Cabinet trio to thrash out £100m Flybe rescue

The business and transport secretaries will on Tuesday hold talks with Chancellor Sajid Javid about backing a rescue deal for Flybe that would defer a £100m tax payment until 2023.

Sky News has learnt that Andrea Leadsom and Grant Shapps will meet Mr Javid to discuss the proposed terms of a bailout of one of Britain’s largest regional airlines.

Insiders said that the government had informed Flybe‘s three shareholders that they would be required to inject “tens of millions of pounds” in fresh equity into the company as a condition of any deal.

Under the proposals, Flybe, which carries eight million passengers annually, would be allowed to defer this year’s estimated air passenger duty (APD) bill of £106m for three years.

Such a move would provide Flybe with the working capital it requires to survive the tough winter months and implement a turnaround plan drawn up last year when the airline was bought by a Virgin Atlantic-led consortium.

The business and transport secretaries were said on Monday to be “broadly willing” to support a deal with Flybe’s shareholders.

The provisional backing of Ms Leadsom and Mr Shapps for a support package suggests that the threat of insolvency for Flybe may be receding.

More from Flybe

However, people close to the process warned on Monday night that there was considerable urgency surrounding the talks between the owners of Connect Airways, Flybe’s parent, and the government.

“There is no guarantee that the company will be saved,” said one.

“The survival prospects have improved but it’s not out of the danger zone.”

A decision is expected to be taken about deferring Flybe’s APD liability during the course of Tuesday.

Whitehall sources say they are confident that such a move would not breach EU state aid rules or UK tax law, and that the primary consideration is an assessment of whether the company will ultimately repay the APD it owes.

Virgin Atlantic, Stobart Group and Cyrus Capital Partners, which collectively took control of Flybe’s assets last March, are understood to have resolved in principle to commit the capital being sought by the government as a condition of a rescue deal.

If an agreement turns out to be impossible, it would imperil the future of one of the UK’s most important airlines and threaten more than 2,000 jobs.

EY, the accountancy firm, has been placed on standby to act as administrator to Flybe.

Sources said that Flybe’s losses had escalated in the 10 months since it was de-listed from the London stock market and acquired by a consortium comprising Sir Richard Branson’s Virgin Atlantic, Stobart and Cyrus.

Credit card companies’ decision to retain more of the money paid by passengers for Flybe flights has exacerbated a cash-flow squeeze at the Exeter-based company, they added.

Flybe’s former chief executive Christine Ourmieres-Widener complained about the impact of APD on the airline shortly before she left last year.

“We think APD is definitely not supporting the growth of regional connectivity,” she said.

“Without APD we could grow more in the UK.”

The trade body for airlines has dubbed APD as “nothing but a tax on Global Britain”.

If Flybe is unable to stitch together a rescue deal, it would be the second major airline collapse in four months, following Thomas Cook Group’s implosion last September.

Monarch, another big carrier, collapsed two years earlier.

A decision to support Flybe, albeit indirectly, might prompt awkward questions to ministers about why the government was not prepared to prop up companies with larger workforces and passenger numbers.

Flybe operates about 75 aircraft and serves more than 80 airports across the UK and Europe.

In Britain, it has a significant presence at 25 airports including Belfast, Birmingham, Manchester and Southampton.

The consortium which took control of Flybe’s assets last year pledged to pump £100m into Flybe’s turnaround plan, with the airline due to be rebranded as Virgin Connect this year.

The regional airline had come close to outright collapse a year ago amid an acrimonious takeover battle that left shareholders fuming that their equity had been left almost worthless.

That came just months after Flybe’s board had rejected a 40p-a-share takeover bid.

The airline said: “Flybe continues to provide great service and connectivity for our customers while ensuring they can continue to travel as planned.

“We don’t comment on rumour or speculation.”

A government spokesperson said: “We do not comment on speculation or the financial affairs of private companies.”

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