Flybe saved after ministers agree a government loan + deferral of APD, and review of APD on domestic flights

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Flybe saved after ministers and investors seal rescue deal

Treasury’s pledge of tax review and delayed HMRC bill reportedly pushes shareholders to commit more cash

The immediate future of Flybe was secured on Tuesday night after ministers agreed a rescue deal with shareholders to keep Europe’s largest regional carrier flying.

 

The package of measures includes a potential loan in the region of £100m and/or a possible short-term deferral of a £106m air passenger duty (APD) bill, plus a pledge to review taxes on domestic flights before the March budget.

After the spectre was raised of another UK airline failure, Flybe’s owners Connect Airways – a consortium led by Virgin Atlantic – were persuaded to commit millions more to cover ongoing losses.

The government is still in negotiations to finalise any loan to Flybe, and although Treasury sources denied reports that it had agreed to defer outstanding APD, it is understood that HMRC could allow the airline a short-term extension to settle its debt.

The deal was condemned by British Airways’ owner IAG as “a blatant misuse of public funds”. Chief executive, Willie Walsh, accused Virgin of “wanting the taxpayer to pick up the tab for their mismanagement of the airline”.

Any government loan would also attract EU commission scrutiny for breaching state aid. However, the EU approved loans made last September by the German government to save Condor, a subsidiary of the Thomas Cook Group, when the UK allowed its sister airline to go bust.

The Treasury will also face the wrath of environmental groups after it announced a review of APD, a tax that adds £26 per passenger to all Flybe domestic return flights, to “ensure regional connectivity is strengthened while meeting the UK’s climate change commitments to meet net zero by 2050”.

An additional review has been promised to examine how else regional transport connectivity can be improved. The Treasury said: “In light of these discussions Flybe have confirmed they will continue to operate as normal, preserving flights to airports such as Southampton, Belfast and Birmingham.”

Long-haul flights from Northern Ireland are exempt from APD, as well as departures from remote parts of Scotland.  

The chancellor, Sajid Javid, said: “I welcome Flybe’s confirmation that they will continue to operate as normal, safeguarding jobs in UK and ensuring flights continue to serve communities across the whole of the UK.

“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.”

Lucien Farrell, chairman of Connect Airways – the parent company of Flybe – said: “We are very encouraged with recent developments, especially the government’s recognition of the importance of Flybe to communities and businesses across the UK. As a result, the shareholder consortium has committed to keep Flybe flying with additional funding alongside government initiatives.”

Flybe’s chief executive, Mark Anderson, 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.”

The transport secretary, Grant Shapps, said his department would undertake “an urgent review into how we can level up the country by strengthening regional connectivity”. He said it would look at all the options to ensure airports could continue to play an important role in driving economic growth.

The deal came after a day when the prime minister, Boris Johnson, pledged that the government was “working very hard to do what we can” for Flybe and avert a further airline collapse so soon after Thomas Cook. The Conservatives had committed in their manifesto to improve regional connectivity.

The pilots union, Balpa, welcomed the news. General secretary Brian Strutton said: “This is good news for 2,400 Flybe staff whose jobs are secured and regional communities who would have lost their air connectivity without Flybe.

“The government is to be applauded for stepping up to the plate to help one of the few remaining independent UK airlines and a vital one at that.”

The company’s pleas for help to survive the winter came less than a year after it was taken over by a consortium led by Virgin Atlantic, with Stobart and Cyrus Capital, after posting recurring losses of around £20m per year.

Flybe has long struggled financially, and the fall of sterling since the 2016 EU referendum has piled additional pressure on UK airlines, with major costs such as fuel incurred in US dollars.

The airline has argued it is particularly hard-hit by APD, which is charged on each passenger on a flight taking off in the UK. While all short-haul economy flights, including domestic, are charged at the same rate – £13 – the tax is applied to each leg of a domestic return flight. That means, for example, that a return Flybe flight from Cardiff to Manchester is taxed at £26, while the duty on a Glasgow to Malaga return costs half that.

Potential moves to ease APD were condemned by environmental groups. The MEP for South West England – a constituency that includes Flybe’s Exeter home – Molly Scott Cato of the Green party, said it was “absurd to suggest that we should provide a further boost to the aviation industry”. She highlighted that routes deemed socially necessary could be subsidised under EU rules – Flybe’s Newquay to London route is already funded with state aid.

