British Airways owner goes to EU about UK’s Flybe rescue

British Airways parent IAG SA filed a complaint to the European Union after Britain backed a rescue of regional carrier Flybe, which feeds passengers onto flights at rival Virgin Atlantic Airways Ltd.

The submission to the European Commission’s competition arm says it would be unfair for the U.K. to defer Flybe tax payments, according to a person with knowledge of the filing who asked not to be named discussing it before details are public. Support may include a state-backed loan, another person has said.

Prime Minister Boris Johnson’s spokesman, James Slack, said any changes to the levy, known as air passenger duty, will apply to all airlines and that the proposed help for Flybe doesn’t amount to state aid. He declined to comment on the possible loan.

Britain said Tuesday the deal allowing Flybe to continue flying included a review of APD, without specifying what that might entail. Flybe parent Connect Airways, made up of Virgin, private-equity firm Cyrus Capital and airport operator Stobart Group, has in turn committed to inject funds.

The European Commission said in a statement it stands ready to discuss the compatibility of the proposed measures with EU state aid rules, and that intervention must avoid distorting competition. While Britain is set to leave the bloc at the end of this month, terms of the withdrawal agreement mean EU law will continue to apply during a transition period as if it were still a member.

The commission separately confirmed that it had received a submission from IAG, without commenting further.

While EU rules prevent state help conferring an unfair advantage, support for airline routes to remote regions is one of several exceptions that could win approval. Governments can always fund a company on the same terms as a private backer; payments only become aid if the lending conditions or amount are beyond what a normal investor would accept.

Slack said any support provided would be on “commercial terms.”

Johnson’s government took the unusual step—for Britain—of intervening to save a private company as the collapse of Flybe threatened to leave some of the most economically challenged parts of the U.K. with diminished transport links. Monarch Airlines, Flybmi and Thomas Cook Group Plc all failed without state help in the past 2 1/2 years.

Flybe, the No. 1 U.K. carrier on domestic routes, was delisted in March after its purchase by Connect Airways for 2.2 million pounds ($2.9 million), with the consortium also providing 100 million pounds in further funding.

The carrier, which employs about 2,400 people, has struggled for years with the narrow margins on regional routes, where demand is lower, together with fluctuating fuel prices and uncertainty around Brexit.