the times | Friday March 6 2020 2GM 39Business
Flybe owners didn’t
bother to prop it up
B
rought down by
coronavirus. Well, hardly.
Chronic mismanagement
and greedy owners, more
like. Covid-19 might have
dealt the final blow to Flybe. But it’ll
be no consolation to the airline’s
2,400 staff that its minted
shareholders had the financial fuel
to keep it flying.
They just didn’t want to put any
money in. And, in a sense, who can
blame them: an ownership trio
starring Sir Richard Branson’s
Virgin Atlantic and the UK-listed
Stobart, each with 30 per cent, plus
New York hedge fund Cyrus
Capital, the holder of the rest. But to
let the carrier keel over just a year
after they bought it? Call it an
unlucky takeover if you like. But
cynical would be a better word.
They knew Flybe was a financial
black hole with wings: floated at
290p a share in 2010, bought in
February last year for just 1p, or
£2.8 million. And even during the
bid, the trio showed their colours.
For months, they messed around
Flybe’s management with mooted
offers as separate bidders. Then, with
the airline running out of cash, they
joined forces, cut the price by more
than nine-tenths and made a take it
or leave it rescue bid. When Flybe’s
furious shareholders protested, they
dodged round them and re-cut the
deal to buy the assets out of the
holding company. Nice work.
Still, all of that might have been
forgiven if they’d made any effort to
deliver on their promise to “provide
a strong foundation to secure the
long-term future of Flybe”. They
pledged to “deliver more choice to
customers”, rebranding Flybe “under
the Virgin Atlantic brand” and
incorporating its feeder services into
Virgin’s “extensive long-haul
network”. And they claim to have
invested “more than £135 million”.
Reality tells a different story. As
Stobart admitted after Flybe failed,
its cash hit was just £7 million. The
rest of its contribution was its
fledgling airline Stobart Air and its
aircraft leasing wing, ludicrously
valued at £43.3 million — or about
five times what they’re worth. The
owners have routinely refused to
say how much cash actually went in.
In fact, each investor had
different reasons for buying Flybe.
Stobart wanted an outrageous price
for its aviation assets and more
traffic through its Southend airport:
one reason it was about to add Flybe
flights to Jersey and Belfast, even
though the airline flew the same
services from London City. Virgin
wanted nine pairs of lucrative
Heathrow slots — scandalously
switching the taxpayer-subsidised
Newquay service to Gatwick to free
up four of those slots. And Cyrus
wanted a quick flip — even if
there’d be no windfall to match the
$1.4 billion it shared with Branson
from selling Virgin America.
All wanted as little financial risk
as possible, underlined by them
instantly taking charges over Flybe’s
assets — or at least those that
couldn’t fly off. Lessors had security
over most of the 67 turboprops, but
anything unencumbered was
divvied up. Companies House filings
show that “clear and distinctive”
labels were affixed to all kit valued“in excess of £10,000”. Nowhere was
there a viable business plan,
requiring cost and route cuts. Or the
promised rebranding that involved
hard cash. No wonder credit card
companies held back £50 million of
passenger fares. Who’d release
money to this sort of business?
And then, when cashing in on
Flybe turned out to be trickier than
thought, the owners demanded a
taxpayer bailout — demeaning stuff
for the Necker island knight with a
£4 billion fortune. Or Virgin
Atlantic’s co-owner Delta Air Lines,
valued at $30 billion. Or the Cyrus
boss, Stephen Freidheim, managing
$4 billion of funds and the owner of
a Manhattan penthouse.
Yes, they persuaded ministers to
give them a £10 million holiday on
air passenger duty. But a £100 million
soft loan when they’d failed to invest
enough themselves or produce the
promised turnaround plan? No big
shock that new chancellor Rishi
Sunak saw through that. As the
British Airways owner IAG put it: if
Flybe’s “wealthy shareholders didn’t
wish to fund its survival, it would
have been preposterous for the
government to do so”. You don’t
need coronavirus to tell you that.Flight from sense
F
lybe’s boss Mark Anderson
bowed out with the line: “The
UK has lost one of its greatest
regional assets.” But here’s a clue to
his focus on the regions from the
Newquay airport chairman Tim
Jeans: “He never once picked up the
phone to anyone at Newquay.”
Not Mr Jeans, nor any other
senior management at Flybe, he
says. Impressive stuff, given
Newquay’s the home of England’s
sole “public service obligation”
(PSO) flight: the one with a
£3.4 million taxpayer subsidy over
four years that Flybe’s owners
shifted from Heathrow to Gatwick.
Still, the regional problem is now
the government’s. Flybe flew 38 per
cent of domestic flights, with 88 of
its 120 routes not flown by any other
airline. And given its slow-motion
collapse, the government should be
able to tell us three things smartish.
First, which domestic routes make
commercial sense for other airlines
to fly. Second, which can go with no
great loss. And, third, which are vital
to regional connectivity but need a
PSO subsidy: far better use of public
money than bunging Flybe a loan.
PSO flights don’t incur the £26
round-trip air passenger duty, so
avoiding EU state-aid wrangles. And
the hardest hit airports, such as
Southampton, Exeter and Belfast,
could help identify deserving PSO
routes to be bid for by other airlines.
They may bring a better service too.Pensioners isolated
B
aling out of Flybe is one thing.
