The government of the United Kingdom has sealed a deal with the owners of flybe. (BE, Exeter) wherein the investors will inject more cash into the struggling regional carrier in return for tax deferral and a possible state loan, The Guardian newspaper has reported.

"Delighted that we have reached agreement with Flybe's shareholders to keep the company operating, ensuring that UK regions remain connected. This will be welcome news for Flybe's staff, customers and creditors and we will continue the hard work to ensure a sustainable future," Secretary of State for Business Andrea Leadsom tweeted at around 0100L on January 15, following what were reported to have been long and difficult talks.

Leadsom did not disclose any further details of the agreement. However, according to the British media, the government has agreed to a short-term deferral of a GBP106 million pound (USD138 million) tax bill related to the Air Passenger Duty (APD), the highly criticised air tax levied in the UK. In addition, the government has reportedly extended an offer to loan the airline up to GBP100 million (USD130 million). Both the APD deferral and the loan have yet to be formalised.

The government's offer was enough to convince Connect Airways, the owner of flybe., to pump more cash into the regional carrier.

The UK government has also pledged to review the APD before it presents a new budget on March 11, 2020. Currently, every passenger is taxed GBP26 (USD34) for a short-haul flight (less than 2,000 miles or 3,220 kilometres) and GBP172 (USD224) for longer flights. The rate is reduced for flying in the lowest available class. The relatively high level of tax has often been cited as severely harming domestic and regional operators.

During the review, the government will also analyse other means to improve regional connectivity in the UK.

According to the ch-aviation analysis, flybe. has an outsized role at British regional airports with a share of over 50% of total airport capacity at Anglesey (100%), Southampton (93.4%), Newquay (78.6%), Exeter (67.7%), and Belfast City (66.2%).

The deal between the government and Connect Airways, a consortium of Virgin Atlantic, Stobart Air, and Cyrus Capital, has been criticised by IAG International Airlines Group Chief Executive Willie Walsh. In a letter to Transport Secretary Grant Shapps, Walsh pointed out that the budget should not be assisting "mismanaged" airlines, especially given that flybe. is backed by Virgin Atlantic, which in turn is 49%-owned by Delta Air Lines.