Virgin Atlantic Consortium Makes Formal Offer To Purchase Struggling Flybe

I’ve written a few times recently about Flybe, which is ‘Europe’s largest regional carrier.’ I had wondered if their financial performance and share price could potentially lead to them being the next European airline to cease operations.

The struggling airline then promptly ‘put itself up for sale,’ by inviting offers from outside parties to purchase the airline. British Airways and Virgin Atlantic both expressed interest in potentially purchasing Flybe.

Now comes the news that a consortium of companies, led by Virgin Atlantic, has submitted a formal offer to purchase Flybe, which has been recommended for approval by Flybe’s board, though it still requires shareholder approval.

Connect Airways

The consortium, which will operate as a joint venture to be known as ‘Connect Airways,’ is made up of:

  • Virgin Atlantic
  • Stobart Group, which has various resource and transport investments; most notably in the aviation space, they already own London Southend Airport, as well as Carlisle Lake District Airport
  • Cyrus Capital, which is a US private equity firm

What is most interesting is the price they are willing to pay to purchase all of the shares in the company — a mere £2.2 million ($2.83 million).

For the entire airline.

If that seems unusually cheap, it does come with the condition that ‘Connect Airways’ will inject £100 million ($130 million) into the airline, to try and reverse its poor financial performance.

Flybe’s share price on the London Stock Exchange fell even lower on the offer news, given the purchase price will only provide around 1p (pence) per share.

Six months ago each Flybe share was worth around 42p, yesterday (before the offer was made public) they were trading around 16p, while today, after the offer news broke, they dropped below 2p before settling at around 4p each when the markets closed.

If the offer is accepted by Flybe shareholders, it will be really interesting to see exactly what the consortium does with the Flybe brand and network.

The Connect Airways publicly released Offer Document says that the Flybe brand will ‘operate under the Virgin Atlantic brand,’ which to me suggests the aircraft will be rebranded as either Virgin Atlantic or some sort of regional Virgin brand — Virgin Express maybe?

While this will help feed regional passengers to Virgin Atlantic’s existing long haul network, Flybe primarily flies propeller planes, and it will certainly be a dramatic change to the customer experience stepping off a Virgin Atlantic 787 and onto a Virgin ‘Express’ Bombardier Dash 8.

Virgin Atlantic dabbled with domestic operations with their Little Red venture many years ago, but this was not successful.

The offer document also plans for Flybe to assist Virgin Atlantic to grow its hubs at London Heathrow and Manchester. Flybe already has flights to both of these airports, moreso Manchester, which is considered a hub for them.

Their second hub (noting they also have a number of operating bases) is Birmingham, which Virgin Atlantic does not fly to.

Virgin Atlantic also has significant operations at London Gatwick, although Flybe only operates one route to Gatwick, which is ending in March this year anyway.

FlyBe aircraft

Bottom line

It will be interesting to see if this offer is accepted by Flybe shareholders, and even more interesting to see how the brand changes with the proposed ‘incorporation into the Virgin Atlantic brand.’

Both airlines have very different products and focuses and though there are some existing natural synergies (like both airlines’ Manchester operations), it won’t be a simple integration.

I cannot imagine stepping on to a ‘Virgin Atlantic’ propeller plane!

Do you think the offer will be accepted by Flybe shareholders?

Comments

  1. can we stop pretending “Virgin Atlantic” is of any relevance here? This is DL’s easy shortcut to even more Heathrow slots, first by steering Flybe to focus on the fleet and routes exclusively for Delta London, i mean, Virgin Atlantic, and when nothing improves after a while, “convince” them monetize their asset by leasing or selling those slots to VS, and by design, DL.

    I guess it’s nice to find a distraction from the painful reality that their entire Indian strategy is now entirely up in the air cuz BFF Jet Airways is now officially in default, while their “plan B” of ATL/JFK-BOM nonstop is arriving at the same time we’ll have world peace.

