Impact of the coronavirus outbreak sealed the fate of struggling UK regional carrier Flybe, shareholder Virgin Atlantic has claimed.
Virgin Atlantic was one of three investors in the Connect Airways consortium which took over Flybe a little more than a year ago and intended to develop the airline as a feeder for long-haul services, under the Virgin Connect brand.
But the company says it has been unable to turn the airline around despite efforts from its personnel and over £135 million of investment in the last 14 months.
Virgin Atlantic says the emergence of the coronavirus has had a negative impact on Flybe’s trading, and means the Connect Airways consortium “can no longer commit to continued financial support”.
“We are deeply disappointed that Flybe has been unable to secure a viable basis for its continuing operations,” it adds, following the regional operator’s filing for administration.
Flybe had been under financial pressure for considerable time, and Connect Airways was formed to prevent the airline’s collapse.
Virgin Atlantic teamed with Stobart Group and Cyrus Capital Partners to take over the carrier.
But the consortium faced a potential Flybe collapse earlier this year, forcing the shareholders to negotiate a controversial agreement with the government in January – deferring payment of air passenger duty – to keep the airline operating.
Virgin Atlantic says the consortium has since invested £25 million of £30 million committed in January, while the “time to pay” arrangement with the UK treasury for the air passenger duty provided another £3.8 million.
“As a priority we are looking at options to provide support to Flybe staff and to assist affected customers,” states Virgin.
All Flybe flights, including those operated by Stobart Air, have been cancelled as a result of the entry into administration, says the UK Civil Aviation Authority.
“We know that Flybe’s decision to stop trading will be very distressing for all of its employees and customers,” says CAA chief Richard Moriarty.
Some customers could be protected if they had booked services with a credit card, or purchased scheduled airline failure insurance.
Others could be protected if they booked a flight under a travel company which holds an Air Travel Organiser’s Licence – but the CAA warns that it believes “very few” Flybe passengers are ATOL-protected.
There is no government directive to repatriate Flybe passengers through special flights, says the CAA, because there is “capacity in the market” for them to secure alternative travel by air, rail or coach.
Stobart Group holds a 30% share of Connect Airways. It contributed its regional airline operation Stobart Air and leasing division Propius to the consortium, as part of its investment, but says Stobart Air’s ability to trade is not directly affected by the collapse of Flybe.
It is, however, writing down to zero its investment Connect Airways, including a contribution of £43.3 million plus a £7 million investment made earlier this year.
Stobart Group adds that it has “foregone” deferred interest from which it would have benefited in the future.
But it points out that Stobart Air is not wholly-owned by Connect Airways – while Connect controls 40% of the carrier, the balance is held by an employee trust.
“As such Stobart Air’s ongoing ability to trade is not directly impacted by the decision to place [Flybe] into administration,” it says.
Stobart Group is the operator of London Southend airport and says the facility will experience a “short-term impact” given Flybe’s plans to operate several routes from Southend this year. But it adds that the longer-term prospects for Southend “remain compelling”.
