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Aviation: Virgin leads offer for Flybe

A consortium comprising Virgin Atlantic, Stobart Group and US equity firm Cyrus Capital Partners have tabled a formal offer to buy troubled UK-based regional airline Flybe. The deal, unanimously recommended by the Flybe board but subject to shareholder approval, values the carrier at £2.2m or £0.01 per share. The three partners have also pledged to provide £20m in working capital and future investment of up to £80m to secure the future of the struggling short-haul operator.

Flybe's Embraer 175 jets are likely to be retained if a takeover by a consortium including Virgin Atlantic is agreed by shareholders. (Flybe)

Connect Airways has been formed as a platform for the bid, with holdings in the new firm split between Virgin Travel Group (30%), Stobart Aviation (30%) and DLP Holdings (owned by Cyrus’ funds - 40%). If the deal is finalised following a court hearing and a shareholder meeting, the Flybe name will be maintained in the short term. However, longer term plans involve Connect Airways flying under the Virgin Atlantic brand “to the extent possible.” Flybe is expected to retain its UK air operators certificate (AOCs), while Irish carrier Stobart Air will be brought into the group but will maintain its current franchise and leasing activities.

Route optimisation is anticipated, which is likely to result in cuts to the fleet of 76 Bombarder Q400s tubroprops and Embraer 175 jets currently operated by Flybe, as well as some job losses. But Connect Airways says it recognises the “importance of regional connectivity” in the UK and will focus on Flybe’s core network, which will be simplified with the aim of improving its performance. Flybe’s timetable will also be optimised to improve links with the Virgin and Delta Air Lines networks.

Broader network

In a statement to the market, the prospective buyers said: “Cyrus, Stobart Group and Virgin Atlantic believe that combining Flybe and Stobart Air in a more commercial operation with Virgin Atlantic’s long-haul operations will create a fully-fledged UK network carrier under the Virgin Atlantic brand… Such a combination would be a compelling proposition with a comprehensive regional network in the UK and Ireland coupled with an enhanced European footprint, providing... connectivity for customers to travel to destinations all over the world.”

Christine Ourmières-Widener, CEO of Flybe, added: “The industry is suffering from higher fuel costs, currency fluctuations and significant uncertainties presented by Brexit. We have been affected by all of these factors which have put pressure on short-term financial performance… By combining to form a larger, stronger group we will be better placed to withstand these pressures.”

Shai Weiss, CEO of Virgin Atlantic said that Connect Airways will provide excellent connectivity to Virgin’s long-haul network and that of its joint venture partner Delta Air Lines (holder of a 49% interest in Virgin Atlantic) at London Heathrow and Manchester airports. He added that the proposition will be further strengthened through the proposed 31% investment Air France / KLM aims to take in Virgin Atlantic.