Ryanair boss Michael O’Leary has threatened legal action over government support to keep Flybe operating.
The chief executive of Europe’s largest airline issued the warning in a strongly-worded letter to chancellor Savid Javid unless the government details the support given to Flybe and whether the Air Passenger Duty ‘holiday’ would be extended to other airlines including Ryanair, EasyJet and British Airways.
The government’s backing is believed to centre on giving the airline extra time to pay about £100 million of outstanding APD plus a review of regional connectivity and the air tax.
But O’Leary said Ryanair was “deeply concerned and shocked” by the Flybe rescue which “distorts fair competition between airlines, clearly constitutes illegal state aid and represents a badly thought out bailout of a chronically loss-making airline model in the UK”.
He dubbed the government’s intervention as a “misguided and unnecessary” state subsidy to “billionaires”, including Virgin Atlantic founder Sir Richard Branson, “who do not need a government subsidy to prop up their failed airline investments”.
O’Leary said: “If Flybe fails – as it undoubtedly will once this government subsidy ends – then Ryanair, Easyjet, BA and others will step in and provide lower fare flights from the UK regional airports, as we already have to make up for the recent failure of Thomas Cook Airways.”
The Connect Airways consortium, comprising Virgin Atlantic, Southend airport owner Stobart Group and Cyrus Capital behind Flybe, are thought to be providing up to £30 million in additional short-term funding as part of the deal with the government to prevent the regional airline from collapsing.
Stobart Group said it would provide £9 million of capital “with the funds drawn down only if required” and said a delay in gaining EU clearance and other “legacy issues” affected the consortium’s turnaround plans and Flybe required a further injection of funds “to ensure continued flying”.
O’Leary’s legal threat followed British Airways owner IAG filing a complaint to the EU with chief executive Willie Walsh criticising the government deal as a “blatant misuse of public funds”.
The latest developments came as it emerged that Connect Airways chief executive Mark Anderson, a former managing director of Virgin Holidays, denied that Flybe was being bailed out by government.
In a videolink address to staff seen by the BBC, he reportedly said: “We are in conversation with the government around a financial loan – a loan, not a bailout – a commercial loan, but that is the same as any loan we’d take from any bank.
“The government will not lend if they do not believe there is a credible plan. No-one is going to throw good money after bad.”
Anderson added: “Our shareholders invested an awful lot of money, believing they fully understood the state of the business they’d bought.
“The reality… is that we were in worse shape than even the shareholders thought we were.
“We went into the summer very unresilient in terms of our operation, with a weak fleet, with a lot of gaps in terms of people flying our aircraft, with huge payments being made to people to get them to work extra hours.”
A combination of higher costs, late flights, and compensation for delayed passengers meant the firm was losing money “hand over fist” for a time, he said.
“Three-quarters of the money the shareholders invested was gone before we even really started. That has hurt this business and more money is needed.”
However, by the beginning of January Flybe’s turnaround plan was working, with sales ahead of expectations.
“We are in a vastly different place than where we were six months ago,” he said.
“We are not making millions of profit at the moment but if we stick to the plan, and what we have to do, we will,” he said.
Anderson admitted this week’s news coverage had dented sales but said he believed customers would return quickly. But he said that there was a risk of a “self-fulfilling prophesy” if people kept talking the company down.
Meanwhile, Flybe today confirmed that its Heathrow-Newquay service is being moved to Gatwick from March 29 under a subsidised ‘public service obligation’ arrangement.
New Amsterdam flights are being introduced together with and increased frequency to Manchester as part of an eight-route network from the Cornwall airport.
The summer network from Newquay features up to 70 flights a week with other destinations including Belfast City, Birmingham, Edinburgh, Leeds Bradford and Southend.
Flybe interim chef commercial officer Oli Byers said: “I’m pleased that these very positive changes mark the beginning of a stronger, more resilient service for our customers travelling to and from Cornwall.
“It further strengthens our commitment to providing regional connectivity to destinations across the UK, Europe and beyond.
“As we complete our re-brand to Virgin Connect later this year, we look forward to delivering a really robust operation together with a great customer experience.”
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