Flybe lands tax break in last-ditch government rescue
HMRC is to defer some of Flybe's tax liabilities as part of a last-ditch rescue deal, Sky News understands.
Wednesday 15 January 2020 05:44, UK
The struggling airline Flybe has averted collapse after reaching a deal with government that includes a tax holiday and the injection of tens of millions of pounds by its owners.
Sky News understands that HM Revenue & Customs (HMRC) agreed during talks on Tuesday to defer a substantial part of the regional airline's outstanding tax liability.
The agreement - reached between Flybe parent Connect Airways and the government following hours of negotiations - will remove the immediate threat to 2,400 jobs at the Devon-based carrier.
Sources said that discussions about a government loan to Flybe were continuing and could take some time to finalise.
Ministers have also agreed to conduct a review of Britain's regional connectivity, overseen by officials at the Department for Transport, while the Chancellor, Sajid Javid, will examine reforms to the way that Air Passenger Duty (APD) is applied to domestic flights.
Confirming the deal, Andrea Leadsom, the business secretary, tweeted: "Delighted that we have reached agreement with Flybe's shareholders to keep the company operating, ensuring that UK regions remain connected.
"This will be welcome news for Flybe's staff, customers and creditors and we will continue the hard work to ensure a sustainable future."
The news came after 48 hours in which Flybe had teetered on the brink of collapse, with the accountancy firm EY placed on standby to oversee a potential administration.
Grant Shapps, the transport secretary, added his endorsement of the rescue package, tweeting: "Delighted we've been able to work closely with Flybe to ensure Europe's largest regional airline is able to continue connecting communities across Britain."
He added that the DfT would launch an "urgent review into how we can level up the country by strengthening regional connectivity".
Ms Leadsom and Mr Shapps met Mr Javid earlier on Tuesday to urge him to back a bailout of the struggling airline, which is owned by a consortium led by Sir Richard Branson's Virgin Atlantic.
Flybe carries more than eight million passengers a year and plays an important role in connecting cities across the UK, such as Belfast, Norwich, Southampton and Bristol.
One source suggested that the tax element of the rescue deal involve a rolling three-month deferral of Flybe's APD bill, although this remained unconfirmed by the government or the airline.
An official announcement issued by the Treasury made no reference to the tax-related assistance to Flybe.
Mr Javid said: "I welcome Flybe's confirmation that they will continue to operate as normal, safeguarding jobs in UK [sic] and ensuring flights continue to serve communities across the whole of the UK.
:: Listen to the Daily podcast on Apple Podcasts, Google Podcasts, Spotify, Spreaker
"The reviews we are announcing today will help level up our economy.
"They will ensure that regional connections not only continue but flourish in the years to come - so that every nation and region can fulfil its potential."
The rescue package - which includes its owners beginning to inject more than £20m into the business - will provide Flybe with the working capital it requires to survive the tough winter months and implement a turnaround plan drawn up last year.
Connect Airways' other shareholders are Stobart Group and Cyrus Capital Partners, which are understood to have expressed reservations in recent weeks about committing further funding to the loss-making business.
While there will be relief that thousands of jobs have been saved, the deal will raise renewed questions that the government was not sufficiently motivated to help save much larger British airlines, including Monarch, which collapsed in 2017, and Thomas Cook, which went bust last September.
In Britain, Flybe 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 its turnaround plan, with the airline due to be rebranded as Virgin Connect later 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.
Mark Anderson, Flybe's chief executive, said: "Flybe is made up of an incredible team of people, serving millions of loyal customers who rely on the vital regional connectivity that we provide.
"This is a positive outcome for the UK and will allow us to focus on delivering for our customers and planning for the future."
Lucien Farrell, Connect Airways' chairman, added: "We are very encouraged with recent developments, especially the government's recognition of the importance of Flybe to communities and businesses across the UK and the desire to strengthen regional connectivity.
"As a result, the shareholder consortium has committed to keep Flybe flying with additional funding alongside government initiatives."