'But the second two weeks were unlike anything we had seen before.

Bookings just fell off a cliff; it was like night and day,' he remembers.

'It changed the nature of the crisis (for airlines) because up until then it was about high oil prices.' Premium traffic in September 2008 fell 8.6%, and BA (down 4.4p at 217p) has continued to haemorrhage big spending flyers - a key reason why the airline posted a record £401m loss last year.

While airlines struggled, others were also beginning to feel the seismic aftershocks from the collapse of the Wall Street giant. A popular refrain at the time was, 'Who cares if a bunch of City bankers lose their jobs as long as it doesn't affect real jobs?'

Packing up: A worker leaves Lehman Brothers after the crash

Lehman's fall caused the whole financial system to shut down. Banks stopped lending to even the most prudent of small and medium-sized businesses, and this played a key role in claiming the scalps of hundreds of thousands of workers across the country.

The latest unemployment figures from the OECD show Britain's jobless rate has jumped since the end of the second quarter of 2008, just before Lehman collapsed, when the percentage of the labour force out of work was 5.8%. The jobless rate was at 7.7% by May 2009.

According to official figures, the hardest hit sector by far has been manufacturing. Between March 2008 and March 2009 212,000 factory workers lost their job - a 6.7% contraction in the labour force.

The most recent update from the Office of National Statistics reveals the extent of the bloodletting. In June 2008, manufacturers employed more than 3.1m workers, but this had fallen to 2.9m in March this year.

But the pain didn't stop there. Finance and business services firms recorded a year-on-year decline of 2.8% in the numbers they employed in March; while the pool of jobs in the distribution, hotels and restaurants sector also contracted by 2.8%, as industry data suggests 50 pubs a week were forced to shut.

Jaguar Land Rover cut 1,450 staff last year; it followed this up by axing 450 staff in January, plus 300 from its plant in Merseyside in July. Nissan also shed 1,200 jobs at its Sunderland plant in January, and Mini axed 850 workers in February.

Producers have slashed production, reduced working hours and cut pay to offset the slump in demand. The highest profile example was Honda's decision to shut its Swindon plant for four months, sending staff home on reduced pay.

Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, said: 'Post-Lehman it became clear that demand globally had been turned off and that radical action needed to be taken to survive.'

Many businesses will make it through the worst recession since the 'Great Depression' of the 1930s.

But Lehman's shattering legacy is that many others will not be so fortunate.