Flybe’s rescue deal by the UK government has been openly criticized by IAG boss Willie Walsh. Th head of the airline group, which includes British Airways and Iberia, has labeled the government’s involvement as a “blatant misuse of public funds”, and has called upon Delta to step in a rescue its sister airline.
While the settlement of a government-led tax break for Flybe will come as great news for the airline’s 500,000 booked passengers and 2,300 employees, others are not so happy with the outcome. Outgoing boss of airline group IAG, Willie Walsh, has condemned the move by the UK government, calling it a “blatant misuse of public funds”.
Flybe is being allowed to defer its payment of Air Passenger Duty (APD), of as much as £106, in order to ensure its liquidity as an airline. As well as this, shareholders are pumping money into the cash strapped business, while the government promises a review on APD as applied to domestic UK flights.
However, IAG boss Walsh is not impressed. He is reported to have written to Transport Secretary Grant Shapps condemning the move, with the BBC quoting an excerpt that read,
“Prior to the acquisition of Flybe by the consortium, which includes Virgin/Delta, Flybe argued for taxpayers to fund its operations by subsidizing regional routes. Virgin/Delta now want the taxpayer to pick up the tab for their mismanagement of the airline.
“Flybe’s precarious situation makes a mockery of the promises the airline, its shareholders and Heathrow have made about the expansion of regional flights if a third runway is built.”
Changes will apply to all carriers
Having signed off on the agreement yesterday, Mr. Shapps has defended his actions stating that these changes were necessary to protect key routes. He also noted that any changes to APD would apply to all carriers, and not just Flybe. He told the BBC,
“The actions we have taken will support and enhance regional connectivity across the UK, so local communities have the domestic transport connections they rely on.
“Any changes implemented as a result of our reviews of air passenger duty and regional connectivity will apply to all airlines in the competitive aviation market.”
With the agreement in place, Flybe is not being ‘let off’ the charges usually levied under the APD requirements. Rather, it is being given around three months’ breathing room in order to make the payment, during which time it will need to secure its financial position for the future.
Business Secretary Andrea Leadsom also defended the decision to intervene in Flybe’s affairs, pre-empting criticism over the government’s lack of support for Thomas Cook last year. She said,
“The difference… between Flybe and Thomas Cook was that in the case of Thomas Cook it had huge amounts of debt, and any taxpayer’s money would simply be throwing good money after bad.”
She said Flybe remains a “viable business”, a characteristic which was instrumental in the government’s decision to lend support.
Connect Airways to inject capital too
As well as the reprieve on paying its APD requirements, Flybe will be receiving a cash injection from its new owners, Connect Airways. The consortium made up of Virgin Atlantic, Cyrus Capital and Stobart Air, are reported to be injecting around £20m of new money to the regional airline.
Mr. Walsh argues that Delta, a part-owner of Virgin Atlantic, should be stepping up to rescue Flybe, not relying on the UK government to wade in with a deal. Delta posted record profits just this week, and remains one of the most profitable airlines in the world.
What do you think? Should Delta be responsible for helping Flybe out? Or is it right that the UK government has formulated a rescue deal? Let us know in the comments.