British Airways owner International Airlines Group (IAG) has filed a complaint with the European Union over the Government’s decision to rescue Flybe.
The PA news agency understands that IAG has claimed to the European Commission that the rescue deal for Flybe breaches state aid rules and gives the struggling airline an unfair advantage.
Downing Street has since insisted there has been “no state aid to Flybe” and any support that is given to the firm would be on “strictly commercial terms”.
It comes hours after IAG chief Willie Walsh publicly criticised the move, describing it as a “blatant misuse of public cash”.
The Treasury announced on Tuesday evening that the loss-making regional carrier would continue operating after agreeing to review air passenger duty (APD).
Flybe shareholders agreed to inject extra capital into the airline business as a result, securing the short-term future of 2,400 jobs.
Flybe is owned by Connect Airways, a consortium involving Virgin, Stobart Aviation and Cyrus Capitals, which purchased the airline at the start of last year.
It is understood that IAG’s complaint claims that the Government is propping up “feeder flights” that benefit Virgin and Delta.
The Prime Minister’s official spokesman said: “The actions we have taken will support and enhance regional connectivity across the UK so local communities have the domestic transport connections they rely on.
“Any changes implemented as a result of our reviews of air passenger duty and regional connectivity will apply to all airlines in the competitive aviation market.”
In response to IAG’s complaint, the spokesman said: “The Government is fully compliant with state aid rules, there has been no state aid to Flybe.”
Departing IAG boss Willie Walsh also blasted the deal, saying it “makes a mockery” of previous promises made by Flybe about the expansion of regional flights.
Other airline rivals, such as easyJet, have also criticised the state support, while also praising the decision to review APD.
Johan Lundgren, chief executive officer of easyJet, said: “We do not support state funding of carriers but without the detail of what is exactly proposed, it is hard to comment further.
“Having said that, what is clear is that tax-payers should not be used to bail out individual companies especially when they are backed by well-funded businesses.”
A Ryanair spokeswoman said: “We have already called for more robust and frequent stress tests on financially weak airlines and tour operators so the taxpayer does not have to bail them out.”
The Government has also faced criticism from industry groups over the bailout, given the perceived need for financial support and action in other sectors.
Kate Nicholls, from the UK Hospitality trade body, said: “If APD can be reviewed and waived to support Flybe then business rates should be cut and reviewed to stem the continued high-profile casualties on the high street and in hospitality.
“Hospitality pays a third of its revenue in taxes, slashing its margin to operate.
“Many businesses have been literally taxed out of existence and we want to see the Government taking a similarly supportive approach to deliver on its manifesto.”
Helen Dickinson, chief executive of the British Retail Consortium, said: “The Government has been quick to jump to the support of Flybe, meanwhile tens of thousands of jobs are being lost across retail without any action on the multitude of costs bearing down on the industry, impacting the ability of retailers to invest in their customer offering.”
Meanwhile, Labour’s shadow transport secretary Andy McDonald said: “This is another taxpayer bailout for Richard Branson from the Tories.
“The Government needs to come clean on the restructuring plan, which must include the trade unions, agreed as part of the deal.”
Liberal Democrat transport spokeswoman Munira Wilson said: “Flybe provides a vital service in connecting many regions of the UK which are otherwise hard to travel between, not least as a result of poor rail infrastructure. Keeping these routes open has to be a top priority.
“However, Boris Johnson’s decision to bail out Flybe is a misuse of taxpayers’ money to say the least. If Flybe is a failing business, then it is not the right business to run these routes.”