British Airline Flybe Collapses After Rescue Talks Fail

(Bloomberg) -- U.K. airline Flybe collapsed into administration after failing to secure a last-ditch bailout from the government, leaving no other option than to ground the regional carrier serving far-flung parts of the U.K.

Britain’s largest domestic airline had been teetering for months. It avoided liquidation in January, when Boris Johnson’s government came out in support of state intervention and its owners, including Virgin Atlantic Airways Ltd., injected extra cash. However, prospects for a turnaround dimmed as the coronavirus outbreak swept the globe, leading to a sharp pullback in travel.

“As a result of insolvency proceedings, Flybe has ceased to trade and is no longer able to fly or accept bookings,” administrator EY said in a statement Thursday. “Unfortunately it has been necessary to make the majority of the workforce redundant.”

The carrier employs about 2,400 people. Because most of Flybe’s routes carry passengers between U.K. destinations, the Civil Aviation Authority won’t be organizing repatriation flights like the ones implemented to retrieve stranded tourists when Thomas Cook Group Plc shut down last year.

“There is capacity in the market for people to travel via alternative airlines, rail and coach operations,” the CAA said.

The fate of Flybe illustrates the complex dilemma facing Johnson’s government as the U.K. seeks to re-balance its economy outside the European Union.

As a Conservative, the prime minister understands his party’s traditional reluctance to rescue failing private companies. But Flybe served economically flagging, “left behind” regions of the U.K. that he is desperate to revive.

Connecting parts of northern England with London and other major cities is a priority for Johnson as he seeks to repay the faith of voters in areas that backed Brexit in 2016 and handed him victory in December’s election. At the same time, supporting air travel could have undermined his environmental credentials after a pledge to reduce carbon emissions to “net zero” by 2050.

Coronavirus added a new level of uncertainty. Flybe’s direct parent, Connect Airways, was seeking a 100 million-pound ($128 million) state loan intended to keep it afloat through a restructuring program, alongside cuts to the U.K. flight tax in this month’s budget, people familiar with the matter have said.

While Exeter-based Flybe’s owners were seeking to gauge whether a virus-related bailout might be possible, no agreement could be reached.

“We are deeply disappointed that Flybe has been unable to secure a viable basis for its continuing operations,” Virgin Atlantic said. “Despite the efforts of all involved to turn the airline around, not least the people of Flybe, the impact of COVID-19 on Flybe’s trading means that the consortium can no longer commit to continued financial support.”

Virgin and Connect Airways co-owners Stobart Group and private-equity firm Cyrus Capital together promised about 30 million pounds in funds, on top of 110 million pounds committed after they bought Flybe in 2019 for 2.2 million pounds. Richard Branson’s long-haul carrier had relied on Flybe to feed passengers into its main London Heathrow hub.

Flybe’s website wasn’t working Thursday morning.

The Department for Transport said officials would be on hand at affected U.K. airports to assist passengers. It said bus and train operators have been asked to accept Flybe tickets, with other airlines urged to offer reduced rescue fares.

“We are working closely with industry to minimize any disruption to routes operated by Flybe, including by looking urgently at how routes not already covered by other airlines can be re-established by the industry,” DfT spokesman Jack Short said in a statement.

He added that Flybe’s financial difficulties “were longstanding and well documented” and predate the coronavirus outbreak.

Johnson had announced a rescue of Flybe on Jan. 14, saying the airline provided vital connections to economically challenged parts of Britain, many lacking adequate rail links. The move was criticized by other carriers, which said the company shouldn’t be propped up by the state, and green campaigners seeking a clampdown on the industry’s CO2 emissions.

Flybe was also able to defer some outstanding taxes, but the vital loan, air passenger duty reform and other measures such as state support for specific routes were left subject to further negotiation. In particular, the government had stressed that any funding would be on purely commercial terms, something that was expected to prove a sticking point given the airline’s losses.

Flybe has struggled for years with the narrow margins on regional routes, where demand is lower, together with fluctuating fuel prices and uncertainty around Brexit. The virus compounded its woes, as demand for travel slumped worldwide and airlines cut capacity in an effort to contain the outbreak.

“This is a sad day for U.K. aviation and we know that Flybe’s decision to stop trading will be very distressing for all of its employees and customers,” CAA Chief Executive Officer Richard Moriarty said in a statement.

--With assistance from Christopher Jasper, Tara Patel, Stuart Biggs and Siddharth Philip.

To contact the reporters on this story: Charlotte Ryan in London at cryan147@bloomberg.net;Will Davies in Hong Kong at wdavies13@bloomberg.net;Tim Ross in London at tross54@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Will Davies

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