Flybe's collapse has been averted after the Government told the airline it would review air passenger duty.
The Treasury announced on Tuesday evening the loss-making carrier would continue operating after the review of the tax featured in rescue talks.
But environmental groups have warned cutting APD would hamper efforts to combat the climate crisis, while airlines claim that it restricts connectivity and passenger growth.
Flybe, Europe's largest regional carrier, confirmed it will "continue to operate as normal" following the deal.
Mark Anderson, chief executive of Flybe said: "This is a positive outcome for the UK and will allow us to focus on delivering for our customers and planning for the future.”
The deal means Flybe has avoided being the second UK airline to fail in four months, after Thomas Cook went bust in September.
READ MORE: UK air passenger duty cut considered to save struggling Flybe
The airline carries about eight million passengers a year from airports including Edinburgh, Glasgow, Birmingham, Manchester, Southampton, Belfast City, Cardiff and Aberdeen, to the UK and Europe.
Chancellor Sajid Javid had held talks with the business and transport secretaries to discuss if the loss-making regional carrier can defer paying this year’s estimated air passenger duty (APD) bill of £106 million for three years or whether the tax should be cut for all domestic flights, according to multiple reports.
This was expected to be applied industry-wide and to be announced at the Budget in March.
The change would allow Flybe to defer its tax bill, design a rescue plan, and secure more than 2,000 jobs.
The emergency agreement seeks to prevent Flybe becoming the second UK carrier to fail in four months after Thomas Cook went bust in September.
The government said it was a sign of the "Prime Minister's commitment to levelling up all regions of the UK".
It was part of a "review of regional connectivity" which the government said "will ensure all nations and regions of the UK have the domestic transport connections local communities rely on – including regional airports".
It said the review of APD is part of work being carried out ahead of the March budget "to ensure regional connectivity is strengthened while meeting the UK’s climate change commitments to meet net zero by 2050".
Chancellor Sajid Javid said: "I welcome Flybe's confirmation that they will continue to operate as normal, safeguarding jobs in UK and ensuring flights continue to serve communities across the whole of the UK.
"The reviews we are announcing today will help level up our economy. They will ensure that regional connections not only continue but flourish in the years to come - so that every nation and region can fulfil its potential."
Business secretary Andrea Leadsom said she was "delighted that we have managed to reach an agreement with Flybe shareholders to keep the company in operation".
Flybe chief executive Mark Anderson welcomed the deal as a "positive outcome for the UK" which "will allow us to focus on delivering for our customers and planning for the future".
Transport Secretary Grant Shapps said his department will "undertake an urgent review into how we can level up the country by strengthening regional connectivity".
The Treasury said the APD review ahead of the March Budget would consider the UK's climate commitments to meet net zero by 2050.
Before the announcement, Greenpeace UK policy director Dr Doug Parr said any cuts to airport passenger duty was a "poorly thought out policy that should be immediately grounded".
"The Government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel cheaper the next," he added.
"Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need if we're to cut climate-wrecking emissions from transport.
"The aviation sector has got away for years with increasing its carbon footprint - the last thing we need is another incentive for them to pollute more."
READ MORE: Flybe locked in talks to avoid administration
The British Airline Pilots' Association (Balpa) said: "This is good news for 2,400 Flybe staff whose jobs are secured and regional communities who would have lost their air connectivity without Flybe.
We are delighted with the support received from the Government & the positive outcome for our people, our customers and the UK. Flybe remains committed to providing exceptional air connectivity for the UK regions with the full support of its shareholders. https://t.co/2HxRMcd5gh
— Flybe ✈ (@flybe) January 14, 2020
"Balpa looks forward to discussing the airline's future plans in detail with management, meanwhile passengers can be confident that Flybe remains an excellent choice for regional flying.
"The Government is to be applauded for stepping up to the plate to help one of the few remaining independent UK airlines and a vital one at that."
Flybe was bought by a consortium consisting of Virgin Atlantic, Stobart Group and Cyrus Capital in February 2019 following poor financial results.
The consortium, known as Connect Airways, paid just £2.2 million for Flybe’s assets but pledged to inject cash into the airline to turn it around.
Lucien Farrell,chairman of Connect Airways said: “We are very encouraged with recent developments, especially the Government’s recognition of the importance of Flybe to communities and businesses across the UK and the desire to strengthen regional connectivity. As a result, the shareholder consortium has committed to keep Flybe flying with additional funding alongside Government initiatives.”
Passengers on domestic flights pay £26 in APD for a return trip, with higher rates for longer flights and premium cabins.
The tax is expected to be worth £3.7 billion to the Treasury in 2019/20.
Airlines claim APD restricts connectivity and passenger growth.
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