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)

By Sarah Young

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.

OLD FOES

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)