Aviation: Flybe deal progresses

January 15, 2019

The fate of struggling UK regional carrier Flybe took another turn this morning, when the board elected to sell components of the stock market-listed firm.  Connect Airways, founded by a consortium comprising Virgin Group, Stobart Aviation and Cyrus Partners, will pay an increased £2.8m for parts of Flybe Group including the airline, the maintenance activities and its digital business.  The transaction is expected to be completed by February 22 as shareholder approval is not required.

 

A statement from Flybe said it had failed to meet conditions of Connect Airways' earlier £2.2m offer, which required the release of funds paid by customers but held by credit card acquirers for security.  The revised deal involves an immediate infusion of £10m to support ongoing operations, with another £10m to follow.  The consortium buying the business has also maintained its pledge to invest a further £80m in future and to honour arrangements to buy Flybe Group at £0.01 per share.

 

Flybe said: "The board believes that obtaining this revised facility from the consortium provides the security that the business needs to continue to trade successfully.  This preserves the interests of its stakeholders, customers, employees, partners and pension members.”

 

The end is nigh.  Flybe is now almost certain to be re-branded and operate as a Virgin Atlantic franchise.  (The Aviation Oracle)

 

Flybe's shares fell sharply on the news this morning, trading at a little above £0.02 despite having been valued at more than £0.16 at the end of last week and down 93% compared to a year ago.  This gives the firm, believed to be trading with debts nearing £100m, a current market capitalisation of £8.9m.

 

Stock market arrangements

So what changed?  Late last week an offer was made for Flybe on which shareholders would vote, with holders of 75% of the stock required to support the deal.  Three working days later the acquisition seems to be a fait accompli - a deal which existing investors have no say in and will leave them  out of pocket.  That got The Aviation Oracle digging.

 

When Flybe was put up for sale late last year, making an announcement to the markets wasn't the only thing the board did.  Proposals to change the firm's status on the stock market were also put forward:

  • When airline was put up for sale on November 14 last year, the directors recommended moving Flybe plc (the holding company) from a premium stock market listing to a standard listing.  The premium listing dictated that any significant financial  transactions conducted by the firm had to be approved by shareholders representing at least 75% of the stock.  However, by then Flybe's market capitalisation had declined from well over £100m to less than £50m, and the directors argued that the need to hold an extraordinary general meeting to approve individual restructuring arrangements was restrictive.  Shareholders agreed and the vote went 99.72% in favour of moving to a standard listing.
     

  • The listing change set the scene for today's divestment.  It enabled the board to sell Flybe Limited (the airline), Flybe Aviation Services Limited (the engineering arm of the business) and Flybe.com Limited to Connect Airways without gaining shareholder approval.   After the disposals, the listed Flybe plc will be as a cash shell undertaking little trading activity.

Done deal

It has become obvious that Flybe needed an urgent cash infusion to enable it to continue trading.  Friday's offer turned into a Monday sale, seemingly the only way the struggling firm could receive money from the group proposing the buyout.  The revised deal means Connect Airways' offer for Flybe is almost certainly going to be completed.  Shareholders will not have a say in the transfer of the major trading arms of the business, but will be paid £0.01 when the listed Flybe Group is included in the arrangements.  Given many of Flybe's investors will be out of pocket, it seems that the change in listing status might not have been fully appreciated by all of the firm's shareholders.

 

Flybe's latest first-half results said: “If the group’s card acquirers were to choose to seek significantly higher cash collateral and the group cannot access sufficient additional liquidity, this would give rise to a material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern.”

 

The inability of Flybe to improve arrangements with card companies, and the change to the firm's listing status, forced the board's hand and led to today's deal.  Flybe now looks almost certain to adopt the Virgin Atlantic brand, under the stewardship of Stobart Aviation and the ownership of Connect Airways.

 

Text © The Aviation Oracle

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