Flybe’s outstanding £106 million Air Passenger Duty bill is believed to have been deferred until the spring as part of the government’s rescue deal for the troubled carrier.
The agreement will allow Europe’s biggest regional airline to get through a winter cash-flow crisis.
Flybe’s shareholders Connect Airways, which includes Virgin Atlantic, Southend airport owner Stobart Group and Cyrus Capital, are understood to have pledged to invest between £20 million and £30 million to cover losses.
Connect Airways chairman Lucien Farrell said the group had agreed to “keep Flybe flying with additional funding alongside government initiatives”.
He added: “We are very encouraged with recent developments, especially the government’s recognition of the importance of Flybe to [UK] communities and businesses.”
But ministers face an angry reaction from environmental groups after confirming that taxes on domestic flights would be reviewed as part of the rescue deal.
Comment: Flybe – a good deal? [March 19]
Any cut to APD should not be sanctioned in the face of the climate crisis, they argued.
Green Party MP Carline Lucas attacked the bailout and said that aviation should “decrease not increase” in a way that will increase emissions in favour of increasing rail connectivity.
And Willie Walsh, chief executive of British Airways owner International Airlines Group, blasted the deal as a “blatant misuse” of public funds.
“Prior to the acquisition of Flybe by the consortium which includes Virgin/Delta, Flybe argued for taxpayers to fund its operations by subsidising regional routes,” he said.
‘Makes a mockery of airline’s promises’
“Virgin/Delta now want the taxpayer to pick up the tab for their mismanagement of the airline. Flybe’s precarious situation makes a mockery of the promises the airline, its shareholders and Heathrow have made about the expansion of regional flights if a third runway is built.”
The rescue deal also drew criticism from Labour that Flybe was being handed a state bailout just months after Thomas Cook was allowed to collapse despite appealing to ministers for a state rescue deal.
However, a Treasury review before the March budget will assess the impact of APD on short-haul flights, which can £26 to every return ticket – a move welcomed by the aviation industry.
This is expected to focus on domestic services while ensuring it does not undermine the commitment to achieve net zero carbon emissions by 2050, the Treasury said.
The Department for Transport also plans to assess whether state subsidises handed to individual loss-making air routes in the UK should be expanded. The ‘pubic service obligation’ routes subsidised by the taxpayer include Flybe’s link between Heathrow and Newquay in Cornwall.
The government may seek to prioritise routes that use the most environmentally-friendly aircraft, with significant APD reductions for electric aircraft. Analysts have estimated that electric passenger flights could be a reality in the next decade, according to The Times.
Chancellor Sajid Javid said the measures would “ensure that regional connections not only continue but flourish, so that every nation and region can fulfil its potential”.
Transport secretary Grant Shapps said: “We believe in connecting our regions and nations, so following three days of cross government discussion with Flybe CEO Mark Anderson and others, I’m delighted that Europe’s largest regional airline will continue to help connect the whole of the UK for years to come.”
Tim Alderslade, chief executive of trade body Airlines UK, said: “One of the advantages of leaving the EU is the possibility of cutting or removing APD on domestic travel.
“It’s an anomaly that particularly hurts regional aviation as it’s levied on both legs of a return journey.
“Irrespective of the Flybe situation we hope the government will take a closer look at this – and all other elements of our ruinously high and uncompetitive APD – as we need to support our strategically vital regional air connectivity and 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.
“APD is not and never has been an environmental tax. It has no bearing on the ability of the aviation industry to decarbonise and achieve net zero emissions by 2050.
“This will be achieved via a range of other measures, including airspace modernisation, the development of sustainable aviation fuels, new, cleaner planes, and the UN carbon offsetting scheme CORSIA, which captures growth in all emissions from international aviation and will mitigate around 2.5 billion tonnes of CO2 between 2021 and 2035.”
Airport Operators Association chief executive Karen Dee said: “Flybe plays a critical and unique role in the UK aviation system, supporting the development of the regions, providing essential connectivity to businesses and stimulating the growth in trade.
“Its domestic and international network also helps to unlock the tourism potential of those regions.
“The action the government has taken to help secure the future of Flybe, Europe’s largest regional airline, will support the current and future jobs that this connectivity provides at UK airports and in the regions.
“We look forward to hearing more detail on the discussions between the government and Flybe and will engage with the welcome review of APD – Europe’s highest aviation tax – so that the whole of the UK can benefit from excellent domestic and international flights.”
‘APD is disproportionate’
Southampton airport managing director Neil Garwood added: “Regional connectivity is crucial to the economic wellbeing of our region but is constrained by Airport Passenger Duty.
“APD is disproportionate; it disadvantages regional aviation and stifles the growth and prosperity that it supports.
“We urge the government to level the playing field to provide stimulus and unlock growth and connectivity across all regions of the UK.”
A Fair Tax Flying spokesperson said: “We welcome the government’s announcement of a review into Air Passenger Duty.
“Aviation has a crucial role in providing connectivity both regionally and internationally and we look forward to continuing to engage with HM Treasury to make the case for broad reform of APD ahead of this year’s budget.”