The boards of Connect Airways, a company bringing together Virgin Atlantic, Stobart Group and Cyrus Capital, and Flybe have confirmed an agreement on a cash offer for the regional carrier.
Once the deal is complete, Connect Airways will acquire the entire share capital of Flybe, with Stobart contributing its aviation division and Propius, its aircraft leasing business, into Connect Airways.
Virgin Atlantic worked with Cyrus Capital to launch its Virgin America subsidiary, as well as the eventual sale of the carrier to Alaska Airlines.
Loss-making Flybe put itself up for sale in November after issuing a profit warning to shareholders.
Stobart had considered making an offer for the regional carrier earlier in 2018, but both companies pulled out of the deal when they failed to agree a price.
In addition to the acquisition, Cyrus, Stobart Group and Virgin Atlantic will provide a £20 million bridge loan facility to support Flybe’s continued operations. Upon completion, the group intends to give up to £80 million of further funding “to invest in its business and support its growth”.
Flybe will continue serving customers on its regional routes across the UK and Ireland under its own brand for a time, but will eventually be rebranded to Virgin Atlantic. After the name change, Flybe will continue as a separate operator with its own UK Air Operator Certificate (Air operator's certificate is granted by a country's aviation authority permitting the airline to fly commercially.
Virgin Atlantic says the acquisition will give regional customers more choice of connections to the airline’s long-haul network at Manchester and Heathrow.
The deal could also provide an opportunity for the combined group to grow its presence at Southend airport.
The combined group will operate independently to Virgin Atlantic under one management team, with 40 per cent owned by Cyrus Capital Partners, 30 per cent by Stobart Aviation and 30 per cent by Virgin Atlantic Limited.
Flybe CEO Christine Ourmieres-Widener praised the carrier’s efforts to improve its financial performance in recent years, but said: “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 has 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.”
Shai Weiss, CEO of Virgin Atlantic, commented: “We are pleased to have this opportunity to partner with Stobart Group and Cyrus Capital to bring Virgin Atlantic service excellence to Flybe’s customers. Together, we can provide greater connectivity to our extensive long-haul network and that of our joint venture partners Delta Air Lines at Manchester airport and London Heathrow. In the near future, this will only increase, through our expanded joint venture partnership with Air France-KLM.”
Stobart Group CEO Warwick Brady 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 regional airline consolidation.
“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.”
Cyrus Capital 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 strong market position 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.”