‘Flymaybe’ no more: Flybe set for Virgin-led makeover

Marvin Mutz, (CC BY-SA 2.0)

Once written-off as another European airline headed for collapse, the struggling British regional airline Flybe finally has the go ahead for new ownership. Virgin Atlantic’s Connect Airways (UK) has received approval by the European Commission to acquire and merge with the carrier and Stobart Air (Ireland). The Virgin (VAH) -led consortium hopes the takeover will secure a better future for the airline, including improving its image: Flybe has been nicknamed “Flymaybe” by many frustrated passengers complaining over the carrier’s poor services and unreliability.

The path to takeover

The European Commission, European Union’s (EU) executive arm, announced on July 5, 2019, it has approved the acquisition of the UK-based Flybe by Connect Airways, a consortium led by Virgin Atlantic, Stobart Aviation and U.S. private equity firm Cyrus Capital. The move essentially paves the path for Flybe’s takeover, although the approval for the merger has been given despite the Commission’s concerns regarding competition on certain routes.

According to the regulator, it had investigated the impact of the proposed merger, which was put forward to the Commission in May 2019, “on routes from British airports to other European airports as well as some intra-UK routes”. The findings identified that the merger would have led to so-called “quasi-monopolies” on two direct European routes: Birmingham (UK) – Amsterdam (the Netherlands) and Birmingham – Paris (France).

The European Commission had feared those routes could have fallen under a near monopoly situation overseen by Air France-KLM, after the regulator approved the joint control over Virgin Atlantic by Air France-KLM, Delta and Virgin Group in February 2019. Entry of competitors into these routes would be difficult, considering the congestion in both Amsterdam Schiphol (AMS) airport and Paris Charles de Gaulle (CDG), where Air France-KLM is headquartered, the Commission noted.

As a result of the deliberations, Connect Airways promised these solutions: the consortium will release five daily slots at Schiphol and three at Charles de Gaulle to allow competition on the Birmingham-Amsterdam and Birmingham-Paris routes. „The commitments fully address the competition concerns identified by the Commission regarding Connect Airways’ acquisition of Flybe,” the regulator stated in its announcement.

“The Commission therefore concluded that the proposed transaction, as modified by the final commitments, would no longer raise competition concerns. The decision is conditional upon full compliance with the commitments,” the statement ends.

On the brink of collapse

After a swathe of painful cost cutting measures at the end of last year, including reduction of flight numbers, closing of bases and staff lay-offs, it looked like Flybe would soon join the ranks of failed European airlines. In November 2018, the struggling regional carrier announced it was looking for a potential buyer.

Among the many names speculated in the media, Virgin Atlantic was the first to pop up. Soon after Flybe’s announcement, the British long-haul carrier stated it was “reviewing its options in respect of Flybe,” including a potential offer. At the time, Virgin Atlantic already had a trading and codeshare relationship with the regional airline.

Flybe was bought by Connect Airways in January 2019. The following month, the European Commission authorized Connect to acquire the carrier’s shares, while officials reviewed the proposed merger. The consortium offered a meager 1 pence per share for the acquisition, in a deal that was valued at only around $2.75 million (£2.2 million), The Guardian wrote at the time.

The terms of that deal also included Cyrus, Stobart Group and Virgin Atlantic injecting $125 million (£100 million) into the airline in the form of a $25 million (£20 million) bridge loan and $100 million (£80 million) for further investment, as Virgin (VAH) outlined in an official announcement.

Rebranding in the works

Virgin Group, on its part, announced the news of the takeover on July 8, 2019. “Connect Airways has received merger control clearance from the European Commission for its acquisition of Flybe and Stobart Air,” the statement reads. According to Virgin (VAH) , Connect will now “take over full management control of the [Flybe] business” with Mark Anderson, former managing director of Virgin Holidays, formally assuming the role as CEO of Connect Airways.

“On behalf of Connect Airways, I couldn’t be more excited by the opportunity we have to build a strong platform to consolidate the expertise of Flybe and Stobart Air in the UK and to grow our franchise flying,” Anderson commented in the news release. Connect Airways is owned by Virgin Atlantic (30%) and its partners Stobart Group (30%) and Cyrus Capital (40%).

Together with a new executive team, the new chief will focus on growing Flybe’s regional network and expanding Stobart Air’s franchise business, the consortium states. Flybe is to benefit from improved connectivity between UK regional airports and Virgin Atlantic’s long-haul network, particularly at London Heathrow (LHR) and Manchester (MAN) hubs.

“I’m excited to build on the successful partnership Virgin Atlantic has enjoyed with Flybe – and how we can enhance the experience for our mutual customers, once Connect Airways joins the Virgin (VAH) family and operates under its new brand,” Shai Weiss, CEO of Virgin Atlantic, stated.

The hopes are that the takeover “will secure the long-term future of Flybe” and “provide more choice for customers across the UK,” as Virgin (VAH) assures. Aiming to “redefine” customer experience, the consortium is working to develop a new brand and customer proposition for Flybe, to be announced “in due course”.

According to Lucien Farrell, Chairman of Connect Airways, under the new leadership, “the company has the opportunity to create a world-class offering for customers, combining a highly successful franchise flying business with Europe’s largest regional airline,” he said in an official statement.

Headquartered in Devon (UK), Flybe operates more domestic flights in the UK than any other airline, and until now was Europe’s largest independent regional carrier, flying an average of eight million passengers per year on its domestic and international routes combined. From its hub at Exeter International Airport (EXT), the budget carrier operates a fleet of 76 aircraft: 54 Bombardier Q400 Series, 17 Embraer E-Jets (including E195s and E175s), as well as five ATR 72s, according to its latest update announcing the merger.

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