Tuesday 22 January 2019

Takeover of Flybe by newly-formed group Connect Airways approved by airline's board

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John Mulligan

John Mulligan

An intensifying cash crunch at ailing UK regional carrier Flybe has seen its board approve a takeover of the airline by a newly-formed group owned by Stobart Group, Virgin Atlantic and US private equity firm Cyrus Capital Partners.

The new entity, Connect Airways, will also acquire Dublin-based Stobart Air just prior to completing the purchase of Flybe.

Stobart Air, which has its roots in Aer Arann, operates the Aer Lingus Regional service on a franchised basis for the larger carrier. Aer Lingus is part of the IAG group that also owns British Airways, Iberia, Vueling and Level. Stobart Air will continue to operate under its Irish air operator’s certificate.

Aer Lingus declined to comment on the Flybe transaction, which will be effected by ways of a scheme of arrangement.

The purchase will value Flybe’s equity at just over £2m (€2.2m), with the buyers having pledged to plough as much as £100m (€111m) into the airline to keep it flying.

Flybe, whose chief executive is former CityJet boss Christine Ourmieres-Widener, went on the hunt for a buyer in November as it faced a bleak winter with falling cash reserves.

The sales process was initiated just months after the carrier pulled the plug on talks with the UK Stobart Group, which owns Stobart Air, that would have seen the airline being bought out.

A Luxembourg firm wholly owned by funds managed by Cyrus has a 40pc stake in Connect Airways. Stobart Aviation owns 30pc and Virgin Travel Group, a wholly-owned subsidiary of Virgin Atlantic, owns the remainder.

Virgin Atlantic, the airline founded in 1984 by billionaire entrepreneur Richard Branson, is now majority-owned by US airline Delta, with a 49pc stake. Mr Branson sold a 31pc stake in Virgin Atlantic to Air France-KLM in 2017, and retains a 20pc holding in the airline.

Stobart Group chief executive Warwick Brady said the acquisition of Flybe and the amalgamation of the airline into Connect Airways along with Stobart Air, would enable the businesses to compete effectively in a tougher market.

“The board of Stobart Group believes that bringing Stobart Air together with Flybe and partnering with Virgin Atlantic and Cyrus Capital is the best way for us to play an active role in UK regional flying,” he said.

"The combined entity will be a powerful combination with sufficient scale to compete effectively in the UK and European airline markets,” added the former Easyjet executive. “It will allow us to continue to work with Flybe and provides an excellent opportunity to continue to grow passenger numbers at London Southend Airport."

Stobart owns London Southend Airport and last year secured a significant coup when it announced that Ryanair will establish a base at the gateway from this summer, operating 13 routes to eight countries.

Stobart confirmed that Flybe’s finances have been increasingly squeezed in recent weeks.

“The company's card acquirers normally pass on cash for credit card bookings for future flights, less a proportion retained as security,” Stobart said regarding Flybe.

“However they are contractually entitled to retain enough cash to ensure that they are fully secured. The company's card acquirers have recently begun to retain significantly more cash against their exposure and this change in position has materially and rapidly weakened the company's unrestricted cash position.”

Flybe said its directors have weighed “risks inherent” with successfully executing its business plan versus the opportunity that a cash bid and offer of funding for the business provides.

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