The Government taking a stake in struggling regional airline Flybe (BE/BEE) is one option being considered as its discusses the options with the airline’s owners, Connect Airways Ltd and the European Commission.
It recently emerged that the Government has been considering loaning the airline £100m of taxpayers money but in order for it not be classed as state-aid, it would need to be on a commercial basis which poses some problems.
A commercial loan would need to attract a realistic interest rate to reflect the risk being taken by the government and ultimately the taxpayer and a high rate of interest could hinder the airline getting back on its feet.
Other questions could come from competitors who would likely argue how the government could see the airline as commercially viable when mainstream commercial lenders don’t.
One option being explored is for the government to obtain “warrants” which means that the government loans Flybe the money but has the option to purchase shares in the airline at a pre-arranged price once it has recovered suitably.
Those shares could provide a substantial return for the UK taxpayer.
Keeping Flybe going is important to the government pledge to increase regional connectivity across the UK. That is the reason why funding is being considered where holiday airlines such as Monarch and Thomas Cook were allowed to fail. The deal though is likely to be a bitter pill to swallow for former employees of either of those two airlines.
The UK Government says that it is working closely with the European Commission to ensure the help it does decide to give doesn’t fall foul of the State-aid rules.
Flybe has already been granted the right to defer its Air Passenger Duty bill which staved off the collapse of the airline in January.