Flybe Reaches Rescue Deal with UK Government

 - January 14, 2020, 4:36 PM

Flybe and the UK government Tuesday evening reached agreement on a deal to keep Europe’s largest regional carrier operating, following talks that reportedly included a request by the carrier’s shareholders to receive a reprieve to pay the airline passenger duty (APD) on its domestic services for three years—for a total amount of around £100 million.

All parties remained tight-lipped on the content of the package, though the government vowed it would launch a review of the amount of APD levied on domestic UK routes and of the country’s regional connectivity needs.  “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,” chancellor Sajid Javid said.

“[I’m] delighted we have been able to work closely with Flybe to ensure Europe’s largest airline is able to continue connecting communities across Britain,” transport secretary Grant Shapps said on Twitter. The department for Transport will undertake an “urgent review into how we can level up the country by strengthening regional connectivity,” he added.

Lucien Farrell, the chairman of the consortium that owns Flybe, said the three shareholders—Virgin Atlantic, Stobart Group, and investment firm Cyrus Capital Partners—had “committed to keeping Flybe flying with additional funding alongside government initiatives,” while Flybe stated it was “delighted with the support received from the government and the positive outcome for our people, our customers and the UK.”

Flybe’s financial difficulties revived the longstanding debate on the need to reform the UK’s APD system. In fact, the chief executive of the Airlines UK trade group asserted that Brexit creates the possibility to shelve or lower the passenger tax on domestic flights. Under EU rules, member states may not differentiate between domestic flights and flights between EU countries because it considers the bloc one single aviation market. Applying a lower rate for domestic flights amounts to illegal state aid, according to EU regulations.

“One of the advantages of leaving the EU is the possibility of cutting or removing APD on domestic travel,” noted Airlines UK CEO Tim Alderslade. The UK levies £13 per passenger departing from a UK airport for flights in the EU. “Levying £26 in tax when, in the case of Flybe, the average fare is £52, is not sustainable when so many other costs on airlines are increasing,” Alderslade added.

Following a series of delays, the UK now plans to leave the EU on January 31. However, a transition period will come into play until December 31 and most, if not all, EU legislation will still apply until then, limiting the UK government’s scope to remove or cut the domestic APD in the short term. Environmental groups criticized reports that the government might shelve or cut APD on domestic flights.

“Cutting air passenger duty encourages flying and should not be messed with/reduced in order to save a struggling airline,” commented Greenpeace U.K. chief scientist Doug Parr.