Breaking news from the British domestic aviation market, as it seems Birgin Atlantic and Stobart could be teaming up to buy Flybe.
The carrier has been on the market for a few weeks now and it has been anyone’s guess who will snap it up.Flybe’s fleet of smaller, turboprop aircraft could make shuttling to hubs an attractive prospect for these big operators.
What are the details of the Flybe takeover?
Originally, both Virgin and Stobart were rivals in the hunt to buy Flybe. With Virgin having failed to create its own British domestic network in the past (Little Red) and Stobart, already an operator for many Flybe flights, both had eyes on one of Britain’s largest domestic networks.
But it seems they have reached a “can’t beat them, join them” deal, with the two players teaming up to buy the struggling airline for a cut-throat price.
They will be making a public offer on Friday the 11th of January local time on the London stock exchange. It is believed that they will be offering a price well under the true value of the shares (Currently at 16.38 GBP). Experts have evaluated Flybe at around $20 million dollars (US) but whether or not they will get that much remains to be seen.
The new operation will be majority owned by Virgin Atlantic, with both Stobart and financing firm Cyrus Capital Partners owning small stakes. Virgin will operate the airline, but Stobart will be one of the majority contractors fulfilling the service. Stobart is also not contributing any money to the sale, instead bringing over their existing plane assets to bolster the fleet.
Why is Flybe up for sale?
Flybe is an interesting company in an interesting position. Most of their fleet (77 aircraft) is made up of turboprop aircraft, with a few jets thrown in. Their routes are based mainly around the British Isles with a few European destinations. As such, most of their trade is competing with land transport (such as a train or bus) or with discount carriers (like Ryanair and EasyJet).
Plus, with rising fuel prices (that saw the bankruptcy of more than a few airlines last year) and small capacity, Flybe hardly has the room to breathe with their profit margins shrinking every day.
Lastly, with Brexit is looming later this year, many of their routes are uncertain to continue. In the end, the market is just too volatile for this airline to exist on their own.
Why is it an attractive buy for Virgin and Stobart?
As we mentioned above, Virgin is very keen to get back into the domestic British market. Essentially, they need feeder routes for their profit-making international routes. By using Flybe aircraft to ferry international passengers to Virgin flights (For example from the Midlands down to Heathrow airport), they can easily increase their current business.
Plus, Flybe currently owns several Heathrow slots. As we have mentioned in other articles, these slots are worth millions in their own right and would be very useful for Virgin to have.
As for Stobart, they already operated several Flybe flights and own several aircraft. They would essentially be cutting out the middle man and gaining far more profit per flight.
This is not a done deal, and industry professionals are still warning that a new bidder (Such as British Airways and IAG) could make an offer at the last minute and steal the airline out from the nose of Virgin and Stobart.
What do you think? Is this a good thing for the aviation industry?