Flybe has renewed a plea to ministers to cut aviation taxes in next month’s Budget, warning that most of its routes were likely to be abandoned if the company collapsed. Flybe is understood to have sufficient financial resources to keep it operating until the end of March, but the company’s existence is likely to be imperilled at that stage if no deal has been secured.
Mark Kleinman news.sky.com
Flybe has renewed a plea to ministers to cut aviation taxes in next month’s Budget, warning that most of its routes were likely to be abandoned if the company collapsed.
Sky News has obtained a letter sent by Mark Anderson, chief executive of Flybe’s parent company, Connect Airways, hailing the “crucial role” played by the airline in ensuring regional connectivity across the UK.
In the letter to the new business secretary, Alok Sharma, Mr Anderson says he is “doing everything possible to secure our long-term future – addressing our cost base and working with our key partners including UK airports that depend on our survival”.
His latest plea comes weeks before Rishi Sunak, the new chancellor, presents his first Budget, with reforms to Air Passenger Duty (APD) promised by Sajid Javid, Mr Sunak’s predecessor.
A source close to Flybe said that Mr Anderson’s letter had been prompted by concerns that the Treasury was “backsliding” away from an overhaul of APD.
The regional airline, which is responsible for almost 40% of all domestic UK flights and carries more than 9 million passengers annually, believes it is unfairly penalised by the APD system because the duty is levied on both legs of a regional flight.
Mr Anderson told the business secretary that 88 of its 120 routes are not flown by any other airline.
“If Flybe were to cease trading, only a small number of our routes are likely to be taken up by another carrier, almost certainly at reduced frequencies,” he wrote.
“Over 50% of our customers are business travellers who depend on a regular, convenient schedule.”
Flybe also employs more than 2,000 people.
The letter to Mr Sharma was sent last Friday, with separate negotiations between Connect and the government about a £100m loan on commercial terms appearing to have stalled.
Sky News revealed earlier this month that government officials were to present a range of options for the loan during talks with the company and its shareholders, led by Sir Richard Branson’s Virgin Atlantic.
One idea is for the government’s loan to rank above that of existing investors’ capital, while another would give the taxpayer security over many of the airline’s remaining unencumbered assets.
A third idea, comprising warrants that would convert the government loan into equity in a rejuvenated Flybe, is unlikely to materialise.
Flybe is understood to have sufficient financial resources to keep it operating until the end of March, but the company’s existence is likely to be imperilled at that stage if no deal has been secured.
“The likelihood of survival depends firstly on the APD reform,” said one source on Friday.
Contingency plans that would allow the government to continue operating Flybe routes seen as critical to preserving vital regional connections are being drawn up, according to rival airline executives.
In his letter to Mr Sharma, Mr Anderson said that Flybe had proposed “introducing a new domestic APD band set at £6.50 (half the current band A rate)”.
He added that adding new Public Service Obligation (PSO) routes, which receive public subsidy to make them viable, was also necessary.
Mr Anderson said Connect had “proposed that government apply PSOs to a range of existing intra-regional routes, providing immediate support for their continued viability through a new fund”.
The Flybe chief has insisted that the company is not seeking a bailout, and any deal agreed with ministers would require the airline’s shareholders to commit tens of millions of pounds in new equity.
However, the talks have sparked controversy across the industry, with Ryanair and British Airways’ parent, International Airlines Group, threatening legal action against the government for breaching state aid law.
Earlier this month, BA said it would step in to operate a Heathrow-Newquay route recently – and contentiously – vacated by Flybe.
Heathrow Airport’s chief executive has also intervened in the row over Flybe’s future, demanding urgent government action to preserve “lifeline routes” from Britain’s busiest airport.
Michael O’Leary, Ryanair’s chief executive, accused the Treasury of being “blindsided by billionaires”, asking him: “If these billionaire shareholders are not willing to put their hand in their own deep pockets to bail out the loss-making Flybe, then why is your government and HMRC [the tax authorities] giving them a bailout?”
The restructuring experts Alvarez & Marsal have been drafted in to advise the government on the terms of any loan.
Flybe’s inability to access a loan from commercial lenders has, however, provoked criticism that a loan from the government could be on such terms.