Why Did Flybe Get Rescued While Thomas Cook Was Left To Fail?

Flybe was on the receiving end of a dose of goodwill from the UK government last week, when it was allowed a bit of breathing room on its APD payment. While its unusual for the government to step in on situations involving private companies, it’s not unheard of. Remember the banks in 2008? And British Steel last year?

The big question remains – has Flybe got what it takes to come back from this near-death experience? And should passengers be worried about booking? Simple Flying caught up with Chris Horner, Insolvency Director at Business Rescue Expert to find out.

Flybe aircraft
Why did Flybe get rescued? Photo: Flybe

Why did the government save Flybe?

A recurring theme rippling throughout the UK community is why the government stepped in at all. Why, when it allowed Thomas Cook to fail, did it see fit to intervene and take steps to prevent a failure of Flybe?

We asked Chris Horner, Insolvency Director at Business Rescue Expert for his take on the situation. He told us,

“The major difference here is the scale of the problem. Thomas Cook were asking the government to inject a loan of £250m, therefore risking existing taxpayer funds. Flybe requested three months to pay a sum allegedly less than £10m.

“Time to pay agreements are common and often decided on a commercial basis, but are unusual for APD. In addition, a number of airports are reliant on Flybe flights and could close down if Flybe were allowed to fail.

“Therefore an intervention of 4% of the size requested by Thomas Cook and not advancing new money, but deferring tax money that would be lost otherwise in insolvency appears to make economic sense.”

Thomas Cook
Thomas Cook required a much bigger bailout. Photo: Pixabay

Can Flybe come back from this situation?

The big question to be asked is whether Flybe will be able to stand on its own two feet once the APD ‘holiday’ is over. Clearly, there are some big financial issues at the carrier; is three months enough to solve those problems, or can we expect to see it on the brink again?

Chris Horner shared his opinion, telling us,

“It appears with the support of Virgin, the company could survive, however the next step will be whether the government makes any changes to APD in the next budget. Any reduction could however upset rail firms and the green agenda.”

Flybe will soon be Virgin Connect. Photo: Flybe

While it’s true that Flybe has some strong backing in the form of Connect Airways, its new owner didn’t seem too keen to put their hands in their pockets when the firm was up against it. Perhaps, once the rebranding to Virgin Connect has happened, we’ll see more support from the likes of Virgin Atlantic.

The outcome of the government’s investigation into APD will be interesting to watch also. Chris is quite right; the railways and flight shamers won’t want any changes to the policies that could encourage more short flights to be taken. The likelihood is that APD, in one form or another, will continue to hammer the profitability of airlines like Flybe.

What should passengers know?

Clearly, the well-publicized hiccup with Flybe’s finances has rattled some passengers, with many asking whether it’s safe to book flights months in advance. Here’s what Chris advised passengers to keep in mind:

“I think the usual message applies for anyone buying any product for future use. Protect yourself by buying using a credit card so a chargeback can be claimed if the product/service is not delivered.”

Clear and good advice from our expert there. Are you booked to fly on Flybe in the near future? How confident are you in the airline’s longevity? Let us know in the comments.

Chris Horner is a Licensed Insolvency Practitioner at Business Rescue Expert. His 10+ years experience as a practitioner in financial services have made him an expert in risk management, bankruptcy, liquidation, and debt restructuringBusiness Rescue Expert is a leading independent insolvency practice, specialising in business rescue advice.