Aurigny's debts could be written off by Guernsey States

Loans guaranteed by the States have allowed Aurigny to buy a new plane to operate the London City route

Aurigny could have debts of more than £25m paid off by Guernsey's government.

The airline has been loss-making in all but two years since 2003, when it was bought by the States for £5m.

Previously the Treasury and Resources Department had expected Aurigny to return to profit by 2016, but that has now been revised to 2018.

Its report, which will be voted on next month, said the "ongoing loss-making position" was a "cumulative result of a number of key factors".

Cabernet Ltd, the holding company for Aurigny Air Services and Anglo Normandy Engineering, operates through borrowing guaranteed by the States.

The debt to be written off is £19.9m accumulated from 2003 to 2014 and the expected £5.3m loss up to 2017 - £2.3m in 2015, £1.5m in 2016 and £1.5m in 2017.

It will be paid out of the island's capital reserve.

Aurigny performance in 2014

• Exceeded target of 60% of Gatwick fares for £65 or less by delivering 68%

• Missed punctuality target of 89% of flights within 15 minutes of scheduled departure time, with 85.9% down from 86.6% in 2013

• Reduced controllable costs per seat kilometre by 10%, against target of 2.5%

• Codeshare agreement with Blue Islands on Guernsey-Jersey route has led to "substantial reduction in losses" on the route

• Passenger numbers increased by 80,000 (17%) compared to 2013 with a total of 557,000 passengers carried

• The services between Alderney, Guernsey and Southampton continued to make an annual loss of about £700,000

A £25m jet was delivered in July 2014 to operate some of the six daily weekday and five daily weekend flights to and from Gatwick

Aurigny has borrowed more than £50m, guaranteed by the States, to support its business and the purchase of new aircraft.

The proposals also include allowing the department to be able to provide short-term borrowing to Cabernet to cover the annual losses.

The department's report said it was "firmly of the view" retaining the company "remains overwhelmingly in the Bailiwick's strategic interest", although it said this included recognising the "risk that ongoing financial support will be required".

Treasury Minister Gavin St Pier said it was a "strategic asset" acquired to secure the route to Gatwick, which "is as important now as it was in 2003".