A consortium including Virgin Atlantic has made an offer to buy the airline Flybe.
Flybe announced last year that it had put itself up for sale and Virgin Atlantic had made known its interest in the airline.
The consortium also includes Stobart Aviation, which operates flights under the Flybe franchise, and Cyrus Capital Partners. Stobart Group had launched an unsuccessful takeover bid for Flybe last year.
Cyrus Capital will be the single largest shareholder, owning 40% of the consortium. Stobart Aviation and Virgin Atlantic will each own 30% of the consortium.
The transaction is subject to approval by Flybe’s shareholders. In theory, another bid could be forthcoming. However, this is unlikely. Any bid by International Airlines Group would require competition remedies at London Heathrow and BA seems happy with the performance of BA CityFlyer at London City.
This bid offers little to Flybe’s shareholders. On its first day on the stock exchange in December 2010, Flybe’s share price closed at 341¼p, valuing the airline at £249m. Yesterday, Flybe shares closed at 16.4p, valuing the airline at £36m. This offer is for substantially less, at 1p a share, valuing the airline at £2.2m. However, it does provide for a relatively dignified and orderly exit.
As part of the transaction the consortium will also acquire Stobart Air. The combined Flybe and Stobart Air operation will operate under the Virgin Atlantic brand. However, it will remain an independent airline from Virgin Atlantic. Operating under the Virgin brand is not without risk if there are issues with reliability and punctuality.
The consortium has also agreed to provide a £20m bridge loan to support Flybe’s operations pending the acquisition and to invest £80m of further funding after the acquisition.
Stobart Air does provide wet leased aircraft to other airlines, including rivals of Virgin Atlantic, and this will continue to operate.
Full details of the offer can be found at Stobart Group.
Whilst the offer document makes much of the ability to feed Virgin Atlantic at London Heathrow and Manchester, and grow short-haul flights at London Southend, it says much less about operations at other UK regional airports which are heavily dependent on Flybe for traffic. Flybe is by some margin the single largest airline at many UK regional airports, including Exeter and Southampton.
Virgin Atlantic and Flybe
Virgin Atlantic has an existing codeshare relationship with Flybe going back some years.
It relies on Flybe to provide short-haul feed, principally at Heathrow and Manchester. Flybe’s routes from Heathrow to Aberdeen and Edinburgh use remedy slots released by BA as a condition of its merger with bmi. Virgin first tried unsuccessfully to use these slots itself, wet leasing aircraft from Aer Lingus under the brand “Little Red”.
Flybe will also transfer its route to Newquay from Gatwick to Heathrow from 31 March.
Air France-KLM is also due to take a stake in Virgin this year. Air France-KLM and Virgin will combine their respective transatlantic joint-ventures with Delta into one to compete. Air France relies on Flybe to provide feed to Paris Charles de Gaulle from some UK regional airports.