Flybe rescue may include subsidies for some UK routes

Bloomberg

The UK government is considering subsidising some routes operated by regional airline Flybe as part of the rescue deal struck with the owners of the country’s biggest domestic carrier, according to a person with knowledge of the matter.
Any decision to grant Flybe routes so-called public service obligation status would come on top of a deferral of air passenger duty payments and a proposed government loan, said the person, who asked not to be identified discussing details not disclosed in the initial blueprint.
Only one Flybe service, from London Heathrow airport to Newquay in the far southwest of England, currently benefits from UK government aid through the PSO mechanism. Another, linking Cardiff with the island of Anglesey, is funded by the Welsh Assembly.
Prime minister Boris Johnson took the unusual step of coming to the aid of Flybe as it teetered on the brink of collapse. Johnson said he intervened because a loss of the airline would have left some of the most economically challenged parts of the country with diminished transport links, given the relative lack of suitable alternatives such as high-speed trains.
The Department for Transport “will lead the review and consider a number of options for ensuring that we continue to have good regional connectivity, including existing policy levers such as PSOs,“ it said in a statement to Bloomberg.
A representative for Virgin Atlantic Airways Ltd, part of the Connect Airways consortium that owns Flybe, declined to comment. A call to Flybe wasn’t immediately returned.
British Airways owner IAG SA said Flybe’s rescue had become a “communications fiasco,” in response to news on the likely addition of PSO routes.
“The sooner the government comes clean, the better,” it said. IAG has filed a complaint about the tax deferral to the European Union.
“We stand ready to discuss with the UK the compatibility of proposed public measures with EU state aid rules,” the European Commission said.
An evaluation of PSO designations will begin immediately, while a state loan to Flybe granted on commercial terms is likely to be finalised in coming weeks, said the person.
The APD deferral, which the government says concerns a debt of less than 10 million pounds, will apply for 60 to 90 days, according to the person.