The Government has struck a deal with the airline’s shareholders after crisis talks over the future of Flybe amid fears 2,000 jobs could be lost if the company collapsed
Ministers agreed to work with Flybe to figure out a repayment plan for a significant tax debt that is thought to top £100m.
Meanwhile, the firm’s owners have agreed to pump more money into the loss-making airline. Business Secretary Andrea Leadsom said the deal would keep the company operating.
More than 2000 jobs in the UK were at risk if the company was to follow Thomas Cook into collapse.
Flybe would be able to hold on to £100 million in air passenger taxes on domestic flights to free up its cash flow.
By applying the move to all other airlines too, the government would avoid breaching EU state aid rules.
Flybe’s owners would be required to invest tens of millions of pounds in fresh equity into the company as a condition of any deal, the reports added.
However environmental groups reacted with anger at the proposal.
If Flybe collapses, it would be the second major UK airline to fold in recent months after Thomas Cook went bust in September.
Flybe carries about eight million passengers a year from airports including Birmingham, Manchester, Southampton, Belfast City, Cardiff and Aberdeen, to the UK and Europe.
Urgent review to cut taxes on flying
Transport Secretary Grant Shapps said the government had worked closely with Flybe to ensure its planes were able to continue flying.
He said the Department for Transport would conduct an urgent review that will seek to assess how it can improve regional connectivity and ensure airports continue to function across the country.
But the prospect of cutting taxes on flying has angered climate activists who argue that flying is the most carbon intensive mode of transport.
Green Party MP Caroline Lucas said reducing air passenger duty was “utterly inconsistent with any serious commitment” to tackle climate change. “Domestic flights need to be reduced, not made cheaper,” she wrote on Twitter.
Aviation already subsidised – no tax on fuel
Domestic flights need to be reduced, not made cheaper https://t.co/Ak5e2BfetW
— Caroline Lucas (@CarolineLucas) January 14, 2020
Greenpeace UK policy director Dr Doug Parr earlier called the proposal to defer air passnenger tax payments “a poorly thought out policy.”
He said: “The Government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel cheaper the next.
What is air passenger duty?
Air passenger duty, or APD, is the tax applied to all passenger flights from UK airports – except for the Scottish Highlands.
The amount depends on your flight – passengers on domestic flights pay £13 in APD for each journey. Longer flights and premium tickets get taxed more.
It was first launched in 1994, and was initially just £5 for either a one-way or return flight within the UK. But European Union rules meant that it had to be applied to both legs of any given journey.
The tax has also outstripped inflation by more than 50 times since then. The tax currently brings in about £3.6bn a year, and is set to rise again in April.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said it was “one of the most successful stealth taxes of the past 25 years”.
Why would the government cut it to help Flybe?
Despite being against cash bailouts, Boris Johnson acknowledged the importance of Flybe for domestic UK transport this morning. Cutting APD would be a way to help the carrier without giving it any cash.
Therefore, government ministers will meet today to discuss reducing the tax back down to 1995 levels – just £5 each way, meaning an £8 reduction on every flight.
Flybe has long criticised APD, because it disproportionately hits its customer base because they have to pay it each time they set off from a UK airport.
Meanwhile, most passengers at other airlines only take off in the UK, before their return journey takes off from a foreign country, meaning they only pay one-way.
Mainland UK doesn’t understand how vital #Flybe is to Northern Ireland. As someone who travels with them frequently for work, Flybe’s collapse would be a disaster for the NI economy. If this happens, Belfast City Airport will have only 4 flight routes. F O U R.
— Jason (@JasonH27) January 13, 2020
Why are people opposed to it?
Politicians, transport industry leaders and climate activists have pointed out that cutting APD for Flybe would mean cutting it for the whole industry.
This would be bad for the environment, because it would make it cheaper to fly between cities in the UK, meaning more people would likely take the most environmentally-damaging form of domestic transport.
Meanwhile, the government increased rail fares by 2.7 per cent at the start of the year – above inflation measured at the consumer price index of 2.1 per cent. Rail transport is more environmentally friendly than flying.
Greenpeace UK policy director Dr Doug Parr said: “This is a poorly thought out policy that should be immediately grounded.
“The government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel cheaper the next.
“Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need if we’re to cut climate-wrecking emissions from transport.