05/03/2020

Flybe finally folds

Flybe finally folds

Regional airline Flybe went into administration on 5th March, with lessors already moving to repossess their aircraft and leaving questions around the airline’s valuable Heathrow slots.

The collapse comes less than two months after Exeter-based Flybe, the UK’s largest regional airline, snagged a controversial government rescue deal (see Insight: ‘Is Flybe on the brink?’). The rescue involved a £10 million tax deferral and a state loan of £100 million loan ($129.3 million), however according to Flybe parent company, Connect Airways, this funding never “materialised”. EY has been appointed as administrator as the company goes through liquidation.

Flybe was owned by consortium Connect Airways – a joint venture between Cyrus Capital Partners, Virgin Atlantic and UK infrastructure giant Stobart Group – after a £2.8 million ($3.6 million) bailout at the start of 2019 that saw its equity valued at just a penny a share. Cyrus held 40% of Flybe, with Virgin Atlantic and Stobart Group taking 30% each.

Flybe has highlighted the global Covid-19 outbreak as expediating the airline’s default. “The coronavirus has impacted both our shareholders and ourselves and has put additional pressure on an already difficult situation,” Mark Anderson, CEO of Connect Airways, wrote in an email to employees.

The airline had enough cash only to make it to the announcement of the UK’s new budget next week, the Financial Times reported, with the hope that the airline’s air passenger duty – a UK tax on aviation – would be cut.

“Despite every effort, we now have no alternative – having failed to find a feasible solution to allow us to keep trading,” wrote Anderson, “While our shareholders and the Leadership Team have worked with the Government and key suppliers to try to get the funding and support needed, this has not materialised.”

 

UK backs out of state loan

 

Talks for Flybe’s state loan fell apart on Wednesday after nearly two months of negotiations. It is not yet known exactly why the UK government walked away, however the airline’s request for a state loan has been beset by controversy from the outset. Competitors from air and rail alike lashed out at the rescue deal, with IAG launching a complaint to the European Commission that it breached state aid rules.

Anderson stressed in an email to employees in late January that Flybe was seeking a commercial loan from the government, not a bailout: it would be “the same as any loan we’d take from any bank”. “The [tax] agreement will only last a matter of months before all taxes and duties are paid in full,” the airline added publicly in January.

However, Flybe’s 2019 rescue from Connect Airways included a loan that collateralised much of the airline’s buildings, equipment and intellectual property, UK Companies House filings show. Sources told the Sunday Telegraph that Flybe had “got out it’s begging bowl” in discussions with the UK government as it became likely that any state loan would have to be unsecured.

Ryanair head Michael O’Leary was vocal in besmirching the planned government loan. “Flybe is not a viable business; it never has been,” O’Leary said after the rescue deal was announced. “It has lurched from reconstruction to reconstruction and this is the government misusing state funds to discriminate in favour of Flybe.”

 

Lessors repossess ahead of collapse

 

Lessors have acted promptly to rumours of Flybe’s impending bankruptcy. As of 3rd March 2020, 69% of Flybe’s regional jet and turboprop fleet was leased, according to CAPA Fleets, with NAC and HEH Aviation Management having the largest exposure.

Six leased aircraft left Flybe’s fleet of 65 aircraft between 15th January and the airline’s collapse, according to CAPA Fleets. Singapore-based lessor Avation got its two ATR 72-600s (MSNs 1260 and 1277, both aged 4 years) out from Flybe and placed with Loganair before Flybe collapsed, the lessor confirmed. Scottish regional airline Loganair has already taken over 16 of Flybe’s routes.

Falko told Ishka that it has no exposure to the bankruptcy as it has LOIs (letters of intent) in place for all six of its ex-Flybe E195s (MSNs 19000104, 19000120, 19000128, 19000143, 19000155, 19000168). The two Falko-managed E195s still with Flybe at the time of its collapse (MSNs 19000155 and 19000168) were already out of service and going through scheduled redelivery. Flybe had been phasing out its E195 aircraft since 2018.

Since mid-January, two Nordic Aviation Capital (NAC)-owned ER175s (MSNs 17000344 and 17000351) also left Flybe’s fleet, according to CAPA Fleets. 

