Britain’s decision to bail out a regional airline threatens to cast an immediate shadow over U.K.-EU trade talks that are likely to begin in early March.
Officials in Brussels are worried that Britain could turn into a dangerous competitor if it deviates widely from EU rules after Brexit on January 31, so are insisting that a “zero tariff, zero quota” trade deal will have to be based on the preservation of a “level playing field” in terms of EU laws and standards.
The rescue of Flybe raises immediate concerns about whether Britain is transgressing EU standards on illegal subsidies. The EU is watching this question very closely because British Prime Minister Boris Johnson has made no secret of his opposition to EU state aid laws. In particular, he has stressed that he wants Britain to have greater leeway to be able to bail out its ailing steel industry with public money.
U.K. press reports say that the government will defer Flybe’s tax payment of more than £100 million for three months, which the airline’s competitors have already lambasted. The move will raise eyebrows in Brussels too.
Flybe said it was delighted with the government “support” but declined to say how much that would be.
Other airlines certainly saw the assistance as unfair. The European Commission confirmed that British Airways filed a complaint regarding the rescue. The chief executive of British Airways’ owner IAG, Willie Walsh, called the rescue a “blatant misuse of public funds,” and EasyJet CEO Johan Lundgren said “taxpayers should not be used to bail out individual companies especially when they are backed by well-funded businesses,” referring to the consortium that owns Flybe, which includes Virgin Atlantic.
European Commission President Ursula von der Leyen has already warned that deviation from EU rules will play badly in Brussels. “The more divergence there is, the more distant the partnership has to be,” she said last week.
A potential Commission investigation into the rescue package could significantly shape those discussions. Asked whether the Commission was notified of the rescue deal, a spokesperson said, “We have seen the press reports.”
Britain’s best riposte to the Flybe rescue is probably that the EU is itself pretty soft on rescuing airlines.
Brussels approved the German government giving €380 million in emergency funds to Condor, a subsidiary of Thomas Cook, after its parent company collapsed last year. An emergency €150 million was approved in the German government’s failed attempt in 2017 to rescue Air Berlin. And the Italian government is confident the Commission won’t intervene in its ongoing €1.3 billion rescue package for national airline Alitalia.
On helping beleaguered airlines, the U.K. and EU may already be aligned.
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