Flybe deal shows turbulence facing regional airlines

A venture led by Richard Branson’s Virgin Atlantic Airways scooped up Flybe for a penny a share, all but wiping out the value of the British regional carrier hit by dwindling passenger numbers, higher oil prices and uncertainty surrounding Brexit.

Virgin, Cyrus Capital, and Aer-Lingus-regional-operator Stobart Group agreed to purchase Flybe for £2.2m (€2.4m). The deal drove shares of the Exeter-based carrier down as much as 90% to a market value of about £6m, a fraction of its £215m capitalisation on its trading debut on the London Stock Exchange in 2010. Flybe will be combined with Stobart Air and operate under the Virgin Atlantic brand, the new owners said.

Virgin has been struggling to feed its long-haul flights with passengers from other UK cities and chief executive Shai Weiss said the deal will help. Flybe has flights from more than a dozen British cities and spans European destinations such as Portugal and Poland. In Ireland, it has routes from Belfast, Cork, Knock, and Dublin.

The demise of Flybe demonstrates the difficulties of turning a profit in the regional aviation market — a sector of the industry focused on connecting smaller cities. Passenger numbers are limited and the smaller planes used still have significant fixed costs. Flybe had already shrunk its fleet and begun a move to cheaper turboprop aircraft in a bid to strengthen its balance sheet and preserve cash.

Several European carriers have succumbed to the rising cost of fuel. Belgium’s VLM announced its liquidation in August when Switzerland’s Skywork Airlines AG also ceased flights. The German arm of Small Planet filed for insolvency in September, with Azur Air halting operations in the country, and Nordic leisure carrier Primera Air collapsed in October.

The new Flybe owners said they would provide £20m (€22.3m) of bridge loans and inject as much as £80m (€89.2m) to support growth. The carrier will be purchased via Connect Airways, in which Virgin and Stobart each have 30% stakes, with the balance held by Cyrus.

Founded in 1979 as Jersey European Airways after the island in the English Channel to which it flew, the company was renamed British European in 2000. It took on its current identity two years later after switching to a low-cost strategy.

Flybe acquired British Airways’ Connect unit for £521m (€581.3m) in 2006, adding more than 50 routes and doubling the number of customers to become No 1 in Europe’s regional market.

Following the 2010 share sale, the family trust of the late steel tycoon Jack Walker owned just under half of the shares.

- Bloomberg


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