If you’re looking for an up and coming airline with serious global clout, look no further than Virgin Atlantic. In a surprise move, the Virgin Atlantic and Stobart Group have bypassed shareholders and purchased Flybe at a higher than original price of £2.8m.
Working with investor Cyrus Capital, under the name Connect Airways, the consortium made their offer a done deal on the 11th January. The deal included a bridging loan of £20m, with a further £80m to be injected into the airline over the coming months.
They were able to do this as Flybe will be switching their listing on the stock market from ‘premium’ to ‘standard’ status tomorrow. This new status means shareholders are no longer required to approve major asset sales.
Under the branding of Connect, Virgin and Stobart will each own 30% of the venture, with Cyrus Capital taking 40%.
In a statement from the Flybe and Connect, they said:
“The board of Flybe believes that obtaining this revised facility from the consortium provides the security that the business needs to continue to trade successfully,”
From the point of view of Flybe shareholders, the deal probably seems outrageous. With voting rights trampled on, they’re undoubtedly unhappy with the outcome, but the alternative was a real possibility of the airline collapsing. The deal is estimated to have saved the jobs of around 2,400 staff, not to mention their pension members and booked passengers.
The right thing to do
While shareholders in the stricken airline may feel aggrieved at the hurried sale, there really was no other way to save Flybe. Despite a promised £20m loan to keep things running, led by Connect, Flybe couldn’t access the cash. On Tuesday it emerged that the banks were refusing to allow Flybe to take card payments from the Connect group, in case Flybe collapsed and defaulted on the loan.
The airline had previously acknowledged a “rapid and significant tightening on Flybe’s liquidity from the card acquirer market”, so without a swift move by Connect, there was only one way for the story to end.
Now, with Connect purchasing Flybe for an increased £2.8m, it’s understood that ‘improved agreements’ have been reached with Flybe’s banks. As such, £10m of the £20m loan will be injected immediately. This won’t appease the shareholders, however, as the purchase still comes at a valuation of 1p per share, down from 16.38p before the offer was disclosed.
One such shareholder is ex-Stobart boss Andrew Tinkler who, just this week, bought 12.2% of Flybe’s shares for just less than £1m. With his purchase pegged at 4p per share, he is probably not having a very good week.
There’s another person who won’t be impressed by the last minute deal, and that’s Willie Walsh. His IAG company was rumoured to be highly interested in purchasing Flybe, and as a long standing rival of Richard Branson’s, this deal will have his temples throbbing, for sure.
Why was it a smart move by Virgin?
Virgin have long coveted Flybe’s landing slots at major airports, as well as their ability to feed customers in to their hubs for long haul routes.
With very few examples worldwide of a single airline brand combining long haul widebody operations with short haul regional aircraft, this puts Virgin Atlantic in an almost unique (and very powerful) position.
What they’ve done here is combine Europe’s largest independent regional airline (Flybe) with its second largest long haul carrier (Virgin). And to put the icing on the cake, they’ve also got a specialist third party wet leasing company (Stobart) in on the deal too. It’s a match made in heaven, and all for the bargain price of less than £3m.
- They already have Delta: The airline, along with Virgin Holidays, is controlled by a holding company, Virgin Atlantic Limited. This is 51% owned by the Virgin Group and 49% with Delta Airlines.
- They also have Air France-KLM: In July 2017, Virgin Group sold a 31% stake in the airline to Air France KLM. That left Virgin with only a 20% stake in its own airline, but it retained chairmanship of Virgin Atlantic overall.
- They have more slots: The Flybe purchase comes with valuable Heathrow slots, some of which were originally allocated to Virgin under the failed ‘Little Red’ venture.
- They’re back in the UK: Given Flybe’s established presence across the UK, including at Heathrow, the acquisition could allow Virgin to tap into the UK domestic market (again) but in a more strategic way.
- Connectivity will be unrivalled: With numerous regional slots now under their control, and an unrivalled network of connections both east and west of the UK, the ease of booking a single ticket to all sorts of out-of-the-way destinations will be unsurpassed.
- Their fleet will triple in size: Once the rebranding is complete, there will be three times as many aircraft flying in Virgin’s red-and-blue livery. Local publicity, anyone?
Undoubtedly, Virgin Atlantic will be a force to be reckoned with now they can effectively serve both long haul and regional connections with no third party involvement. That puts them well ahead of BA in the lucrative transatlantic game, and makes them a top airline for points, passengers and simplicity of travel.
Do you think the sale is going to be a great move for Virgin, or will they crash out on the UK regional market a la Little Red?