But leaving 1,300 pensioners in
the lurch in an Isle of Man-
based scheme not covered by the
pensions lifeboat? The Virgin king
will recall the troubles that pensions
brought another tax-exile knight.[email protected]business commentary Alistair Osborne
flights across Scotland’s largest airports
being cancelled yesterday (Greig Cam-
eron writes).
Travellers at Aberdeen, Edinburgh,
Glasgow and Inverness were caught up
in the collapse of the airline.
Some flights, including those
between Wick and Aberdeen and
between Aberdeen and the north of
England, were still running as they
operated through an alliance Flybe had
with Eastern Airways.
Nicola Sturgeon was questioned onthe situation during first minister’s
questions at Holyrood.
She expressed concern for the
300 Flybe staff in Scotland and the
hundreds more throughout the wider
supply chain who may be at risk of
redundancy.
Ms Sturgeon said: “We are hoping
connectivity will be maintained by
other airlines.”
Loganair announced that it would be
stepping in to run 16 routes, including
14 from Scotland.From Edinburgh, Flybe typically ran
31 flights each day connecting 12
destinations including London, Cardiff,
Belfast and Birmingham.
Tracy Black, director of CBI Scot-
land, said that the UK government had
to move to protect those who lost jobs
and to secure “vital” connectivity
across UK regions. “Better transport
links are essential for Scottish firms and
fundamental to the UK government’s
ambitions of levelling up the UK’s
economic performance,” she said.Concerns are growing that Norwegian
Air Shuttle will be forced to shore up its
balance sheet after the low-cost airline
scrapped its profit guidance for the year
and cancelled some transatlantic
flights over the coronavirus outbreak.
Shares in Norwegian fell 13 per cent
after it withdrew its forecast, published
only last month, that the company
would return to profit this year.
Norwegian also said it was cancelling
22 long-haul flights between Europe
and the United States from March 28 to
May 5, with routes from Rome to Los
Angeles, Boston and New York seeing a
reduced number of departures.
It will also cut the number of flights
between London and New York, flying
twice, rather than three times, on someNorwegian cuts forecast
Times Business Reporter days. Norwegian has shaken up trans-
atlantic travel by offering tickets from
London to New York for less than £200.
However, while its services are popular
with customers, its ambitious expan-
sion drive has racked up significant
debts.
Shares in the company have fallen 58
per cent in the last month because of
concerns that the Covid-19 crisis would
hit bookings and also fears that it was
particularly vulnerable to a downturn
in demand because of its debts.
Analysts at Peel Hunt said yesterday:
“We believe Norwegian’s financial posi-
tion is highly stretched and we antici-
pate that it will require further capital
to survive this challenging period,
which is not certain to be forthcoming
as was the case with Flybe, which
ceased trading overnight.”cut off by collapse
Inverness
AberdeenGlasgow EdinburghIsle of
ManLeeds BradfordTeessideEast MidlandsBristol
HeathrowLondon
CityBirminghamInverness
AberdeenGlasgow EdinburghIsle of
ManLeeds BradfordTeessideNewcastleHumbersideNewcastleHumbersideEast MidlandsBristol
HeathrowLondon
City
SouthendSouthendBirminghamLiverpoolLiverpool
ManchesterManchesterAnglesey100% 487
Belfast City
79.5%
13,767Southampton95% 14,274
Jersey57.4% 6,791
Guernsey49.5%4,543
Newquay65.9%2,679
Exeter
78%
5,498Cardiff51.8%4,292
Wick58.7% 413
To
AmsterdamTo PariseenuuuurgurgururrghrgrghrgrghgggggggggghhLeeLeLeedeeeeddsdsddBBradfoBraBBBBradfordraradfddfodfordfofoorrdrddTe eTTe eTeTeessideeessssiiddedddeeNeNewNNNNeNNNNeecasewcwcastwwcascaccastssssttleleeeeHHHumberbbeerrrssssidsididdee
MMMaancanncchchesheeststetteer413
Flybe domestic airports
Percentage of flights
provided by FlybeAnnual departuresOther routesBusiest monopoly
routesBelfast -> ManchesterBelfast -> BirminghamBirmingham -> EdinburghManchester -> SouthamptonBelfast -> LondonBirmingham -> GlasgowLondon Heathrow -> NewquayIsle of Man -> ManchesterGlasgow -> SouthamptonSouthampton -> Edinburgh174 monthly flights158158146133138122119105961 12233(^44)
5
5
6
6
7
7
8
8
9
9
10
10
Source: Cirium
Busiest monopoly
routes as of Jan 2020 (on map)
continued from page 37
Flybe failure blamed on ‘U-turn’
predicted the airline “won’t be the only
one going bust this year.”
Senior Whitehall figures last night
said that government advisers had
concluded several weeks ago that they
could not provide a taxpayer-funded
loan after scrutinising the accounts.
The cash owed to Flybe by credit
companies was revealed in a witness
statement of Mark Anderson, Con-
nect’s chief executive, which was first
reported by Sky News. The statement
also showed Flybe had cash reserves of
£5.7 million but payments to creditors
“in excess of £10 million due on or
before” today.
It was also revealed that Virgin At-
lantic had notified Flybe on Tuesday
that the impact of Covid-19 on its own
bookings meant it was “no longer in a
position to provide further funding”.