UPDATE 5-British airline Flybe collapses as coronavirus deals final blow

* Airline struggling before coronavirus hit demand

* Accounting firm EY to handle administration

* Could hurt government plans for regional connectivity
(Adds further reaction, background)

By Sarah Young and Kate Holton

LONDON, March 5 (Reuters) - British regional airline Flybe
collapsed on Thursday after a plunge in travel demand, making
the long-struggling carrier one of the first big corporate
casualties of the coronavirus outbreak.

The failure of an airline that connects all corners of the
United Kingdom with major European destinations not only puts
around 2,400 jobs at risk but could also see some airports
struggle and regional economies hit.

"All flights have been grounded and the UK business has
ceased trading with immediate effect," Flybe said after the
government walked away from a rescue package agreed in January.

Airlines around the world have been cancelling flights and
warning of a hit to profitability after coronavirus first
emerged in China, hitting flights across Asia, before it spread
to Europe and beyond.

British Airways, easyJet, Virgin Atlantic,
Lufthansa, Norwegian Air and United Airlines
are among those warning on the impact of a virus that
looks set to hit the industry harder than the 2003 SARS
outbreak.

Flybe's collapse will also cause more problems for Prime
Minister Boris Johnson who had promised to "level up" Britain by
investing in regional transport links.

His government had agreed a rescue deal for the 41-year-old
airline in January, saying it was important to maintain
connections across the country for its eight million passengers.
It said on Thursday there was nothing more it could do.

"We are also urgently working with industry to identify how
key routes can be re-established by other airlines as soon as
possible," Transport Minister Grant Shapps said.

Flybe, the largest independent regional airline in Europe,
operated between 81 airports and was owned by Virgin Atlantic,
Stobart Group and Cyrus Capital.

The owners said they had ploughed more than 135 million
pounds ($174 million) into the business in the last 14 months,
including around 25 million pounds pledged in January.

FINANCIAL TROUBLE

January's rescue deal had seen the government agree to match
the owners' support for Flybe with a potential loan, a deferral
of taxes and a review of local flight tax rules.

That briefly formed part of Johnson's plan to try to boost
the regions of Britain beyond London. Without Flybe though, some
regional airports like Exeter, Birmingham and Southampton will
have much poorer connections.

However, rival airlines complained that the state should not
prop up failing companies and environmental campaigners argued
any move to reduce the cost of flying did not fit with the
government's aim to cut greenhouse gas emissions.

Flybe's 68 aircraft flew to airports including Belfast City
in Northern Ireland, Jersey in the Channel Islands, Birmingham
in central England and Scotland's Inverness and provided more
than half of UK domestic flights outside London.

The pilot's union said airline staff had been betrayed by
the owners and the government.

In a sign of the ripple effect the virus can have, Britain's
biggest commercial free-to-air broadcaster ITV warned on
Thursday its advertising revenue had already been hit by travel
companies pulling spending.

Stobart and Virgin Atlantic said they were deeply
disappointed with the outcome.

"Sadly, despite the efforts of all involved to turn the
airline around, not least the people of Flybe, the impact of
COVID-19 on Flybe's trading means that the consortium can no
longer commit to continued financial support," they said.

It is the second major British airline to go bust in six
months after the world's oldest travel firm Thomas Cook
collapsed in September, stranding hundreds of thousands of
passengers and sparking the largest peacetime repatriation
effort in British history.

The country's broader airline strategy was also thrown into
disarray last week when a court ruled a plan to expand Europe's
biggest airport Heathrow was unlawful.

($1 = 0.7755 pounds)
(Writing by Sarah Young and Kate Holton in London, additional
reporting by Rama Venkat in Bengaluru; Editing by Subhranshu
Sahu, Alexander Smith and Mark Potter)