THE GOVERNMENT is set to hold talks with struggling regional airline Flybe this week over proposals for a potential loan.

Whitehall officials are expected to meet with the airline and its shareholders as soon as today to discuss a potential £100m in government support, Sky News reported.

One scenario for the proposed deal could see the government loan rank more highly than existing investors, which shareholders have previously suggested they would reject.

Another option would give taxpayers security over some of Flybe's unencumbered assets.

A third proposal, which would convert the government funding into equity, is reportedly "significantly less likely".

If no deal is secured by March, the future of the airline would be at risk, the broadcaster reported.

This week's talks are said to be an important step towards securing the terms of any government loan, however the upcoming minsterial reshuffle could delay proceedings. The government has already agreed to measures to aid the struggling business, including a reduction in air passenger duty.

However, state intervention has proved unpopular among the budget airline's rivals. Willie Walsh, chief executive of British Airways (BA) owner IAG, said the step was a "blatant misuse of public funds".

Yesterday, BA launched flights between London Heathrow and Newquay after Flybe ditched the lossmaking route.

(c) 2020 City A.M., source Newspaper