Wednesday 15 January 2020 8:58 am

British Airways owner files complaint over Flybe bailout

The bailout of regional airline Flybe from near-collapse was today the subject of an official complaint to the European Commission by the owner of British Airways, International Airlines Group.

Flybe was kept aloft on Tuesday after the government provided support, thought to involve the deferral of a tax bill worth more than £100m. But IAG said the deal contravened state aid rules.

Read more: Q&A: Why would cutting air passenger duty help Flybe?

The commission’s spokeswoman Arianna Podesta said: “As with all member states, we stand ready to discuss with the UK the compatibility and proposed public measures with the EU state aid rules.

“Any state aid intervention needs to be designed so that competition is not distorted and a level playing field is maintained.”

Earlier, the move was denounced as a “blatant misuse of public funds” by Willie Walsh, chief executive of IAG. He said taxpayers were paying for mismanagement of the airline.

This was on the condition that its shareholders, a consortium including Virgin Atlantic – owned by US giant Delta – agreed to put in tens of millions of pounds.

In a letter to transport secretary Grant Shapps, Walsh wrote: “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.

“Virgin/Delta now want the taxpayer to pick up the tab for their mismanagement of the airline,” Walsh said in his letter. “This is a blatant misuse of public funds.”

“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.”

Flybe connects smaller UK cities such as Southampton and Newcastle and its network of routes includes more than half of UK domestic flights outside London.

British Airways competes against it on some routes, and Flybe is owned by a group which includes Virgin Atlantic, a long-term BA rival.

The deal is also thought to include reviewing £13 air passenger duty (APD) on domestic flights in the March budget. 

The tax applies to flights which take off in the UK. Flybe has long claimed that domestic APD rates hit it hardest because it is a predominantly domestic airline, meaning a greater proportion of its tickets are for this kind of flight.

That drew criticism from climate advocates and City analysts alike. 

Greenpeace UK policy director Dr Doug Parr said: “This is a poorly thought out policy that should be immediately grounded. 

“The government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel cheaper the next. 

“Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need if we’re to cut climate-wrecking emissions from transport.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown, added that the move would leave the government with a significant shortfall as it approaches its first Budget. 

She said: “The notion doesn’t just dent the government’s claims to prioritise the climate, it could gouge a bit of a hole in the budget finances too.

Shapps, business secretary Andrea Leadsom and chancellor Sajid Javid all signed off on the deal that will keep Flybe operating.

Read more: Flybe saved from brink of collapse by government deal

However, the British Airline Pilots Association, a trade union, welcomed the news.

“This is good news for 2,400 Flybe staff whose jobs are secured and regional communities who would have lost their air connectivity without Flybe,” general secretary Brian Strutton said.