Virgin Atlantic consortium agrees to buy Flybe

Flybe Bombardier Dash 8 Q400

Flybe Bombardier Dash 8 Q400

Virgin Atlantic and Stobart Group have confirmed an agreement to purchase struggling regional carrier Flybe.

The move ends months of speculation over the future of the airline which flies several key routes from the Isle of Man, including Manchester and Liverpool.

Shares in the company have risen 12.5% since Flybe first said it was exploring a sale as it tries to cut capacity and costs to grapple with a weak British pound, falling demand, and higher fuel costs.

Stobart Aviation owns 30pc and Virgin Travel Group, a wholly-owned subsidiary of Virgin Atlantic, owns the remainder.

The group, which includes infrastructure specialist Stobart and investment firm Cyrus Capital Partners, said in a statement that their joint venture Connect Airways will pay just one pence per share under the deal.

Flybe will be combined with Stobart Air and operate under the Virgin Atlantic brand, the new owners said.

The regional airline, like many of its peers, has been hit by higher fuel costs, Brexit uncertainty and intense competition in the sector.

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The carrier will be purchased via Connect Airways, in which Virgin and Stobart each have 30 percent stakes, with the balance held by Cyrus.

The 1p per share offer represented a big discount to the 16.38p closing price of Flybe shares on Thursday.

As part of the deal the consortium will make $26 million (£20 million) available in short-term loans to support Flybe's "ongoing working capital and operational requirements" and if and when the deal goes through it will make another $103 million (£80 million) of further funding to the combined group to "invest in its business and support its growth".

Rising oil prices and the weakening of sterling have put airlines under intense pressure, with a deepening industry price war accentuating the financial squeeze. "At the same time, Flybe suffered from a number of legacy issues that are being addressed but are still adversely affecting cashflows".

"Such a combination would be a compelling proposition with a comprehensive regional network in the United Kingdom and Ireland, coupled with an enhanced European footprint, providing greater choice and connectivity for customers to travel to destinations all over the world", it added.

"By combining to form a larger, stronger, group, we will be better placed to withstand these pressures". Stobart Air operates a wet lease and aircraft leasing business. "We aim to provide an even better service to our customers and secure the future for our people". Virgin has been struggling to feed its long-haul flights with passengers from other United Kingdom cities and Chief Executive Officer Shai Weiss said the deal will help.

"The combined entity will be a powerful combination with sufficient scale to compete effectively in the United Kingdom and European airline markets".

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