  2. There’s already been a Virgin Express, it was a (truly awful) Brussels-based low-cost airline that was eventually merged into Brussels Airlines. The new direction for FlyBe could be a disaster for regional airports such as Cardiff and Belfast City — at Cardiff, the connections to most the rest of the UK, Dublin and Paris are all Flybe. I can’t see Virgin keeping those

  3. Not sure why you think stepping from Virgin to FlyBe would be a downgrade – other way round in my opinion. Aside from that my main point is that this will be a disaster for FlyBe and will spell the end of the airline. FlyBe has codeshares with OneWorld,partners (partly because of it’s acquisition of routes from BA but also an arrangement with Finnair), Air France and Emirates, many of which will be reluctant to collaborate with Virgin. I could see the Stobbart operations being hived off (Stobbart already operates several routes on behalft of Flybe) and the comment about DL above all makes sense but it will decimate the FlyBe network as we know it. Can’t see them continuing to issue or exchange flights for Avios either and who on earth wants Virgin Miles? Disaster. Hope the shareholders vote against it. Rather it got broken up and the slots sold than this.

  4. James – Have you ever flew into/out of Manchester ?, If so, do you think it will become an even larger base for Virgin Atlantic long-haul operations, or just an excuse to pull out of Gatwick ?

  5. @henry LAX, I might be wrong but, I thought the LHR slots are ‘ring fenced’ to specific routes? If that’s still correct they are, for all practical purposes, worthless.

  6. “I cannot imagine stepping on to a ‘Virgin Atlantic’ propeller plane!”

    Passengers step off many airlines jet aircraft onto props.
    Alaska – Horizon; Air New Zealand; Westjet – Westjet Encore; Air Canada – Air Canada Express; Qantas – QantasLink.
    No hardship to fly on a Dash 8 after a international flight. It’s virtually the norm for short haul domestic flights.

  7. Isn’t this an peculiar time for any UK-based or UK-hub airline to make major changes with the impending massive uncertainty of the Brexit deadline?
    I mean if Iberia has declared itself a department store…

  8. I predict that several things will happen. By the end of next week IAG will launch another offer for much more than Virgin have offered. The second if Virgin does get Flybe I imagine they will try to introduce either A220’s, A320’s, 737’s or E-195 E2’s to boost capacity in and out of Manchester and Heathrow. They will also try to acquire some slots out of Gatwick to compliment the huge leisure operation Virgin Atlantic currently run from there. And lastly I think the Flybe brand can’t be kept without causing some confusion, and as the Virgin Atlantic brand is very strong and Flybe is very valuable to them, they have pretty much no choice.

  9. Here is my predictions on the future of Flybe:
    – The consortium will merge the operations of Stobart Air and Flybe to improve efficiency.
    – All planes in Flybe’s current fleet will be operated and maintained by Stobart Air’s current team. Layoffs at Flybe’s office in Exeter and service base in Birmingham.
    – Both Stobart Air and Flybe’s AOC will be kept and Flybe’s current codeshare contracts with current Flybe’s partners will be transferred to Stobart Air’s AOC.
    – Flybe’s AOC will be used by the consortium to create a new carrier named Virgin Connect, in order to act as Virgin Atlantic’s feeder airline with hub in Manchester.
    – Birmingham will be downgraded from hub to focus city.
    – In case of hard Brexit, the consortium will use Stobart’s AOC for Europe and Flybe’s AOC for UK.

  10. “The offer document also plans for Flybe to assist Virgin Atlantic to grow its hubs at London Heathrow and Manchester. Flybe already has numerous flights to both of these airports, moreso Manchester, which is considered a hub for them.

    Their second hub (noting they also have a number of operating bases) is Birmingham, which Virgin Atlantic does not fly to.”

    The problem with the Heathrow hub idea is that domestic and international flights really do not mix well at LHR. Getting from T1/2/3 to T4 or T5 involves a nasty bus trip, or going outside of security and taking the train.

    Flybe’s main base is actually at Exeter airport in SW England. So we’d have the odd situation where the airline operations and maintenance center is not a hub.

