Sajid Javid has dismissed airline chiefs’ complaints about the government-backed rescue of Flybe, insisting that the regional carrier has not received state aid to secure its future.
In a letter obtained by Sky News, the chancellor told Ryanair chief executive Michael O’Leary that an agreement between Flybe and the taxman to defer Air Passenger Duty (APD) was a “standard “Time to Pay” arrangement…because of their short-term difficulties”.
Mr Javid’s response to Mr O’Leary, which was sent on Friday morning, came a week after Ryanair threatened to sue the government for breaching competition and state aid rules.
Mr O’Leary had demanded that Flybe’s “APD holiday” be extended to its competitors across the aviation sector.
The chancellor’s letter is likely to infuriate both Mr O’Leary and Willie Walsh, the boss of British Airway’s parent company, because of his insistence that Flybe’s financial difficulties are “short-term”.
“Time to Pay arrangements are open to all businesses and more than 700,000 such arrangements were in place with business and individuals last year,” Mr Javid wrote.
“These arrangements seek to support viable businesses with genuine short-term difficulties and ensure that taxes owed are paid in full.
“Indeed, were Ryanair to ever get into short-term difficulties, the company could ask for such an arrangement.
“These actions by HMRC do not constitute state aid, and they are not taken forward where HMRC considers a company to have significant and sustained financial difficulties.”
Mr Javid’s characterisation of the situation is expected to trigger an angry response from Flybe’s rivals, because the airline was only saved from collapse a year ago by an unconventional sale of its assets – rather than its listed holding company – to a consortium led by Sir Richard Branson’s Virgin Atlantic.
Neither the chancellor’s letter, nor an official Treasury statement last week, made reference to the negotiations about a state loan.
Mr Javid’s letter added that he was unable to disclose further details of financial assistance to Flybe because “ministers do not have access to taxpayer confidential information” – despite the fact that the company had approached the government for assistance.
It has struggled to deal with industry headwinds for many years, but is seen as a vital player in the UK domestic aviation sector.
Treasury officials are frustrated at the perception that the government has orchestrated a “bailout” of Flybe, even though they concede that a state loan to the company – albeit on commercial terms – may eventually form part of the wider aid package.
Ministers have also promised to reassess the Air Passenger Duty regime in time for the Budget in March.
A separate review of “regional connectivity” is likely to result in more of Flybe’s domestic routes being re-designated to allow them to benefit from a form of state subsidy.
Flybe, which carries 8 million passengers each year and serves 25 UK airports, averted immediate collapse by securing additional funding from its owners last week.
Flybe’s immediate parent company is Connect Airways, a consortium whose shareholders are Virgin Atlantic, Stobart Group and Cyrus Capital Partners.
Mr O’Leary wrote to Mr Javid on 16 January warning that unless he clarified details of government assistance to Flybe within seven days, Ryanair would take legal action against it “for breach of UK and EU competition law, and breach of state aid rules”.
That action is now expected to be forthcoming, although Ryanair could not be reached for comment on Friday morning.
Flybe’s rescue removed the immediate threat to 2,400 jobs at the Devon-based airline, even as the accountancy firm EY had been preparing to step in as administrator.