UPDATE 2-BA owner complains to EU about UK state help for Flybe
* IAG files EU complaint over Flybe rescue
* Details of UK support for Flybe have not been made public
* Rival airlines say Flybe's owners could foot the bill (Adds details on IAG complaint to EU, background)
LONDON, Jan 15 (Reuters) - British Airways owner IAG has filed a complaint with the European Union about UK government support for regional airline Flybe, after a rescue deal that IAG boss Willie Walsh called a "a blatant misuse of public funds."
IAG, whose airlines also include Iberia, Aer Lingus and Vueling, asked the European Union's Directorate-General for Competition on Wednesday to look into whether UK support for Flybe constituted a breach of EU rules on state aid.
Flybe was kept afloat on Tuesday after its shareholders agreed to invest more money alongside a UK government support plan, reported to involve the deferral of a tax bill and a potential government loan.
Walsh, one of the biggest names in the industry, said the taxpayer was picking up the tab for Flybe's mismanagement.
"This is a blatant misuse of public funds," he said in an emailed statement.
The complaint means IAG believes the UK government support, the details of which have not been made public, will prevent its airlines from competing on a level playing field.
Under EU rules, governments can provide state aid, but only with approval from the European Commission. The Commission said on Wednesday it was willing to discuss Flybe with the UK government.
While Britain is set to leave the EU on Jan. 31, it will then move into a nearly year-long transition phase during which it will continue to abide by EU rules.
Walsh and other critics of the Flybe bailout have suggested the carrier's ultimate owners, which include British Airways' (BA) old rival Virgin Atlantic, had deep enough pockets to ensure the airline's survival without government help.
Rivalry between Virgin Atlantic and BA dates back more than 20 years to the so-called “dirty tricks” affair, when Virgin accused BA of conducting a smear campaign.
Virgin Atlantic is 51% owned by Richard Branson's Virgin Group with the balance held by another BA rival, Delta, the second biggest U.S. airline by passenger numbers with a market capitalisation of $40 billion.
EasyJet CEO Johan Lundgren said it was hard to comment given the lack of detail about Flybe's support package, but added: "Taxpayers should not be used to bail out individual companies especially when they are backed by well-funded businesses."
The aid for Flybe came as Prime Minister Boris Johnson's newly-elected Conservative government sought to deliver on an election promise to help improve transport links outside London.
Flybe connects smaller UK cities such as Southampton and Newcastle and its network of routes includes more than half of UK domestic flights outside London. BA competes against Flybe on some routes, such as London to Edinburgh, as does Aer Lingus on other routes.
While it is not clear if Flybe's tax bill has been deferred, experts said it was not unusual for corporations and individuals to be granted extensions for tax payments under certain circumstances.
Across the EU, airlines have historically been big recipients of state aid. Carriers such as Belgium's Sabena received contested bailouts for years before eventually being allowed to go bust.
Italy has promised another 400 million euros ($446 million)to Alitalia even as the EU continues to investigate its last 900 million euro loan. And when Thomas Cook collapsed last September, Germany kept its Condor subsidiary afloat with a 380 million euro rescue loan that won swift approval from Brussels. (Reporting by Sarah Young; additional reporting by Laurence Frost and Conor Humphries, editing by Kate Holton and Mark Potter)
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