Greenpeace UK’s chief scientist, Doug Parr, said: “The government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel cheaper the next. Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need if we’re to cut climate-wrecking emissions from transport.”

Flybe flights were operating as normal on Tuesday.

https://www.theguardian.com/business/2020/jan/14/flybe-saved-after-successful-last-ditch-talks

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More on APD – from AirportWatch:

1. APD was introduced in 1994 by Ken Clarke, the then Chancellor of the Exchequer, not as an environmental tax but because he considered the aviation industry to be lightly taxed compared to other sectors, largely arising from its exemption from fuel duty and VAT.

2. It was initially set at £5.00 for short haul economy travel, which accounts for more than three quarters of all air travel. In 1997 Ken Clarke doubled APD to £10.00 for short haul economy flights.

3. Gordon Brown halved the short haul economy rate of APD in 2001, put it back up again to
£10.00 in 2007 and Alistair Darling raised it to £11.00 in 2009. George Osborne increased it to £12.00 in 2010. There was no increase in 2011 but it was raised to £13.00 in April 2012. Thus, for the vast majority of passengers APD has increased by just £3.00 (30%) over the past 15 years.

4. APD is payable only on departure from a UK airport and so the basic Band A rate of £13.00 is for a round trip to an overseas destination. APD is however payable on both legs of a domestic round trip within the UK.

5. APD raised £2.6 billion for public finances in 2011/12 and this is planned to increase to £3.9 billion by 2015/16. APD would, however, need to rise to four times its current level to offset the value of the industry’s exemption from fuel duty and VAT. If airlines paid the same level of fuel duty and VAT as road users, the cost to the aviation industry would be around £10.5 billion a year.

6. Not only do airlines pay no VAT on fuel, they are exempt from VAT on everything they buy
relating to the provision of air transport services. Mostly, VAT is not charged in the first place; aircraft and aviation fuel, for example, are zero rated. However, where VAT is charged, the airlines claim this back and in 2010/11, HMRC paid UK airlines a VAT rebate of £583 million (net).

See more at  http://www.airportwatch.org.uk/air-passenger-duty/ 

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See earlier: 

Flybe saved after ministers agree a loan and deferral of APD, and review of APD on domestic flights

The immediate future of Flybe was secured on 14th January evening, after ministers agreed a rescue deal with shareholders to keep the loss making regional airline flying.  The package of measures includes a potential loan in the region of £100m and/or a possible short-term deferral of a £106m air passenger duty (APD) bill to the Treasury, to help it sort out its debts Also a pledge to review APD on domestic flights before the March budget. Flybe’s owners Connect Airways – a consortium led by Virgin Atlantic – were persuaded to commit millions more to cover ongoing losses. The government is still in negotiations to finalise any loan to Flybe.  The deal was condemned by IAG as “a blatant misuse of public funds” and Virgin “wanting the taxpayer to pick up the tab for their mismanagement of the airline”. Moves to cut APD on domestic flights are totally at odds with any serious attempt to cut CO2 emissions from aviation, as most UK domestic trips can be made on (lower CO2) rail routes. Air travel is already subsidised, by paying no VAT or fuel duty. Some routes deemed socially necessary could be subsidised under EU rules – Flybe’s Newquay to London route is already funded from taxpayers.

Click here to view full story…

Any plans by UK government to remove APD on domestic flights would be unhelpful on CO2 emissions

Responding to the news that Boris Johnson’s Tory government is considering dropping all APD on domestic flights (just cutting it for Flybe would not be legal, for competition reasons) groups that understand about the need for cuts in carbon emissions reacted with dismay (to put it politely). Doug Parr, chief scientist at Greenpeace, commented: “This is a poorly thought out policy that should be immediately grounded.  The Government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel – flying – cheaper the next. Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need if we’re to cut climate-wrecking emissions from transport. The aviation sector has got away for years with increasing its carbon footprint. The last thing we need is another incentive for them to pollute more.”  Caroline Lucas commented on Twitter: “Addressing #Flybe problems by reducing #APD on all domestic flights is utterly inconsistent with any serious commitment to tackle #ClimateCrisis. Aviation already subsidised – no tax on fuel. Domestic flights need to be reduced, not made cheaper.”  Jenny Bates at Friends of the Earth said on Twitter: “APD cut on domestic flights would be “unacceptable & reckless” ⁦we at  @friends_earth ⁩ say-we must cut aviation emissions not encourage them.”

Click here to view full story…

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