Posted on: 11 January 2019 by Kimberley Young
The Exeter-based regional carrier Flybe is to be brought by a company comprised of Virgin Atlantic, Stobart Group and Cyrus Capital.
The joint venture (JV) company, called Connect Airways, has reached an agreement with Flybe’s Board on the terms of a recommended cash offer, following which the company will acquire the share capital of Flybe.
Under the agreement, Flybe shareholders will be entitled to one pence for each share, valuing the share capital of Flybe at around £2.2 million.
Prior to the acquisition, Connect Airways will also acquire Stobart Groups’ regional airline Stobart Air and its aircraft leasing business, Propius.
Connect Airways will make a £20 million bridge loan facility available to support Flybe’s ongoing operations and following the acquisition, Cyrus, Stobart Group and Virgin Atlantic are intending to provide up to £80 million of further funding to the combined group to invest in its business and support growth.
Flybe will continue to serve customers across the UK and Ireland but will be rebranded to Virgin Atlantic.
The group intends for Flybe to continue as an independent operating carrier with a separate UK Air Operator Certificate (AOC) under the Virgin Atlantic brand. Stobart Air is intended to continue under a separate Irish AOC.
“Flybe plays a vital role in the UK’s transport infrastructure with a UK regional network which uniquely positions it to benefit from growing demands from long haul carriers for passenger feeder traffic,” said Christine Ourmieres-Widener, Flybe’s CEO.
In recent years the airline has implemented a strategy to tighten fleet management, improve revenue per seat and increase load factors. However the regional carrier has struggled under industry challenges, with Ourmieres-Widener pointing to higher fuel costs, currency fluctuations and Brexit uncertainties.
She explained, “We have been affected by all of these factors which has put pressure on short-term financial performance. At the same time, Flybe suffered from a number of legacy issues that are being addressed but are still adversely affecting cashflows.”
Following Flybe’s profit warning in autumn, the airline confirmed in November 2018 that it was reviewing strategic options including a formal sale process and was seeking potential buyers.
“By combining to form a larger, stronger, group, we will be better placed to withstand these pressures. We aim to provide an even better service to our customers and secure the future for our people,” she continued.
The group expect the acquisition will benefit customers by linking the UK regions and Ireland to Virgin Atlantic’s long-haul network through improved connectivity at Manchester Airport and London Heathrow.
Warwick Brady, CEO of Stobart Group commented: “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 regional airline consolidation.
“The combined entity will be a powerful combination with sufficient scale to compete effectively in the UK and European airline markets. 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.”
The combined group will operate independently to Virgin Atlantic under one management team owned 40% by Cyrus Capital Partners, 30% by Stobart Aviation, a subsidiary of Stobart Group, and 30% by Virgin Atlantic Limited, the holding company of Virgin Atlantic Airways and Virgin Holidays.
“We are pleased to have this opportunity to partner with Stobart Group and Cyrus Capital to bring Virgin Atlantic service excellence to Flybe’s customers,” said Shai Weiss, CEO of Virgin Atlantic. “Together, we can provide greater connectivity to our extensive long haul network and that of our joint venture partners Delta Air Lines, at Manchester Airport and London Heathrow. In the near future, this will only increase, through our expanded joint venture partnership with Air France-KLM.”
Flybe said the acquisition is subject to a number of conditions and further terms.