Aviation: New last-minute offer for Flybe

A consortium comprising Bateleur Capital and US commuter carrier Mesa Air are leading a last-ditch bid to rescue Flybe. The offer includes an injection of £65m into the struggling British carrier, but is conditional on the the rival bid from Connect Airways and supported by Virgin, Stobart and Cyrus Capital not being completed. It also requires the support of Flybe's credit card acquirers that are reported to have withheld as much as £50m in advance fare payment to protect their own interests should the airline collapse.

The proposed alternative investment involves the issue of new equity in Flybe at 4.5p a share, well ahead of the existing offer of 1.0p from Connect Airways.

A rival to the Connect Airways bid for Flybe has been tabled by Mesa Airlines and Bateleur Capital. (Flybe)

Flybe's share price doubled in response to the plan and it is believed that the approach is backed by Flybe's biggest stock holders Hoskin Partners and businessman Andrew Tinkler, ‎who collectively control just over 30% of Flybe.

However, £15m of additional funding has already plowed into Flybe as part of the Connect Airways bid that was tabled in early January, and that deal is expected to close on or before February 22. If a rival bid was accepted the Connect cash injection would have to be repaid.

In response to the new approach, the Flybe board said that it did not believe that the "highly conditional offer... is executable in the time frame required to enable Flybe to continue to trade. Accordingly, the Board emphasises to shareholders that it continues to regard the arrangements entered into with Connect Airways as being the only viable option available to the company which provides the security that the business needs to continue to trade successfully. The arrangements with Connect Airways preserve the interests of Flybe’s stakeholders, customers, employees, partners and pension members."

Connect Airways made a bid of just £2.2m for Flybe on January 15. It valued each share at just £0.01, compared with a peak valuation of £2.95 shortly after the airline was floated in 2010. Once the deal is compete, Flybe is expected to operate with Virgin branding. The new bid comes from Phoenix, Arizona-based Mesa Airlines which operates commuter flights across the USA on behalf of United Express and American Eagle with a fleet of 145 Bombardier Regional Jets. It is backed by Bateleur Capital, an investment company with interests in the aviation, energy, real estate, and shipping sectors.

Battle

The battle for Flybe has been particularly vicious, with small shareholders claiming that the Virgin-Stobart-Cyrus deal tabled at the beginning of the year seriously undervalued the company. Investors were cut out of having a final say on the deal when Flybe transferred from a premium to a standard listing on the London stock market in mid-January. This enabled the principal assets of the firm - the airline, its maintenance division and the website - to be sold without the need to call a general meeting of shareholders.

Flybe has been struggling for some time citing rising fuel prices, a weakening of the pound, and Brexit for its problems. It has struggled to generate working capital and in addition to £15m injected by Connected Airways has sold and leased back a hangar at Exeter Airport for £5m, completed a similar transaction on a Bombardier Q400 aircraft, and has traded slots at London Gatwick Airport with Spanish airline Vueling. When - or if - the proposed Connect Airways acquisition is completed investors are expected to receive just 1.0p per share, a 94% devaluation from the value they were trading at last year.

Given today's statement from the Flybe board it seems likely the Connect Airways offer will prevail. And while Mesa Airlines has a great deal of experience in the US, backing from Virgin Atlantic and Stobart Air - including the potential to transfer customers to the wider Delta Air Lines-Air France-KLM group - seems likely to offer better immediate prospects for Flybe.

Text © The Aviation Oracle