Flybe’s collapse has been averted after the Government told the airline it would review air passenger duty (APD) and shareholders agreed to inject additional investment.
The Treasury announced on Tuesday evening the loss-making carrier would continue operating after the review of the tax featured in rescue talks.
Campaigners warned Boris Johnson that any APD review that leads to cheaper air travel would be a “complete scandal” and “rip up” the Prime Minister’s pledge to show leadership on the climate crisis.
Flybe’s shareholders agreed to a cash injection – understood to be in the region on tens of millions of pounds – to keep Europe’s largest regional carrier in business “alongside Government initiatives”.
The airline would not comment when asked if the Treasury had separately agreed to the deferral of a portion of the airline’s outstanding tax bill over a period of months.
The emergency agreement seeks to prevent Flybe becoming the second UK carrier to fail in four months after Thomas Cook went bust in September.
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.”
The Treasury said the APD review ahead of the March Budget would consider the UK’s climate commitments to meet net zero greenhouse gas emissions by 2050.
Business Secretary Andrea Leadsom said she was “delighted that we have managed to reach an agreement with Flybe shareholders to keep the company in operation”.
Flybe chief executive Mark Anderson welcomed the deal as a “positive outcome for the UK” which “will allow us to focus on delivering for our customers and planning for the future”.
Transport Secretary Grant Shapps said his department will “undertake an urgent review into how we can level up the country by strengthening regional connectivity”.
Mr Shapps said APD worked “slightly oddly”, adding “it costs twice as much to fly within the country as it does to fly to for example France and back”.
He added the taxpayer had not paid any money into the firm.
Flybe’s shareholders Connect Airways, a consortium including Virgin Atlantic, Stobart Group and Cyrus Capital Partners, will put in more funding as part of the agreement.
Connect Airways chairman Lucien Farrell 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, and the desire to strengthen regional connectivity.
“As a result, the shareholder consortium has committed to keep Flybe flying with additional funding alongside Government initiatives.”
Mr Javid had been holding talks with colleagues to decide whether to let Flybe defer its estimated £106 million APD bill for three years or whether the tax should be cut for all domestic flights, according to multiple reports.
Passengers on domestic flights pay £26 in APD for a return trip, with higher rates for longer flights and premium cabins.
The tax is expected to be worth £3.7 billion to the Treasury in 2019/20.
Friends of the Earth aviation campaigner Jenny Bates urged the Chancellor to instead use his next Budget to “speed up the transformation to a zero-carbon economy” and make rail travel more affordable.
“Any review of air passenger duty that leads to cheaper air travel and more polluting flights, would be a complete scandal – and rip apart Boris Johnson’s pledge to show leadership on the climate crisis,” she added.
Earlier, Greenpeace UK policy director Dr Doug Parr said any cuts to APD was 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 cheaper the next,” he added.
“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.”
The British Airline Pilots’ Association welcomed the move for securing the jobs of 2,400 Flybe staff.
“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,” a spokesman said.