Coronavirus finally clips Flybe’s wings

Coronavirus finally clips Flybe’s wings

The regional airline fell into administration in the early hours of 5 March 2020 as crunch talks with the government for a rescue deal failed, putting as many as 2,400 jobs at risk. These failed talks combined with the broader effect of coronavirus on the aviation industry finally caused the engines to cut out.

The regional airline was initially taken private by a consortium of Virgin Atlantic, Stobart Aviation and Cyprus Capital when it ran into trouble last year. Owing to difficult trading conditions over the last decade and having fallen behind on payments of an airline tax known as the Air Passenger Duty (APD), the company entered negotiations with the government on the terms of a possible rescue (see more here).

The government agreed that as part of the rescue it would review APD, although it could not grant a tax break to the airline as this could have breached EU state aid rules and existing UK tax policy. An agreement had been reached to partially defer some of Flybe’s tax liabilities and to provide some sort of loan in exchange for the consortium owning the airline to inject tens of millions of pounds. At the time, this announcement prompted fury from competitors such as Ryanair, Easyjet and British Airways.

However, negotiations over the terms of the loan failed as the government was unable to lend to Flybe on commercial terms since most of Flybe’s assets had mortgages. The government would not have had any collateral for the loan and an unsecured loan was out of the question. Finally, with coronavirus already leading to a fall in bookings as well as increased cancellations the airline was finally put into administration. 

The effect of the collapse is not just limited to those who will likely lose their jobs, but also to those regions dependant on Flybe. Some airports in Belfast receive the majority of their domestic flights from the airline, and other regions such as Cornwall depend heavily on the airline. Moreover, Flybe provides 40% of UK domestic flights.

There are also political implications because the government had pledged to do more for companies vital to ‘regional connectivity’ in the 2019 election, and some saw Flybe as a test to that commitment. 

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