THE BRITISH GOVERNMENT is under mounting pressure to explain the deal it struck with struggling airline Flybe, as rivals demanded answers and threatened court action.

Ryanair boss Michael O’Leary threatened action against the government if it did not offer a “tax holiday” to all airlines, after it was widely reported that Flybe had been allowed by HM Revenue and Customs to defer its monthly Air Passenger Duty (APD) payments.

In a letter to Chancellor Sajid Javid, O’Leary accused the UK government of distorting fair competition between airlines, and accused it of giving a subsidy to Flybe’s billionaire owners.

Meanwhile, British Airways and Aer Lingus owner International Airlines Group (IAG) has written to the Treasury, Transport and Business departments asking a series of questions over the deal.

Bosses want to know if the British government is a “financial guarantor” to Flybe, has a tax deferral been agreed and what reassurances have been made by the owners.

The questions, sent in a Freedom of Information request seen by PA news agency, IAG say, are being asked “due to a lack of transparency about the government’s involvement in the rescue package for Flybe”.

On the APD issue, the company asks: “Has it (the Government) agreed to alter the timing or amount of Air Passenger Duty due to be paid by Flybe and, if so, the terms of that agreement and the reason behind it?”

It also calls for “details of any Government funding or loans to Flybe, the basis on which those agreements were reached plus whether it has contemplated future loans”.

Ministers are asked if they have ensured Flybe’s owners – Stobart, Virgin Atlantic and Cyrus Capital – have met their previous funding commitments to invest £100 million in the airline when they bought it last year.

And IAG says: “Is the Government satisfied that the terms and agreements for connecting passengers between Flybe and its shareholders’ airlines are on normal commercial grounds that protect the interests of Flybe?”

Over at Ryanair, outspoken boss O’Leary said he believes the Flybe rescue “clearly constitutes illegal state aid”.

“We deeply concerned and shocked by reports of your Government’s bailout of Flybe this week, which distorts fair competition between airlines,” he said.

The British government has confirmed it will review APD, but it has declined to confirm or deny that a deferral has been agreed.

HMRC also said the individual and company tax affairs were “confidential”, but did say deferrals are a common tool in avoiding company collapses.

Sources close to HMRC stressed the taxman is unlikely to pass deferred tax agreements on to other companies in a sector just because a rival has.

O’Leary asked the chancellor to confirm how the government is supporting Flybe, and to extend any possible APD holiday to its competitors such as Ryanair, EasyJet and British Airways.

“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,” O’Leary said.

The airline was saved from collapse on Tuesday evening as the government reached an agreement with Connect Airways, Flybe’s owner.

However, the exact nature of the agreement is unknown.

Downing Street has insisted there has been “no state aid to Flybe” and any support that is given to the firm would be on “strictly commercial terms”.

Flybe’s owners, a consortium which includes Stobart, Virgin Atlantic and Cyrus Capital, have said they will invest more cash into the airline.

Although only Stobart has revealed how much it has committed – up to £9 million.