Multimillion-pound Welsh government loans to Cardiff airport may break European state aid rules, the government has reportedly warned.
The airport, which was bought by the government in Wales in 2013, received £10 million to improve its terminal and the Welsh government has also agreed a further £13 million loan for route development.
The UK government said Welsh ministers were in the process of providing assurances that the airport’s loans are in compliance with the rules.
A Welsh government source said the warning was “politically motivated,” the BBC reported.
Both loans have to be repaid with interest over the next decade.
BBC Wales said it had seen a leaked letter outlining how £12 million is due to be spent on marketing support for new Flybe routes from Cardiff over the next three years.
The letter from a Department for Transport official to a senior Welsh government official in June says that if the European Commission was to look at the loans it “would deem them not to be compliant with European Commission state aid rules for aviation”.
In the letter, the official at the DfT, which has responsibility for state-aid issues, also expresses concern about repayment of the loans and the forecast of future passenger numbers.
Both are connected because most of the money is to be repaid from airport charges to airlines and extra money spent in the terminal due to increasing passenger numbers.
Flybe says the new and expanded routes are expected to generate 500,000 extra passengers over the next 12 to 18 months.
But the DfT official says independent consultancy York Aviation suggested the airline’s predictions are likely to have been overestimated by around a fifth.
It says: “There does not appear to have been rigorous consideration of the risks involved around delivering the projected return; the passenger figures only need to be 2.2% below forecast for the deal to be loss-making.”
The letter also says that, were 87% of the loan to be repaid from passenger spending in the terminal, it “is likely to be considered a direct subsidy to the airport”.
The latest figures from the Civil Aviation Authority show that the number of passengers rose by 12% in June, compared with June 2014, partially as a result of the impact of the new Flybe services.
The Welsh government said: “As a pro-business government, the agreement of commercial loans with businesses is neither novel nor outside of the usual range of Welsh government practice.
“In this regard, Cardiff airport is being treated no differently to any other commercial organisation.”
A DfT spokesman said: “The Welsh government is in the process of providing assurances to the UK government that it is complying with European Union state aid rules on funding provided to airports or airlines.”
Cardiff airport managing director Debra Barber told the BBC: “We wish to point out that the York Aviation report to which you refer was an early draft, which has subsequently been corrected by them.
“Having taken independent legal advice in connection with these loans and their uses, we are confident there are no state aid issues.”