Flybe enters administration amid coronavirus chaos

May 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

May 2020 Issue

British airline Flybe entered administration in early March, becoming one of the first high-profile business casualties of the coronavirus crisis.

The regional airline was acquired for £2.8bn in March 2019 by Connect Airways – a consortium of Virgin Atlantic, Stobart Air and hedge fund Cyrus Capital. Despite undergoing cost-cutting plans and redundancies, it was reporting losses of around £20m a year. Flybe’s owners said they had put more than $174m into the business in the year prior to its collapse, including around £25m in January.

In a statement, Flybe’s chief executive, Mark Anderson, said the company had made “every possible attempt” to avoid collapse but had been “unable to overcome significant funding challenges”. Mr Anderson added: “The UK has lost one of its greatest regional assets. Flybe has been a key part of the UK aviation industry for four decades, connecting regional communities, people and businesses across the entire nation.”

Flybe became the first airline to enter administration since the outbreak of the coronavirus. “Sadly, despite the efforts of all involved to turn the airline around, not least the people of Flybe, the impact of COVID-19 on Flybe’s trading means that the consortium can no longer commit to continued financial support,” said Connect in a statement.

Prior to the company’s collapse, the UK government worked on a rescue deal for Flybe, saying it was important to maintain connections across the country for its eight million passengers. In January, the government agreed to provide a controversial £100m loan to the company, which operated 40 percent of domestic flights in the UK, as well as offering some deferral of tax. Following news of the loan agreement, a number of rival airlines complained that the state should not prop up failing companies, while environmental campaigners argued any move to reduce the cost of flying did not fit with the government’s aim to cut greenhouse gas emissions.

Accountancy firm EY was appointed Flybe’s administrator. “Despite an agreement with the Government to provide assistance to the company, added pressures on the travel industry in the last few weeks have further deepened the severity of its financial situation,” said Alan Hudson, joint administrator. “Flybe had already been impacted by rising fuel costs, currency volatility, and market uncertainty. As well as carrying out our duty as Administrators, we are also supporting Flybe’s employees and customers at this incredibly difficult time.”

Flybe served around 170 destinations with a presence at UK regional airports such as Birmingham, Belfast City, Manchester and Southampton.

In the wake of the company’s collapse, transport trade union Unite’s national officer for aviation, Oliver Richardson, said: “The UK economy is highly dependent on a viable and supported regional airline and airport network. For central government not to support and nurture this, especially as we deal with the twin uncertainties of the Covid-19 virus and the changes that will come with Brexit, is unhelpful and irresponsible.”

A government spokesman said that the company’s closure was a commercial decision taken by the company itself. “We will bring forward recommendations to help ensure that the whole of the UK has the connections in place that people rely on,” he added. “Flybe’s financial difficulties were longstanding and well-documented and pre-date the outbreak of Covid-19. We are well prepared for a potential outbreak and this week we have set out an action plan with details of our response.”

A number of Flybe’s former routes have been picked up by smaller airlines, however it is likely that some routes will go uncovered as they are not economically viable.

Richard Summerfield