EasyJet and Ryanair have joined British Airways owner IAG in voicing opposition to the government’s proposed bailout of troubled Flybe.
The budget airline rivals both attacked the plan to defer some of Flybe’s Air Passenger Duty payments, worth more than £100 million.
EasyJet and Ryanair said taxpayer funds should not be used to save a rival, with the latter suggesting the ‘tax holiday’ should be extended to all airlines.
The budget carrier entered the fray as it emerged that IAG had filed a complaint to the EU arguing that the rescue of Flybe amounted to a breach in state aid rules.
The regional airline’s outstanding £106 million APD bill has been deferred on a rolling three-month basis, allowing Flybe to survive the traditionally weaker winter months.
Ministers and airline bosses are also understood to be in negotiations over a further state-backed loan of up to £100 million, according to The Times.
Flybe’s shareholders Connect Airways, a consortium including Virgin Atlantic, Stobart Group and Cyrus Capital Partners, will contribute funding said to be between £20 million and £30 million.
Business secretary Andrea Leadsom said that the deal would keep the company operating, ensuring that UK regions remain connected.
The government also pledged to review domestic APD for all airlines with the objective of improving regional connections without breaching climate targets.
But IAG chief executive Willie Walsh argued that Virgin Atlantic and its US part-owner Delta Air Lines should fund Flybe’s survival. The government refused to bail out Thomas Cook, which collapsed in September, or Monarch Airlines, which went under in 2017.
IAG complained that taxpayers would be subsidising an airline that competes directly with BA and partner Aer Lingus with Walsh condemning the deal as a “blatant misuse” of public funds.
It came as Delta reported improved annual profits of $6.2 billion for 2019.
EasyJet chief executive Johan Lundgren said: “We do not support state funding of carriers but without the detail of what is exactly proposed, it is hard to comment further. Having said that, what is clear is that taxpayers should not be used to bail out individual companies especially when they are backed by well-funded businesses.”
However, he added: “The government’s plan to review APD is a good start. The UK’s APD is one of the highest aviation taxes in the world and adds a significant amount to fares for passengers.
“It provides no incentives for airlines or passengers to improve the carbon efficiency of their flying, it simply acts as a revenue raiser.
“The government proposes to look at how APD affects regions and an immediate reduction in domestic APD would be welcome.
“We think the APD review needs to go wider and be a review about the overall structure of APD and how to reform it so that it provides incentives to save carbon through more efficient flying. Therefore, we would prefer to either see it removed or reformed to incentivise reductions in emissions from flying.
“Additionally, to address climate change the aviation industry needs to invest in new technology and taxes simply reduce the funds available to airlines for investment, while only having a very marginal effect on emissions.
“At the same time all airlines should be doing what they can to both mitigate and deal with their emissions, EasyJet is focused on supporting the development of future technology while offsetting the fuel from all of its flights in the meantime.”
More: IAG ‘files complaint’ with EU over government rescue deal
Government to ‘defer’ struggling carrier’s £106m APD bill
Ryanair said it had “already called for more robust and frequent stress tests on financially weak airlines and tour operators so the taxpayer does not have to bail them out”.
In a letter to chancellor Sajid Javid, seen by the Financial Times, Ryanair referenced a case in 2011 where the Irish government was forced by the European Commission to change its air travel tax arrangement, which offered lower rates for domestic flights.
Ryanair head of competition and regulation Eoin Kealy wrote: “We trust that the UK government will not act in a manner that unlawfully favours a financially profligate airline over other airlines that offer UK passengers low fares and reliable service.”
Michael O’Leary, Ryanair’s chief executive, later added: “This government bailout of billionaire-owned Flybe is in breach of both competition and state aid laws. The Flybe model is not viable which is why its billionaire owners are looking for a state subsidy for their failed investment.
“The reason why Flybe isn’t viable is because it cannot compete with lower fare services from UK regional airports on domestic and EU routes provided by Ryanair, easyJet, BA and others; and it cannot compete with lower cost road and rail alternatives on many smaller UK domestic routes.
O’Leary added: “If Flybe fails, as it undoubtedly will once this government subsidy ends, then Ryanair, easyJet, BA and others will step in and provide lower fare flights from the UK regional airports, as we already have to make up for the recent failure of Thomas Cook Airways.
“This Flybe ‘subsidy’ cannot comply with competition, or state aid rules unless the same APD eco tax holiday and other government subsidies are extended to all other UK competitor airlines.”
The EU Commission said, as with all member states, it was ready to discuss with the UK the “compatibility of proposed public measures with EU state aid rules”.
The UK has to follow EU rules on state aid after Brexit at least until the end of the year.
Leadsom defended the intervention and said: “The government isn’t in the market to bail out private companies. What we do on a case to case basis is look to see if a business is viable. In the case of Flybe, it is a viable business.
“There are structural challenges because of the fact that the regional connectivity role that it provides for the UK means there are some routes which are very tricky and what we’ve agreed to do as government is a review of regional connectivity that takes into account, for example, our net zero carbon ambitions.
“What that will do is that it will continue to create a level playing field for all airlines.
“The difference, for example, between Flybe and Thomas Cook was that in the case of Thomas Cook it had huge amounts of debt and any taxpayers money would have simply been throwing good money after bad. It was not a viable company.”
Transport secretary Grant Shapps revealed that the Treasury was notified of Flybe’s difficulties on Saturday “and since then we have worked intensively with the company to understand their financial position and explore options.
Comment:Flybe should be allowed to fail
“In the light of these discussions the management and shareholders on January 14 took action to set Flybe on a recovery path.”
The review of regional connectivity “will ensure all nations and regions of the UK have the domestic transport connections local communities rely on – including regional services from local airports,” Shapps said.
The Department for Transport-led review “will consider all options to ensure we continue to have good regional connectivity.
“The DfT will work closely with the aviation industry, local regions and devolved nations to identify how we can support connectivity.
“As part of this work and ahead of the March Budget, the Treasury will also be reviewing APD to ensure regional connectivity is supported while meeting the UK’s climate change commitments to meet net zero by 2050.
“The outcomes of these reviews will benefit the entire industry, passengers, communities, regions and nations across the UK.”