Flybe Fleet (3rd March 2020)
Lessor/Owner Manager Aircraft MSN Reg. Number Age Engine Model Notes
Chorus Aviation Chorus Aviation DHC-8Q-400 4216 G-ECOF 11.583 PW150A
Chorus Aviation Chorus Aviation DHC-8Q-400 4221 G-ECOH 11.5 PW150A
Chorus Aviation Chorus Aviation DHC-8Q-400 4224 G-ECOI 11.417 PW150A
Chorus Aviation Chorus Aviation DHC-8Q-400 4230 G-ECOK 11.333 PW150A
Chorus Aviation Chorus Aviation DHC-8Q-400 4237 G-ECOO 11.167 PW150A
Ravelin Jet Leasing 1 Ltd Falko ERJ195 19000155 G-FBEJ 11.917 CF34-10E7G07
Ravelin Jet Leasing 1 Ltd Falko ERJ195 19000168 G-FBEK 11.833 CF34-10E7G07
Flybe Flybe DHC-8Q-400 4077 G-JEDM 16.75 PW150A
Flybe Flybe DHC-8Q-400 4085 G-JEDP 16.167 PW150A
Flybe Flybe DHC-8Q-400 4087 G-JEDR 16 PW150A
Flybe Flybe DHC-8Q-400 4088 G-JEDT 15.917 PW150A
Flybe Flybe DHC-8Q-400 4090 G-JEDV 15.75 PW150A
Flybe Flybe DHC-8Q-400 4093 G-JEDW 15.583 PW150A
Flybe Flybe DHC-8Q-400 4180 G-ECOA 12.25 PW150A
Flybe Flybe DHC-8Q-400 4185 G-ECOB 12.83 PW150A
Flybe Flybe DHC-8Q-400 4187 G-PRPA 12.83 PW150A
Flybe Flybe DHC-8Q-400 4191 G-PRPG 12 PW150A
Flybe Flybe DHC-8Q-400 4195 G-PRPF 11.917 PW150A
Flybe Flybe DHC-8Q-400 4204 G-PRPI 11.75 PW150A
Flybe Flybe DHC-8Q-400 4209 G-PRPE 11.667 PW150A
Flybe Flybe DHC-8Q-400 4212 G-ECOE 11.667 PW150A
Flybe Flybe DHC-8Q-400 4323 G-PRPH 9.583 PW150A
Flybe Flybe DHC-8Q-400 4332 G-PRPD 9.417 PW150A
Flybe Flybe DHC-8Q-400 4333 G-PRPB 9.333 PW150A
Flybe Flybe DHC-8Q-400 4338 G-PRPC 9.25 PW150A
Flybe Flybe DHC-8Q-400 4380 G-PRPL 8.5 PW150A
Flybe Flybe ERJ175 17000359 G-FBJK 6.833 CF34-8E5G01
Flybe Flybe DHC-8Q-400 4089 G-JEDU 15.917 PW150A
Flybe Flybe ERJ175 17000326 G-FBJA 8.583 CF34-8E5G01
Flybe Flybe ERJ175 17000327 G-FBJB 8.583 CF34-8E5G01
Flybe Flybe ERJ175 17000328 G-FBJC 8.583 CF34-8E5G01
Flybe Flybe ERJ175 17000329 G-FBJD 8.417 CF34-8E5G01
Flybe Flybe ERJ175 17000336 G-FBJE 7.833 CF34-8E5G01
Flybe Flybe ERJ175 17000341 G-FBJF 7.667 CF34-8E5G01
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4179 G-JECZ 12.25 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4197 G-ECOC 11.917 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4201 G-KKEV 11.833 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4206 G-ECOD 11.75 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4220 G-ECOG 11.5 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4229 G-ECOJ 11.333 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4233 G-ECOM 11.25 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4251 G-ECOT 10.917 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4257 G-FLBC 10.75 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4259 G-FLBD 10.75 PW150A
HEH Aviation Management HEH Aviation Management DHC-8Q-400 4261 G-FLBE 10.667 PW150A
HEH Aviation Southampton Beteiligungs Gmbh & Co KG HEH Aviation Management ERJ175 17000355 G-FBJI 7.167 CF34-8E5G01
HEH Aviation Dublin Beteiligungs GmbH & Co KG HEH Aviation Management ERJ175 17000358 G-FBJJ 6.833 CF34-8E5G01
Nordic Aviation Capital Nordic Aviation Capital ERJ175 17000344 G-FBJG 7.667 CF34-8E5G01 Last commercial flight 11th November 2019
Nordic Aviation Capital Nordic Aviation Capital ERJ175 17000351 G-FBJH 7.333 CF34-8E5G01 Parked at Exeter. Last commercial flight 23rd November 2019.
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4113 G-JECK 14.167 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4114 G-JECL 14.83 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4118 G-JECM 13.917 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4120 G-JECN 13.833 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4126 G-JECO 13.583 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4136 G-JECP 13.25 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4139 G-JECR 13.167 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4155 G-JECX 12.833 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4157 G-JECY 12.833 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4188 G-PRPM 12.83 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4203 G-PRPK 11.833 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4213 G-PRPN 11.667 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4214 G-PRPO 11.583 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4242 G-ECOP 11.83 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4248 G-ECOR 11 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4253 G-FLBA 10.667 PW150A
Nordic Aviation Capital Nordic Aviation Capital DHC-8Q-400 4255 G-FLBB 10.833 PW150A
Nordic Aviation Capital (Sublessor: Republic Airlines) Nordic Aviation Capital DHC-8Q-400 4202 G-PRPJ 11.833 PW150A
Source: CAPA Fleets, Flightradar24.

 

The Ishka View

 

Is Flybe Covid-19’s first European airline fatality?

Covid-19 has been an unforeseen and significant pressure on airlines, but Flybe’s collapse is more to do with the UK government backing out of a promised state loan. As a UK regional airline, Flybe had no Asia Pacific route exposure, although the airline may have lost passengers making connecting flights. Covid-19 also made it hard for Flybe’s airline shareholder, Virgin Atlantic, to offer further financial assistance. Nonetheless, Ishka does not believe that the virus alone would have been enough to push the airline into bankruptcy: Flybe has long been struggling to balance its books, approaching collapse at the starts of both 2019 and 2020 and putting the blame on Brexit, as well as rising fuel costs. Covid-19 might have pushed Flybe over the edge, but the airline was already on the edge to begin with.

Virgin Atlantic could be a beneficiary of the collapse. Flybe had planned to move its Newquay-London route from Heathrow to Gatwick from 29th March 2020, freeing up valuable slots at Heathrow. Rival CEO Michael O’Leary estimated in January that those slots could be worth as much as £60 million ($77.6 million).

As Ishka highlighted earlier, CAPA Fleets data shows that Flybe operates 10% of the world’s active Q400 fleet (see Insight: ‘Is Flybe on the brink?’), meaning that both NAC and HEH Aviation Management will face challenges in remarketing those (primarily midlife) aircraft (see Insight: ‘Turboprop leases rates: Fewer lessors help ATR and Q400 lease rates stabilise’).


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