(Bloomberg) -- Britain agreed to back a plan to rescue Flybe, Europe’s largest regional airline, from a collapse that would have left some of the most economically challenged parts of the U.K. with diminished transport links.
The deal will allow Flybe to operate as normal to maintain flights and includes a review of the air passenger duty tax levy, the government said Tuesday. Support may include a state-backed loan, according to a person familiar with the matter who asked not to be named discussing confidential deliberations.
Flybe’s parent Connect Airways, made up of Virgin Atlantic Airways Ltd., private-equity firm Cyrus Capital and airport operator Stobart Group, has in turn committed to keep the carrier flying with additional funding, Connect Chairman Lucien Farrell said in a release.
The rescue is unusual in a country that has long eschewed state bailouts. Monarch Airlines, Flybmi and Thomas Cook Group Plc all failed without government help in the past 2 1/2 years. But Flybe’s unique business profile in serving provincial cities made it a different proposition, especially with many of those areas key to Prime Minister Boris Johnson’s election win a month ago.
“The reviews we are announcing today will help level up our economy,” Chancellor of the Exchequer Sajid Javid said in the release. “They will ensure that regional connections not only continue but flourish in the years to come.”
While Flybe carried only 8 million passengers last year, versus almost 100 million at EasyJet Plc, it ranks No. 1 on U.K. domestic routes and provides links to London and the continent from cities spanning Belfast in Northern Ireland to Exeter in England’s far southwest and Inverness in the Scottish Highlands.
Cities Cut Off and Airports at Risk: What’s at Stake at Flybe
The British Airline Pilots’ Association said the government should “be applauded for stepping up to the plate,” after previously warning that if Flybe didn’t exist “it would have to be invented” to maintain crucial links and support the economy. A collapse would have effectively left some locations without an air service or reliant on rail journeys spanning many hours.
By contrast, Willie Walsh, chief executive officer of British Airways parent IAG SA, said the rescue amounts to “a blatant misuse of public funds,” with U.K. taxpayers picking up the bill for the “mismanagement” of Flybe by Virgin and backer Delta Air Lines Inc.
Johnson swept to victory in December in part by garnering the support of Brexit-voting former Labour-held seats in northern England and other areas away from the southeast, and has said his Conservative party needs to deliver economic growth there to hold on to those “borrowed” votes.
The prime minister said in a BBC interview earlier Tuesday that he understood “the importance of Flybe in delivering connectivity across the whole U.K.,” while acknowledging the deficiencies of transport infrastructure in some parts of the country.
Flybe was delisted in March after its purchase by Connect Airways for 2.2 million pounds ($2.9 million), with the consortium also providing 100 million pounds in rescue funding. The carrier, which employs about 2,400 people, had struggled for years with the narrow margins on regional routes, where demand is lower, together with fluctuating fuel prices and uncertainty around Brexit.
The carrier operates 68 planes on almost 140 routes serving 56 cities across the U.K. and Europe. Some of its flights, like a 130-mile service from Cardiff to Anglesey off the north Welsh coast, are among the shortest in the industry.
(Updates with details from U.K. government starting in second paragraph.)
--With assistance from Alex Morales and Jeremy Diamond.
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