Deal secures Flybe future
Investors keep carrier afloat after ministers agree to review air passenger duty
The future of Flybe was secured last night after ministers said they had reached a rescue deal with shareholders to keep Europe’s largest regional carrier flying.
The package of measures includes a potential loan of about £100m and/or a possible short-term deferral of a £106m air passenger duty (APD) bill, plus a pledge to review domestic flight taxes before the March budget.
After the spectre was raised of another UK airline failure, Flybe’s owner, Connect Airways – a consortium led by Virgin Atlantic – were persuaded to commit millions more to cover ongoing losses.
The government is still in negotiations to finalise any loan and, although Treasury sources denied reports it had agreed to defer owed APD, it is understood HMRC could allow the airline a short-term extension to settle its debt.
The deal was condemned by British Airways’ owner, IAG, as “a blatant misuse of public funds”. Chief executive Willie Walsh accused Virgin of “wanting the taxpayer to pick up the tab for their mismanagement of the airline”.
Any government loan would also attract EU commission scrutiny for breaching state aid. However, the EU-approved loans made last September by the German government to save Condor, a subsidiary of the Thomas Cook Group, when the UK allowed its sister airline to go bust.
The Treasury will also face the wrath of environmental groups for its review of APD, a tax that adds £26 per passenger to all Flybe domestic return flights, to “ensure regional connectivity is strengthened while meeting the UK’s climate change commitments to meet net zero by 2050”.
An additional review has been promised to look at improving regional transport connectivity. The Treasury said: “In light of these discussions Flybe have confirmed they will continue to operate as normal, preserving flights to airports such as Southampton, Belfast and Birmingham.”
The chancellor, Sajid Javid, said: “I Outstanding bill for air passenger duty owed by Flybe that is likely to be deferred by HMRC welcome Flybe’s confirmation that they will continue to operate as normal, safeguarding jobs in UK and ensuring flights continue to serve communities across the whole of the UK.
“The reviews we are announcing today will help level up our economy. They will ensure that regional connections not only continue but flourish in the years to come – so that every nation and region can fulfil its potential.”
Lucien Farrell, chairman of Connect Airways – owned by Virgin Atlantic, Stobart group and the private equity firm Cyrus Capital – said: “We are very encouraged with recent developments, especially the government’s recognition of the importance of Flybe to communities and businesses across the UK. As a result, the shareholder consortium has committed to keep Flybe flying with additional funding alongside government initiatives.”
Flybe’s CEO, Mark Anderson, said: “Flybe is made up of an incredible team of people, serving millions of loyal customers who rely on the vital regional connectivity that we provide. This is a positive outcome for the UK.”
The transport secretary, Grant Shapps, said his department would undertake “an urgent review into how we can level up the country by strengthening regional connectivity”. He said it would look at all options to ensure airports could continue to play a major role in economic growth.
The government had been urged by MPs, unions and businesses to save Flybe, which provides almost two in five domestic UK flights and employs more than 2,000 people. It carries 8.5 million passengers a year between 56 airports across the UK and mainland Europe, and is the main airline at regional airports including Belfast, Southampton and its Exeter base.
The deal came after a day when Boris Johnson pledged the government was “working very hard to do what we can” for Flybe and to avert a further airline collapse soon after the failure of Thomas Cook. The Conservatives had committed in their manifesto to improving regional connectivity.
The company’s pleas for help to survive the winter came less than a year after it was taken over by a consortium led by Virgin Atlantic, having posted recurring losses of about £20m a year.
Flybe has long struggled financially, and the fall of sterling since the 2016 referendum has piled additional pressure on UK airlines, with major costs, including fuel, incurred in US dollars.
While unions and the Confederation of British Industry had urged the government to help Flybe, any potential moves to ease APD were condemned by environmental groups.
Flybe flights were operating as normal yesterday.