Home world Why rivals are grumbling about Flybe rescue – and how the deal has bigger…


Why rivals are grumbling about Flybe rescue – and how the deal has bigger…

by ace
Why rivals are grumbling about Flybe rescue - and how the deal has bigger...

Given this, the International Airlines Group's complaint to the European Commission about the rescue of regional carrier Flybe is simply a fight over whether the Boris Johnson government has the right to intervene to keep business afloat.

It will, however, have huge implications beyond the fate of a small domestic carrier.

This is because the government's reaction – if the Commission agrees with the IAG that ministers had no right to give Flybe their support – will offer clues as to how Johnson's approach to post-Brexit trade policy.

At the heart of IAG's complaint, owner of British Airways, Iberia and Aer Lingus, is the fact that, after the government-coordinated bailout, British taxpayers will now subsidize an airline that competes directly with it.

In a letter to Grant Shapps, Transportation Secretary Walsh called it "blatant misuse of public funds."

The bailout is thought to include a temporary postponement of the payment of Flybe's passenger air passenger tax to the Treasury, which could provide a short-term boost to Flybe's cash flow of around £ 100 million, in addition to a potential government loan.

Rachel Reeves MP, former chairman of the corporate selection committee, reacts to government agreement to rescue Flybe

The European Commission now has to decide whether the bailout is compatible with EU state aid rules.

This will continue to apply not only until the UK's scheduled exit from the EU on 31 January, but until the end of the year, when the so-called 'transition period'. finish.

State aid rules state that any aid to companies is designed so that competition is not distorted and that a level playing field is maintained.

The government argues that the support given to Flybe is fully compatible with these rules.

Walsh, who resigns later this year, argues that this is not the case.

So far, the government has tried to reject IAG's objections, suggesting that the company could have a hidden motive.

Willie Walsh is Executive Director of IAG
IAG Chief Executive Willie Walsh said the bailout was a "blatant misuse of public funds".

An unidentified government adviser told the Financial Times: "British Airways is known to have a longstanding rivalry with some of Flybe's minority investors."

This is a reference to Virgin Atlantic, one of three members of the Connect Airways consortium, which rescued Flybe in February last year.

The rivalry between Virgin and BA goes back more than 30 years.

It was most intense when, in January 1993, BA reached an out-of-court settlement with its rival in which it apologized for the so-called "dirty tricks" campaign, which included hacking into Virgin computers, stealing passengers and leaking damage. Virgin stories to the media.

BA was required to pay damages of £ 500,000 to Sir Richard Branson, whose Virgin Group was then Virgin Atlantic's largest shareholder, and £ 110,000 to Virgin itself.

Lord King, BA's president at the time, left office.

To be fair to IAG, relations between BA and Virgin Atlantic have improved since then, although it is not the only competitor unhappy with Flybe's support.

Ryanair and easyJet also argued today that taxpayers' money should not be used to bail out struggling businesses.

The three may point out that Virgin Atlantic's largest single shareholder, with a 49% stake, is Delta, one of America's largest and most profitable airlines, which on Tuesday posted record annual pre-tax profits of $ 6.2 billion ($ 4.8 billion).

Virgin Atlantic airplane
Virgin Atlantic is one of three consortium members behind a previous Flybe rescue last year

Virgin Atlantic bought a stake in Flybe in its redemption last year to make it easier for domestic home passengers to access Virgin and Delta's long-haul network.

Virgin also installed one of its executives, Mark Anderson, as Flybe's new chief executive and said that in time Flybe would be renamed Virgin Connect.

However, IAG's complaint to the Commission has broader implications.

During the general election campaign, Johnson promised that, after Brexit, the United Kingdom would no longer be subject to EU state aid rules.

This, he said, "would make government intervention to protect jobs faster and easier when an industry is in trouble."

He said at a news conference on November 29: "We will support British companies by ensuring that the public sector buys British … and we will support British industry by ensuring that we can intervene when large British companies are struggling.

"When I look at what the (state aid) rules have meant for UK businesses … there are ways we can do things differently.

"The ramifications of EU state aid rules are felt everywhere."

It is believed that the policy, which some have suggested is modeled on President Buy America's strategy, was influenced by the time it took for Brussels to sign the support to the steel industry that David Cameron's government sought to provide. in 2015.

But it raised its eyebrows in Brussels because the United Kingdom was a key actor in the creation of the EU single market and an architect of its state aid scheme.

And it is likely to put the government on a collision course with the EU, as both sides are trying to reach a post-Brexit trade agreement.

A Delta Connection Embraer ERJ-170 plane takes off from Ronald Reagan Washington National Airport in Arlington, Virginia, August 15, 2016. / AFP / SAUL LOEB (Photo credit must be SAUL LOEB / AFP / Getty Images)
Virgin Atlantic's largest single shareholder Delta reported record profits of $ 6.2 billion this week

Michel Barnier, EU Brexit's chief negotiator, said last week that if Britain wanted as much unrestricted access to the EU single market as possible, it would not be allowed to subsidize its businesses and industries.

He said that in any future trade agreement, the EU would be stricter in pressuring the UK to be more in line with EU state aid rules than with other countries such as Japan and Canada, with which the bloc It is involved. free trade agreements signed.

He said this is because the UK is closer to the EU than these countries.

Barnier added: "If Britain wants an open channel with us for products – zero tariffs, zero quotas – we need to be careful that there is also zero dumping.

"I believe everyone will understand this point correctly. We are going to ask for certain necessary conditions in Britain's state aid policy."

So this saga is much more than if a comparatively small British domestic airline – Ryanair carries as many passengers in a month as Flybe in a year – lives or dies.

It could be the first big test of Johnson's promise to intervene on behalf of British companies, as he sees fit.


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