Ministers agree to deal with Flybe shareholders to save
By: Nc Airways
Tags: Aviation, News, Airlines

Flybe shareholders relieved

The government has agreed to save Flybe after negotiations with a consortium of firms that own the airline. As per multiple media reports, this rescue deal would be subject to certain conditions. Flybe’s three shareholders will have to invest a few tens of millions of pounds more into the loss-making airline.

Also Read: Flybe Insists Normalcy while Troubles Mount

As per her tweet, Business Secretary Andrea Leadsom seems she is “delighted” by the agreement. It will “keep the company running, while UK regions would remain connected.

The agreement suggests that the 2,400 employees of Flybe will not lose their jobs. The British Airline Pilots’ Association (Balpa) endorsed the deal and said the government should be applauded for stepping up to the plate” to save one of the last remaining independent UK airlines.

Transport Secretary Grant Shapps also greeted the arrangement and said no taxpayer money had been made available. He said: “Delighted we’ve been able to work closely with Flybe to ensure Europe’s largest regional airline is able to continue connecting communities across Britain.”

Also Read: Is APD Exempt a Relief for Flybe?

Chancellor Sajid Javid had held discussions with the business and transport secretaries to consider if the loss-making Flybe can delay paying this year’s predicted air passenger duty (APD) bill of £106 million for three years or whether the tax should be cut for all domestic flights, as per multiple media reports.

Airlines often complain that the concept of APD restricts connectivity, passenger growth, and their businesses suffer. Passengers on domestic flights pay £26 in APD for a return trip, with greater rates for more extended flights and upper-class cabins. The tax through APD is presumed to be meriting £3.7 billion to the Treasury in 2019–20 according to Office for Budget Responsibility.

Greenpeace Chief Scientist, Dr Doug Parr, criticised the prospect of cutting tax for airlines as “shockingly bad”. He said: “We’re living in a climate emergency — as Parliament has declared — and aviation is an undertaxed, carbon-intensive form of travel. There may be certain groups or certain places where they operate an essential service. But we’re talking about a tax cut right across the board for the aviation industry — it’s a completely shockingly bad way to go about this.”

Jenny Bates, an environment campaigner for the Friends of the Earth charity, told media that any cut to air passenger duty would be “reckless”. She said: “These short UK trips are precisely the ones we need to bypass in the urge to cut aviation CO2 emissions required to check climate breakdown. Instead, the government could have invested in our rail system, helping make such trips more affordable.”

Boris Johnson had earlier declared that it was not for the government “to step in and save companies that simply run into trouble”, but he admitted the company has an integral role in “delivering connectivity across the whole United Kingdom”. A cut to air passenger duty could build what he has previously termed as a “moral hazard”.

Flybe was bought by a consortium consisting of Sir Richard Branson’s Virgin Atlantic, Southend Airport-owner Stobart Group and hedge fund Cyrus Capital in February 2019 following poor financial results. The consortium is now known as Connect Airways.

It is presumed that any Flybe turnaround plan would be financed by the said consortium. The group has paid £2.8m for the airline and agreed to invest a further £100m in the loss-making air carrier.

The airline called Flybe is Europe’s largest regional carrier, flying nearly nine million passengers a year to 170 destinations across the continent. It mainly operates from UK airports like Aberdeen, Belfast City, Manchester and Southampton.

Flybe is mostly present in domestic routes between airports outside London, including connections between England, Scotland and Northern Ireland.

Despite such credentials, Flybe could not pay the government the APD. Dues mounted up to £ 100m in three years. Rather, it continued to operate in loss which further implies that the company could not earn enough to even meet its day-to-day expenses, ie., salaries, fuel, maintenance, etc. Such features are the typical points which characterise a non-feasible project in business parlance. A short term measure like this can at best be described as ‘spoon-feeding.’ It is now a question of self-esteem for aviation, in general, and Flybe, in particular. Will Flybe continue to rely on aid like this? And for how long?

This deal with the government prevented Flybe to become the second UK airline to fail in four months. Thomas Cook was the first; it went bust in September 2019.

It finally has to get an obligation from the government after numerous pleadings. In other words, it continues to be a liability to the Nation. Such a decision taken by the UK government has actually set a perilous pattern that would let other grappling companies think that they could safely rely on the government to bail them out whenever they get in some financial distress.

Find the top international flight deals up to 55% off

Book all your Flight tickets Here