UK’s Flybe seeking government-backed funding deal within days

U.K. regional airline Flybe Group Plc has only days to secure a rescue package that could include help from the government, according to a person with knowledge of the talks.

Flybe owner Connect Airways, comprising Virgin Atlantic Airways Ltd., Stobart Group and Cyrus Capital, is looking for state assistance to avoid putting the airline into liquidation, said the person, who asked not to be identified discussing a private matter. That could involve measures such as suspending U.K. air passenger duty owed by the carrier, the person said.

U.K. Prime Minister Boris Johnson’s spokesman, James Slack, together with the Department for Transport, declined on Monday to comment on speculation surrounding a private company. Flybe said it doesn’t comment on rumors and that its business continues to operate as usual.

A collapse of Flybe could cost 2,000 jobs and, while not as devastating as last year’s bankruptcy of Thomas Cook Group Plc, would come as an embarrassment for Johnson so close to Britain’s exit from the European Union at the end of this month. Flybe is the biggest provider of domestic U.K. flights and provides vital connections for provincial cities to London and continental Europe.

Virgin Atlantic also relies on Flybe to transfer passengers onto its long-haul services from hubs at London Heathrow and Manchester airports, though there may be ways to retain some of these links even in the event of a collapse. Virgin, Stobart and Cyrus Capital declined to comment on the situation.

Financial Challenges

Flybe 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 rescue funding. Connect has since found that significant financial challenges remain, requiring further funding, the person said.

Preparations are under way in the event that Flybe does go under, the person said. The carrier operates 68 planes on almost 140 routes serving 56 cities across the U.K. and Europe. Some of its routes, like a 130-mile (209-km) service from Cardiff to Anglesey off the north Welsh coast, are among the shortest in the industry.

Sky News reported earlier on the rescue talks and said accountants EY were on standby to handle any potential liquidation. EY didn’t immediately respond to a request for comment.

The airline’s collapse would extend a spate of failures in European aviation over the past few years amid falling fares, fluctuating demand and increased competition from trains on shorter routes. In addition to Thomas Cook, high profile casualties have included Air Berlin Plc, Germany’s second-largest carrier, Britain’s Monarch Airlines and Iceland’s Wow Air.