Virgin Atlantic and Southend airport owner Stobart Group are to rescue troubled Flybe.
The UK regional carrier, which recently reported a 54% drop in half-year profits, is to be acquired by a consortium led by Stobart Aviation, Virgin Atlantic and hedge fund Cyrus Capital Partners.
The deal will involve a new joint venture called Connect Airways also acquiring Flybe franchise partner Stobart Air.
Flybe will be rebranded to Virgin Atlantic “in due course”.
The consortium will pay just £2.2 million for Flybe – a fraction of its £36 million value based on the airline’s 16.4p closing share price yesterday.
However, the group pledged a £20 million loan to support Flybe’s working capital and operations.
Up to an additional £80 million in funding is to be provided as well as the contribution of Stobart Air.
The combined Connect Airways group will operate independently to Virgin Atlantic under one management team, owned 40% by Cyrus Capital Partners, 30% by Stobart Aviation, a wholly owned subsidiary of Stobart Group, and 30% by Virgin Atlantic, the holding company of Virgin Atlantic Airways and Virgin Holidays.
The deal comes after the Exeter-based Flybe put itself up for sale in November weeks after issuing a profit warning, having been hit by rising oil prices and a weaker pound.
Previous bids earlier last year by Stobart had been rejected.
However, the Connect Airways consortium aims to pull off the deal subject to a number of conditions.
The terms of the proposal will see Connect Airways acquire Stobart Air, Stobart Group’s regional airline and aircraft leasing business.
“The combined group is expected to bring benefits to customers, suppliers and employees, providing stability in a tough trading environment,” according to a statement to the London stock exchange this morning.
Flybe already feeds passengers from across its UK and European network to and from Virgin Atlantic long-haul flights at Heathrow, Gatwick and Manchester.
Virgin’s previous attempt at running UK domestic flights from Heathrow under the Virgin Little Red brand was withdraw after two years after incurring heavy losses.
Flybe CEO Christine Ourmières-Widener said: “Flybe plays a vital role in the UK’s transport infrastructure with a UK regional network which positions it well to benefit from growing demands from long haul carriers for passenger feeder traffic.
“We have successfully implemented a clear strategy in recent years focused on tighter fleet management, improving revenue per seat and increasing load factors. The pursuit of operational excellence has reduced maintenance times and increased efficiencies and customer satisfaction.
“However, 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. At the same time, Flybe suffered from a number of legacy issues that are being addressed but are still adversely affecting cashflows.
“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.”
Stobart Group CEO Warwick Brady, a former easyJet executive, said: “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 UK regional flying.
“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.”
Shai Weiss, new CEO of Virgin Atlantic, said “The Virgin Atlantic brand is built on the foundation of putting customers at the heart of everything, providing customers with the choice they deserve and a travel experience they love.
“We are pleased to have this opportunity to partner with Stobart Group and Cyrus to bring Virgin Atlantic service excellence to Flybe’s customers.
“Together, we can provide excellent connectivity to our extensive long-haul network and that of our joint venture partner, Delta Air Lines, at London Heathrow airport and Manchester airport for the benefit of our customers. In the near future, this will only increase, through our expanded joint venture partnership with Air France-KLM.”.
Cyrus partner Lucien Farrell added: “We are delighted to be working once again with the Virgin Group following our successful partnership in the launch and eventual sale of Virgin America to Alaska Airlines.
“We believe Flybe’s UK regional focus and high quality management, together with Virgin Atlantic’s dedication to the best customer experience and Stobart Group’s expertise in regional flying, will produce a world-class airline.”
Meanwhile, Cyrus Capital Partners is injecting almost £25 million into Stobart by taking a 4.65% stake to help accelerate growth at Southend airport.
Brady said: “The combination of Flybe with our franchise airline, Stobart Air, will provide us with an opportunity to increase passenger numbers at London Southend airport.
“We intend to extend and expand London Southend airport to cater for the accelerated growth that we are targeting, and Cyrus Capital is aligned to this aim.”
More: Virgin Atlantic ‘continuing Flybe takeover talks’ [Dec 18]