Regional Airline Flybe Rescued as Part of Virgin Atlantic Deal

A Flybe Q400 in London (Photo: AirlineGeeks | William Derrickson)

U.K. airline Flybe is to be involved in a consortium led by Virgin Atlantic that will effectively rescue the regional airline.

The news comes after months of uncertainty of the carrier, which carried 9.5 million passengers in 2017/2018 with an average load factor of 75.6 percent.

The Downfall

Although a negative outlook for the airline began years ago, the troubles finally took their toll during the financial year 2017/2018. The airline reported a loss of £9.4 million, up from the £48.5 million loss the year before, as it struggled to adapt to the evolving U.K. and European aviation market.

The consortium, known as Connect Airways, led by Virgin also involves Stobart Group, which had an offer to take 100 percent ownership of Flybe rejected by the airline back in February 2018. The group pulled out of the negotiations the following month which lead to Flybe’s share price lose the 25 percent gain it made following the news of the bid.

Following the bid being rejected the airline continued to operate routes, in particular, out of international hubs such as Heathrow, Manchester and Birmingham.

In November 2018 the airline announced its intention to sell the business with discussions happening with various parties leading to the share price falling by 75 percent.

The airline blamed a mixture of currency volatility, rising fuel costs and Brexit-related uncertainty for putting itself up for sale.

The Takeover

An offer worth significantly less than the current trade price for Flybe was announced to the London Stock Exchange on Friday with a price valuation offer of £2.2 million.

The deal values the airline at 1 pence per share which is 94 per cent less than the 16.36 pence price the airline was trading on Thursday night.

Virgin Atlantic was immediately reported to be interested in a takeover. The carrier later confirmed this on November 23. International Airlines Group (IAG), the parent group of British Airways, was also rumored to be interested in a potential takeover.

Connect Airways will be made up of Virgin Atlantic, which will have a 30 per cent stake in the company. Stobart Group will hold 30 per cent and U.S. equity firm Cyrus Captial Partners will own 40 per cent of the business.

The new ownership will see Virgin Atlantic operate the network of regional flights. Connect Airways will also take over Stobart Air and its leasing business which will continue to contribute the assets of Stobart Air that currently takes place with flights.

Stobart Air currently operates flights for Flybe out of London Southend and Isle of Man Airport flying ATR 72-500/600 and the Embraer 195.

£20 million will be lent to Flybe to continue operations and following the completion of the takeover an £80 million injection will be made. Flybe will eventually operate under the Virgin Atlantic brand.

Flybe will operate under a separate Air Operator Certificate as an independent carrier.

Virgin Returns to the Domestics

Virgin Atlantic will command the regional network that Flybe currently occupies, allowing the regional carrier to feed passengers to Virgin’s long-haul operations based at major airports. A move that Virgin had tried already in the past.

Sir Richard Branson’s (now part-owned) airline has publically criticized the monopoly that British Airways has over the short-haul network in the United Kingdom, especially after the takeover of British Midland International (BMI).

Following this takeover, the European Union Competition Commissioner ordered for BA to give up 14 of BMIs previous landing slots at Heathrow, 12 of these were snapped up by Virgin after outbidding Aer Lingus.

In 2012, Little Red was created as a subsidiary owned by Virgin Atlantic to provide competition to British Airways on U.K. domestic flights from London Heathrow using the slots snapped up from BMI.

The airline operated four Airbus A320s wet-leased from Irish airline Aer Lingus and operated to Aberdeen, Edinburgh and Manchester Airports. The airline ceased operations in 2015 following low passenger numbers.

Flybe Appeal

The appeal that Flybe has towards the big carriers is the positions it holds in Manchester and Heathrow Airport.  The airline began operations out of Heathrow in 2016 after acquiring the EU-protected slots from Little Red.

Flybe currently flies to Aberdeen, Edinburgh and soon to Newquay located in the southwest part of the country.

The takeover will consolidate the code-share pact that the two airlines already operate with Flybe operating flights from U.K. regional airports feeding passengers to Virgin’s long-haul flights.

2018 saw the airline review its fleet requirements for the future. A decision to maintain the Dash 8 Q400 as the core of the fleet was made.

Currently, the airline operates mainly Bombardier Dash 8 Q400s with 54 in service seating 78 passengers. An order for 15 E175 jets will be completed by the end of 2019, while seven E195s will be phased out. Along with the five ATR 72-600s operated by SAS the fleet total will be around 70 come 2020.

Although the news effectively means the loss of another U.K. airline brand, the decision by Virgin will bring relief to the 2,000 employees and the passengers Flybe serves.

The takeover is expected to be completed during the second quarter of 2019 if 75 per cent of shareholders accept the deal. The takeover is subject to approval by EU regulators. Something that a U.K. ‘no-deal’ departure from the EU could hinder.

 

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James Dinsdale

James is a keen aviation enthusiast from the United Kingdom. He has been flying since the age of 13 and today, aged 23, flies the Airbus A319/320 series for one of Europe's largest airlines.
James Dinsdale
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