A cut in Air Passenger Duty on all domestic flights is reportedly being sought as part of a rescue plan for regional airline Flybe.
Chancellor Sajid Javid is to meet heads of the business and transport departments to discuss lowering the levy, according to the BBC.
The change would allow Flybe to defer a tax bill and implement a rescue scheme
The government would avoid breaching EU state aid rules by applying the air tax reduction to the whole sector
Comment: Flybe – a good deal? [March 19]
It could also improve regional connectivity, a key Conservative manifesto pledge
A possible deal over APD could see Flybe defer a payment of more than £100 million for three years, Sky News reported.
However, the airline’s three shareholders – Virgin Atlantic, Stobart Group and Cyrus Capital Partners – would be required to inject “tens of millions of pounds” in fresh equity into the airline as a condition of any deal.
The Exeter-based carrier would then potentially have time to set up turnaround plan, financed by the consortium which rescued Flybe a year ago and wants to see it rebranded as Virgin Connect.
It would also secure more than 2,000 jobs at the airline which are at risk if the airline fails.
Reports today pointed to a likely government bailout with business secretary Andrea Leadsom and transport secretary Grant Shapps said to be “broadly willing” to back a deal with Flybe’s shareholders.
The proposal is expected to be discussed at meetings between the Treasury, the Department for Transport and the Department for Business scheduled for later today following behind the scenes government talks over the weekend.
Prime minister Boris Johnson told BBC Breakfast: “It is not for the government to step in and save companies that simply run into trouble.
“But be in do doubt, we see the importance of Flybe delivering connectivity across the whole United Kingdom.”
He added: “I can’t go into commercially confidential discussions. But we are working very hard to do what we can.”
The British Airline Pilots Association last night called on the government to do “whatever it takes” to ensure Flybe carries on connecting the UK regions. The union warned that the UK cannot afford to lose another airline following the collapse of both Monarch and Thomas Cook.
Flybe continued to stay tight-lipped about it future, repeating a statement issued on Monday which said that “Flybe continues to provide great service and connectivity for our customers while ensuring they can continue to travel as planned. We don’t comment on rumour or speculation”.
And chief executive Mark Anderson emailed staff to say: “All my energy, and that of our leadership team, is very focused on continuing to turn Flybe, soon to be Virgin Connect, around and deliver the heartfelt service that our customers expect.
“I do appreciate that the headlines some of you have already read are disturbing but I want you to know that we are determined to do everything we can to make this work.”
APD, which is expected to bring in £3.7 billion to the government this financial year, is levied on all passenger flights from UK airports, excluding Northern Ireland and the Scottish Highlands and Islands region.
The amount depends on the destination and class of travel. Under current rules, passengers on domestic flights pay £13 in APD for a single journey, with higher rates for longer flights and premium cabins.
A group of local councils in Devon, where Flybe is based, said: “We are aware that certain aspects of national policy, notably the air passenger duty regime in relation to domestic flights, has a significant impact on the company’s business model.”
East Devon MP Simon Jupp tweeted: “I have spoken with Flybe and the secretary of state for business, energy & industrial strategy following rumours about the airline. Flybe is a major part of life in Devon, providing votal jobs and transport which I will always stand up for.”
Flybe came close to collapse a year ago but was rescued by Virgin Atlantic, Southend airport-owner Stobart Group and hedge fund Cyrus Capital Partners.
They paid £2.8 million for the airline and agreed to invest £100 million in the loss-making business.
Balpa general secretary Brian Strutton said: “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.
“On top of that Flybe has over 2,400 dedicated and loyal staff members, including pilots, many of whom have been with the company for a long time, and none of whom deserve to lose their job over years of management failures. Plus the airline serves as a skills pipeline for the rest of the UK aviation sector.
“We understand that talks are ongoing. The government must recognise that the UK cannot afford to lose yet another airline, and the markets that Flybe serves cannot afford to lose their air connections which help businesses thrive.
“So we urge the government to take every possible action to keep Flybe flying.”
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