    MAN is a better bet – the only 2-runway airport in the UK other than Heathrow

  11. @Tom when Little Red used T2 and VS bussed those connecting to VS direct to T3 without having to reclear security I heard few or even no complaints about it.

    If VS / HAL could reinstitute that system I don’t think most reasonable people would complain. But that would depend on how many flights / passengers are involved as to the practicalities.

  12. @Daniel

    Flybe has £100 million in debt so perhaps that determined the equal capital infusion James mentions.

  13. @henry LAX has just proved he is fake news! BE’s slots are ring fenced as part of the BD/BA merger.

    The background is this. When BA purchased BA as part of that deal it was agreed that certain BD slots where to be offered to other carriers. Those slots could only be used on flights to Europe, Cairo, Moscow and Riyadh. So quite how you think the slots will be used by DL for US routes is beyond me.

    @James: where is the substance and opinion in this article? BE Dont have significant operations to LHR. It is two routes. They have more “significant operations” to SOU and EXT!! VS will keep their codeshare and hope to get significant feed at MAN Where their long haul operations are under pressure from Thomas Cook. Let’s also not forget the KL/AF relationship in all this. BE is one of the largest operators at AMS and, of approved, KL/AF will have an influence on that operator via their investment in VS.

    Seriously Ben and Ben (aka James) leave these analysis type articles to the experts in the aviation media and focus on the CC referrals.

  14. I would think LH Cityline might challenge for ‘Europes’s largest regional carrier’ but Flybe is definitely Europe’s largest ‘independent’ regional carrier, for now.

  15. @ Henry – I understand Flybes Heathrow slots are restricted to European destinations. I could see them using them to AMS to feed into Deltas big hub there.

  16. James I’ve been on many a virgin ( Australia ) prop flight , especially to GLT . Can’t wait for the same virgin experience at LBA 🙂 .

  17. The price paid shows just how close to complete failure Flybe was. The banks appear to have been withholding credit card payments until the flights have actually taken place, thus destroying any cash flow for the airline, fearing of course that if the airline failed, they would have to refund the customers.
    There will have to be major changes, too many planes flying too many routes that do not make a profit. Flybe sold their last slots at Gatwick to Wizz only yesterday so they now have no slots there at all and at Heathrow, they are limited to the slots which BA had to release as a condition of buying BMI some years ago. Putting the Virgin name on a domestic route is no guarantee of success, just ask Virgin itself who attempted to compete with BA with its Virgin Red operation that was closed down three years after it began.

    I doubt BA will come forward with any offer, there just isn’t any value left in Flybe, pruning on a substantial scale may be necessary to keep the new operation in the air at all

  18. Oh come on James, by suggesting that Flybe’s slots could be used to feed DL’s hub in AMS is extremely naive and actually shows that you STILL don’t understand what these “remedy” slots are all about! Flybe or the new consortium simply can’t use them for European flights such as AMS, as a condition of the EC’s clearance of BA’s takeover of BMI in 2012, BA could only keep 42 out of BMI’s 56 daily slot pairs and had to relinquish 14 slots that could only be used by other carriers on flights to ABZ, EDI, CAI, RUH, DME and NCE. 7 of these slot pairs had to be used on Scottish routes, which are the slots that Little Red, and currently Flybe, operate. (I’m no longer sure of the exact details, but I do believe that at some fixed date in the future, any unused slots from this agreement would revert back to BA.)
    So this means that VS/DL currently have absolutely zero hope of expanding feeder services into LHR beyond the existing EDI/ABZ routes, unless they somehow manage to buy existing slots off another carriers (probably at tens of millions of pounds a pair!), an expense which could not possibly be justified for speculative feeder traffic, especially when using 80 seater aircraft.
    As Fake news above says – stick to what you know and quit trying to be an airline analyst!

  19. Interesting also that VS will now become a supplier to SAS (as Flybe is currently contracted by SAS to supply five ATR72 for regional routes out of ARN).

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