Immediate backlash as U.K. government agrees to help struggling Flybe

No sooner had the U.K. government confirmed it was prepared to provide financial assistance to help keep struggling domestic carrier Flybe afloat than the backlash from competitive airlines began. There have also been a number of questions raised as to why the government is prepared to help Flybe when it refused to provide any help for the now defunct Thomas Cook last year.

IAG chief Willie Walsh has already lodged a complaint with the EU that the actions of the U.K. government represent a “blatant misuse of public funds.” The European commission said it was ready to discuss the bailout and warned that any state aid should not distort competition. Johan Lundgren, CEO of easyJet has complained vociferously that financial assistance provided to Flybe contravenes all the rules relating to state aid.

The U.K. government has been keen to defend its actions, advising that the financial aid being provided is fully compliant with all state aid regulations and has also made it clear that it's decision to help Flybe and not Thomas Cook was made solely on the basis that it did not consider Thomas Cook a viable proposition and investing in the travel company would have been a case of throwing good money after bad. It believes, however, that Flybe's fortunes can be turned around and therefore any investment makes more sense.

Financial aid from the government will not be in the form of a cash injection, but the deferment of over payment of £100 million owed to the government in the form of Air Passenger Duty charges. Passengers taking off from UK airports are subject to a £14.00 air passenger duty levy which the airline charges passengers and should then pass on to the government. Flybe has long been complaining about the problems this duty creates for the carrier as, being a predominantly domestic operator servicing 24 airports throughout the UK, air passenger duty is charged twice for return domestic flights, which is not the case for international flights.

In addition, the agreed deferment of payment of air passenger duty is on the condition that the consortium which owns Flybe – Virgin Atlantic, Cyrus Capital and Stobart Group – agrees to invest a considerable amount of capital into the stricken carrier itself. It is understood that this agreement is now in place, though the sums involved have not been disclosed. (£1.00 = US$1.30 at time of publication.)