The government may not realise that we're running out of scheduled airlines. They don't survive. The last new one that wasn't a foreign operator with a UK AOC was BA Cityflyer (2007) and that was setup with aid from BA. Before that the last original independent was BlueIslands in the Channel Islands. All the later ones since have failed. That might indicate just how hard it is to make a profit in the airline world. The government should probably not bail out PLCs but they shouldn't put unreasonable tax and compensations rules and then hold their hands back when the Airline cant cope.
As I understood the investment in Flybe (to be Connect) was dependent on the outcome of Brexit. Because we as a country screwed that up they I'm guessing the investors wouldn't commit without a clear financial roadmap and so now Flybe is suffering.