Flybe has agreed a rescue deal with its shareholders and the government to stay in operation after it was reportedly on the verge of collapse earlier this week.
Sky Newsreported yesterday that the airline had been in rescue talks on Sunday evening, less than a year after it was acquired by Connect Airways for £2.8 million.
Chancellor Sajid Javid hinted that the government could consider cutting domestic Air Passenger Duty (APD) in an effort to help the airline secure a rescue deal.
Now Flybe's shareholders at Connect Airways, a consortium made up of Virgin Atlantic, Stobart Group and Cyrus Capital, have agreed to inject more cash into the loss-making airline, while the government has committed to reviewing APD, which could ease the burden of a £100 million tax bill owed by the carrier.
Business secretary Andrea Leadsome tweeted: "Delighted that we have reached agreement with Flybe's shareholders to keep the company operating, ensuring that UK regions remain connected."
Lucien Farrell, chairman of Connect Airways, commented: "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."
Meanwhile, transport secretary Grant Shapps has said the government will conduct a review to determine how it can improve regional connectivity and ensure airports across the UK continue to operate.
Flybe, which is due to be rebranded as Virgin Connect, is one of Europe’s largest regional carriers and its network includes more than half of UK domestic flights outside of London. Its services are often seen as vital for British passengers, with some saying the alternative option of train travel between cities is unreliable and more expensive.
At some airports Flybe operates the vast majority of flights, including Angelsey, where it is the only carrier providing services, and Belfast City, where it accounts for 79.5 per cent of flights.
Brian Strutton, general secretary of pilots union BALPA, commented: “If Flybe didn’t exist, it would have to be invented. The airline plays an incredibly important role connecting the regions and nations of the UK and onwards to Europe.
“The importance of that regional connectivity cannot be overstated. Cities such as Exeter, Southampton, Birmingham and Cardiff rely extremely heavily on Flybe for their air links and for their economic prosperity. Northern Ireland, the Channel Islands and the Isle of Man would also suffer hugely if Flybe’s routes suddenly disappeared."
Flybe has long been calling for a reduction in APD, with former CEO Saad Hammad saying in 2016 that the levy has a “disproportionate impact” on regional passengers.
However, if a cut in domestic APD is agreed the government risks facing criticism from environmental groups, as the move could be seen as not in keeping with the UK’s ambition of reaching net zero emissions by 2050.
Reducing the tax would also cut a large chunk of cash from the government’s coffers. The fee is expected to generate £3.7 billion this financial year, according to the Office for Budget Responsibility.