By Sarah Young
LONDON (Reuters) - Stricken regional airline Flybe is important for Britain's transport links and the government will do what it can to help the company, Prime Minister Boris Johnson said on Tuesday ahead of a government meeting that could decide the airline's future.
With Flybe's finances at breaking point, government officials will meet later to discuss potentially cutting air passenger taxes on all domestic flights to help rescue it.
"It is not for government to step in and save companies that simply run into trouble, but be in no doubt that we see the importance of Flybe in delivering connectivity across the whole United Kingdom," Johnson told BBC television.
"We're working very hard to do what we can."
Flybe's flights appeared to be operating as normal on Tuesday, a day after news reports emerged suggesting it needed to raise new funds quickly to help it survive through the winter when demand for travel is lower.
Talks between Britain's finance department and Department for Transport (DfT) could lead to a cut to air passenger duty (APD) and a possible deal to allow Flybe to defer a payment of more than 100 million pounds ($130 million) for three years, according to Sky News.
Under the plan, Flybe's owners, a group which includes Virgin Atlantic and which themselves rescued Flybe financially last year, would be required to invest tens of millions of pounds of new equity as a condition of any deal.
CONNECTIVITY PROMISE
Rumours about the possible demise of Flybe have heaped pressure on Johnson's newly elected government. In December, his Conservative party won seats across regions served by Flybe, helped by a promise to improve connectivity outside London.
Flybe's network of routes include more than half of UK domestic flights outside London. Based in Exeter, south west England, it carries eight million passengers a year between 71 airports in the UK and Europe.
The aviation industry has long opposed APD, a tax of at least 13 pounds ($17) levied on passengers departing from UK airports.
Flybe has said its business is disproportionately harmed by the tax as it makes its flights more expensive versus its rail and road competitors, because passengers traveling on return flights within the UK will pay it twice.
The DfT and Flybe declined to comment on the talks, while the finance department could not immediately be reached for comment.
Should the government cut APD for domestic UK flights, other airlines such as easyJet (L:EZJ) and British Airways (L:ICAG), which fly routes such as London to Edinburgh, would also benefit.
Flybe has 68 aircraft and about 2,000 staff and was already struggling financially when it was bought last year by Connect Airways, a consortium created by Virgin Atlantic, Stobart Group (L:STOB) and investment adviser Cyrus Capital.
It has suffered as the fuel price has risen in recent months, and news stories about its demise could cause a cash flow squeeze as potential customers stop booking.
Should Flybe collapse, it would be the second high-profile failure in Britain's travel industry in less than six months after Thomas Cook went into liquidation last September, stranding thousands of passengers.