Flybe has confirmed it has agreed a financial arrangement to defer tax payments of “less than £10 million” with HM Revenue and Customs.
The airline, which was saved from collapse following a Government intervention on Tuesday, said the deal “will only last a matter of months before all taxes and duties are paid in full”.
It is understood the airline was allowed to defer its monthly air passenger duty (APD), which is paid by customers and collected by airlines to then be passed on to HMRC.
But the Government and Flybe have declined to confirm whether APD was the tax that they have agreed to delay payment over.
HMRC and the Government have called all tax arrangements “confidential” but pointed out that deferred tax arrangements were common.
Flybe added: “This is a standard Time to Pay arrangement with HMRC that any business in financial difficulties may use.”
But rivals have already complained that they should not be penalised for their success and should also be given a tax holiday.
British Airways owner International Airlines Group (IAG) has already written to the European Commission, claiming the arrangements breach state aid rules.
Bosses have also written to the Government demanding answers over the exact nature of the deal struck with Flybe, accusing ministers of a “lack of transparency”.
At Ryanair, chief executive Michael O’Leary said he would take the Government to court if other airlines were not also given an APD tax holiday as he called for answers over the nature of the Flybe deal.
In a letter to Chancellor Sajid Javid, he said: “Should you fail to confirm these facts within the next seven-day period, please be advised that Ryanair intends to launch proceedings against your Government for breach of UK and EU competition law, and breach of state aid rules.”
Speaking to BBC Radio 4’s Today programme on Friday, he added: “No commercial bank would lend money to Flybe, its own billionaire shareholders won’t lend them money.
“So the Government is stepping in here, lending them APD (air passenger duty), which is unfair on all the other UK airlines.”
He also warned that even the extra cash invested in Tuesday’s deal will be used by March.
“And then what?” said Mr O’Leary. “Flybe is not a viable business, it never has been. It has lurched from reconstruction to reconstruction.”
Flybe, which is owned by Connect Airways – a consortium of Cyrus Capital, Stobart Group and Virgin Atlantic – has agreed to extra investment, above the £100 million already pledged when it bought the airline a year ago.
However, the exact amount is unknown. Only Stobart has confirmed it will invest up to an extra £9 million.
As part of the deal, ministers have agreed to hold a review into the APD tax. Further discussions between the Business, Energy and Industrial Strategy are understood to be continuing over other potential avenues of help that can be provided.
The Government said it stepped in to save the airline due to Flybe’s network of domestic flight routes, with many not operated by rival airlines.
Flybe has been approached for further clarification.
The airline’s chief executive, Mark Anderson, told staff on Thursday that it was in talks with the Government around a financial loan but insisted it was not a bailout.
The video, seen by the BBC, shows Mr Anderson saying: “We are in conversation with the government around a financial loan — a loan, not a bailout — a commercial loan, but that is the same as any loan we’d take from any bank.
“The government will not lend if they do not believe there is a credible plan. No-one is going to throw good money after bad.”