Business

Flybe boss says government loan is not a bailout

flybe plane

The boss of Flybe has confirmed the airline is in talks with the government over a loan, but says the financial support would not constitute a bailout.

Mark Anderson told Flybe staff the firm had had a few "difficult days" this week but it still had "a great future".

He said the company's turnaround plan had started to work and that with more time it would be making a big profit.

Rival airlines have called for more details of the government's role in helping Flybe to be made public.

They argue that support for the troubled regional carrier may contravene competition rules.

Mr Anderson, whose address to staff was also carried over videolink and has been seen by the BBC, said the government recognised the airline's vital role in connecting far flung parts of the UK and wanted to help the firm thrive.

"We are in conversation with the government around a financial loan - a loan, not a bailout - a commercial loan, but that is the same as any loan we'd take from any bank," he said.

According to state aid rules the loan would need to either be short term and aimed at rescuing and restructuring the business or it would have to be provided on the same terms a private lender such as a bank would offer.

"The government will not lend if they do not believe there is a credible plan. No-one is going to throw good money after bad," Mr Anderson said.

'More money needed'

Mr Anderson said he wanted to address speculation over the firm's future.

He said the company had had "legacy issues" to deal with that had not been apparent to the group of investors led by Virgin Atlantic who bought the airline early last year.

Image copyright Flybe
Image caption Mark Anderson addressed Flybe staff to explain events of the last few days

"Our shareholders invested an awful lot of money, believing they fully understood the state of the business they'd bought," he said.

"The reality… is that we were in worse shape than even the shareholders thought we were.

"We went into the summer very unresilient in terms of our operation, with a weak fleet, with a lot of gaps in terms of people flying our aircraft, with huge payments being made to people to get them to work extra hours."

A combination of higher costs, late flights, and compensation for delayed passengers meant the firm was losing money "hand over fist" for a time, he said.

"Three-quarters of the money the shareholders invested was gone before we even really started. That has hurt this business and more money is needed."

However, he said by the beginning of January Flybe's turnaround plan was working, with sales ahead of expectations.

"We are in a vastly different place than where we were six months ago," he said.

"We are not making millions of profit at the moment but if we stick to the plan, and what we have to do, we will," he said.

He admitted this week's news coverage had dented sales but said he believed customers would return quickly. But he said that there was a risk of a "self-fulfilling prophesy" if people kept talking the company down.

Fair competition

On Thursday, the boss of rival carrier Ryanair described the government's intervention to support Flybe as a "badly thought-out bailout of a chronically loss-making airline".

Michael O'Leary, sent a strongly worded letter to Chancellor Sajid Javid in which he argued any measures that were being put in place to help Flybe should be extended to other airlines.

Image copyright EPA

"We must be treated the same as Flybe if fair competition is to exist," he wrote.

He said if that were not the case Ryanair would consider taking legal action. British Airways' owner IAG has already filed a complaint with the EU, arguing the rescue may breach state aid rules and has filed a Freedom of Information request for more details about the plan.

The government has not published the details of what it has discussed with Flybe, although it has said it is fully compliant with state aid rules.

The government's support is thought to centre on giving the airline extra time to pay about £100m of outstanding Air Passenger Duty (APD).

Flybe's owners Richard Branson's Virgin Atlantic, Stobart Group and Cyrus Capital have agreed to invest £30m into the airline.

Stobart Group said it would provide £9m of capital "with the funds drawn down only if required".

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