The owner of British Airways has filed an official complaint to the European commission about the bailout of the regional airline Flybe, amid growing political and industry criticism of the government’s rescue deal.
IAG has written to the directorate general for competition saying the rescue announced on Tuesday night by ministers, which could include a £100m loan and deferral of an outstanding tax bill, contravenes state aid rules. Willie Walsh, the chief executive of IAG, had earlier described the deal as “a blatant misuse of public funds”.
IAG argues that taxpayers will be subsidising an airline that competes directly on BA and Aer Lingus routes. One of Flybe’s biggest shareholders is also the BA rival Virgin Atlantic, owned by Sir Richard Branson and the US airline group Delta.
The European commission said it was ready to discuss the bailout and warned that any state aid should not distort competition.
Air passenger duty, or APD, is a British tax on aviation, introduced in 1994. It is charged on each passenger on flights departing from the UK, and set according to the distance of their final destination and the class of travel.
It is intended to incentivise passengers to seek alternative arrangements from flying, which is the most carbon-intensive form of transport. By reducing demand for flights, it seeks to decrease carbon emissions from the air industry.
Destinations are grouped into two bands, above and below 2,000 miles from London, and charged at three rates – effectively for economy class, premium economy and business/first-class seats. All short-haul flights to Europe, including domestic, are charged in the same band, rising from £13 in economy to £78 in first class. A long-haul first-class flight now attracts APD of £528.
Airlines have long lobbied against the tax, particularly after the rates were doubled in 2007.
Flybe has argued that it is especially hard hit as the tax only applies to UK departures, and is therefore applied to each leg of a domestic return flight. That means, for example, that a return flight from Cardiff to Manchester is taxed at £26, while an international return flight from the UK to Moscow pays £13 in APD.
Long-haul flights from Northern Ireland are exempt from APD, as well as departures from remote parts of Scotland.
Arianna Podestà, a commission spokeswoman, said: “As with all member states, we stand ready to discuss with the UK the compatibility and proposed public measures with the EU state aid rules. Any state aid intervention needs to be designed so that competition is not distorted and a level playing field is maintained.”
A UK government spokesperson said: “The government has not given any state aid to Flybe.”
Opposition parties and rival airlines have demanded transparency and attacked the government for using taxpayer money to prop up the airline, which operates almost two in five domestic UK flights and employs more than 2,000 people. It carries 8.5 million passengers a year between 56 airports across the UK and mainland Europe, and is the main airline at regional airports including Belfast, Southampton and Exeter, its base.
Andy McDonald, the shadow transport secretary, said: “This is another taxpayer bailout for Richard Branson from the Tories. The government needs to come clean on the restructuring plan, which must include the trade unions, agreed as part of the deal.”
Munira Wilson, the Liberal Democrats’ transport spokesperson, said: “Boris Johnson’s decision to bail out Flybe is a misuse of taxpayers’ money to say the least. If Flybe is a failing business, then it is not the right business to run these routes.”
Other airlines also expressed dismay. Johan Lundgren, the CEO of easyJet, said: “What is clear is that taxpayers should not be used to bail out individual companies, especially when they are backed by well-funded businesses.”
Ryanair said: “We have already called for more robust and frequent stress tests on financially weak airlines and tour operators, so the taxpayer does not have to bail them out.”
Grant Shapps, the transport secretary, defended the deal and rejected competition concerns.
“The actions we have taken will support and enhance regional connectivity across the UK, so local communities have the domestic transport connections they rely on,” said Shapps. “Any changes implemented as a result of our reviews of air passenger duty and regional connectivity will apply to all airlines in the competitive aviation market.”
In a written statement to parliament, Shapps said the government was first notified of Flybe’s difficulties on 11 January and had since “worked intensively with the company to understand their financial position and explore options”.
Details of the deal have not been disclosed but Sajid Javid, the chancellor, said Flybe shareholders had also been persuaded to commit more funds by the promise of a review of air passenger duty (APD) before the March budget.
A levy of £13 a passenger is imposed on all short-haul economy flights taking off from UK airports. Flybe argues that this hits them particularly hard, as both legs of a domestic return flight are charged, while APD is only imposed on the outbound leg of an international journey.
Labour and the Lib Dems condemned possible cuts to the levy. McDonald said: “Any cuts to air passenger duty will encourage the small number of wealthy frequent flyers who are responsible for 70% of all trips to fly even more, increasing carbon emissions. A review into slashing aviation tax makes a mockery of the government’s climate commitments.”
EasyJet, which has previously led airline calls to abolish APD, proposed that the government’s review of the levy should consider tying the charge to carbon emissions rather than the current basic banding system. Lundgren said: “We would prefer to either see it removed or reformed to incentivise reductions in emissions from flying.”
Paul Maynard, the aviation minister, told MPs on Tuesday that domestic flights accounted for just 4% of UK aviation’s overall emissions – a fact that may persuade the government that a reduced tax band for internal flights is feasible.
