In Depth

Why Ryanair is threatening to sue the UK government over Flybe rescue

Irish airline boss Michael O’Leary says tax deferral for rival carrier breaches state aid laws

Ryanair boss Michael O’Leary is threatening legal action against the UK government for green-lighting a controversial rescue package for ailing regional airline Flybe.

Flybe has reportedly been offered extra time to pay more than £100m of outstanding Air Passenger Duty (APD), a move that has angered rival carriers, who argue that the duty “holiday” should be offered to all airlines.

O’Leary claims the deal - or as he puts it, the “badly thought-out bailout of a chronically loss-making airline” - is a breach of state aid laws, and is insisting that the Government publish the full details of the agreement for transparency purposes.

Why is the bailout controversial?

The Government this week approved a rescue package for Flybe, which operates more than half of UK internal flights outside London, amid warnings that the carrier was on the brink of collapse

The full details of the last-minute deal were not published, but reports suggest that the Government deferred Flybe’s payment of flight taxes totalling £106m until spring - claims that have triggered anger among rival airlines.

Officials at the International Airlines Group (IAG), which owns brands including British Airways, have already filed a complaint with the European Union, arguing the rescue breaches state aid rules, the BBC reports.

And now Ryanair CEO O’Leary has waded into the row. In a letter of protest to Chancellor Sajid Javid, the Irish tycoon argues that the Flybe business model is “neither profitable nor viable, and has lurched from failure to failure repeatedly over the last 20 years”.

City A.M. says that O’Leary also “hit out at Flybe’s billionaire shareholders including Sir Richard Branson”, claiming that this group of wealthy investors “do not need a government subsidy to prop up their failed airline investments”.

“The reason why Flybe isn’t viable is because it cannot compete with lower-fare services from UK regional airports on domestic and EU routes provided by Ryanair, easyjet, BA and others; and it cannot compete with lower cost road and rail alternatives on many smaller UK domestic routes,” O’Leary wrote.

Why is he threatening to sue?

O’Leary claims that if the tax deferral is confirmed to have been offered to Flybe, the deal would not comply with competition or state aid rules unless the same measures are extended to other airlines.

The Government has insisted that the rescue plan is compliant with state aid laws, but the IAG is seeking to use channels relating to EU Freedom of Information laws to uncover the full details of the deal.

Meanwhile, Ryanair has taken a more direct approach by addressing the UK government directly.

“We’ve given the Chancellor of the Exchequer seven days,” O’Leary warns in his letter.

“If he doesn’t publish the deal within seven days or at least extend the same holiday to all of the other UK airlines, so that we can pass it on to our customers as well, I think we launch competition law proceedings in the UK and state aid proceedings against the UK government for breach of state aid rules in Brussels.”

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