How Boris Johnson’s Flybe Bailout Could Define his Brexit Premiership

Alex Morales and Tim Ross

(Bloomberg) -- It’s the question that could define Boris Johnson’s premiership. Just what kind of a Conservative will the British prime minister turn out to be when it comes to business?

Is he a Thatcherite free marketeer, content to let companies go bust, or an interventionist willing to prop up failing firms to please his own supporters?

This week, Johnson’s government gave a heavy hint of the answer: Ministers stepped in to save ailing regional airline Flybe from collapse. The rescue package includes a tax break and, potentially, a state-backed loan.

The intervention stood in sharp contrast to the Tories’ previous laissez-faire approach.

In early 2018, Theresa May’s administration allowed Carillion Plc to fail -- even though it employed 20,000 people in Britain and was working on a range of government contracts from hospitals to the HS2 high-speed rail project.

Last year, Johnson himself allowed travel operator Thomas Cook Group Plc to go under, forcing the government to deploy what it called the “largest repatriation in peacetime history” to bring home more than 150,000 tourists stranded on overseas vacations. Flybmi and Monarch Airlines have also been left to fail without state help over the past three years.

For this prime minister, however, the calculation has changed. Last month, Johnson won the biggest Conservative majority for more than 30 years in an election that saw his party seize swaths of territory in northern England and parts of central England which the left-wing Labour Party had held for decades.

Getting Brexit Done

Johnson won over life-long Labour voters not only by promising to “get Brexit done” -- but also by matching his opponent’s pledges to end the post financial crisis era of austerity and spend more on health care, even if that meant canceling a tax cut for business.

As the U.K.’s dominant domestic regional airline, Flybe links voters in far-flung areas such as the coast of Wales and northeastern Scotland with the country’s economic heart in London and the southeast. According to Cabinet minister Nicky Morgan, this was “very critical” to the decision to save the company.

“One of the abiding messages over the last couple of years from the country to our politicians has been, actually, don’t forget that there is a lot more to the country than just London and the southeast,” Morgan said in an interview with Bloomberg Radio on Wednesday. “Every case obviously has to be considered on the circumstances, but Flybe is very important for regional connectivity.”

For Andrew Bowie, one of the few Tories in Scotland who held their seats in last month’s election, the decision to support Flybe shows “our determination to deliver on our manifesto commitment to level up and govern for the whole country.”

Bowie’s Aberdeenshire constituency in northeastern Scotland would have been affected by the failure of Flybe, which provides a large portion of the flights to Aberdeen.

“Essential Service”

“Flybe provides an essential service linking some of our most important cities to each other and to hub airports like London Heathrow,” said Bowie. “For their economies it was vital that the government took the action it did.”

The bailout hasn’t impressed everyone. British Airways’ parent, International Consolidated Airlines Group SA, has filed a complaint to the European Union’s competition watchdog, saying a plan to defer Flybe’s air passenger duty payments amounts to unfair state aid.

And the next phase of Brexit negotiations -- focusing on the future trading relationship between the U.K. and the EU -- is set to sharpen the question further for Johnson’s government.

The European Commission has made clear it will hold Johnson to promises he made when last year’s Brexit agreement was finally struck to ensure Britain won’t undercut the EU in areas such as taxation, state subsidies and environmental standards.

“No Alignment”

In a presentation to the bloc’s remaining governments earlier this week, the Commission said a free trade agreement is possible “insofar” as there are sufficient guarantees for a so-called “level-playing field.” The phrase is repeated 12 times in the 17 slides distributed to member states by the bloc’s executive arm.

Johnson is taking a radically different view as he prepares to work toward a slimmed down trade agreement with the EU by the end of this year. On Wednesday, his office repeated that there will be “no alignment” with the EU’s regulations after Brexit.

As ever, the political reality may provide its own corrective. A bare-bones trade deal with the EU could push some companies to reconsider their place in Britain, while others may struggle to remain viable.

If businesses start to teeter in parts of the U.K. critical to Johnson’s political success, he may be tempted to step in again. Flybe could just be the start.

--With assistance from Aoife White and Nikos Chrysoloras.

To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net;Tim Ross in London at tross54@bloomberg.net

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Edward Evans, Thomas Penny

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