I'l reserve judgement until more details of the deal emerge.
My instinct is that the gov't should let them go bust & then take a role in re-creating the socially important bits (basically UK regional domestic). FlyBE have been their own worst enemy to a degree - their online reviews are shocking.
For sure, APD should be scrapped for UK domestic flights. It is absurd that rail is subsidised whilst air is taxed. The pitiful history of the UK domestic air operator sector shows that it needs government help, not a £26 per return pax millstone around its neck!