Flybe in Takeover Talks as Rising Oil Price Weighs on Profit

(Bloomberg) -- Flybe Group Plc has begun takeover discussions with several parties as the rising cost of oil crimps earnings at Britain’s biggest provider of domestic flights and the company faces increasing financial stress.

  • The Exeter, England-based carrier is in talks with “a number of strategic operators about a potential sale,” it said in a statement Wednesday, without naming them. The stock rose the most since 2013.

Key Insights

  • Airports operator Stobart Group Ltd. dropped plans for a purchase of Flybe in March after failing to agree on terms. Sky News reported earlier that Stobart may have renewed its approach and that turnaround funds could also be interested, citing bankers it didn’t identify. A Stobart spokesman declined to comment.
  • Flybe said there’s no certainty that a bid will be forthcoming. In the meantime, it will carry on with plans to shrink its fleet and move to cheaper turboprop aircraft in an effort to strengthen its balance sheet and preserve cash. It will also consider property disposals and the sale and leaseback of planes and engines.
  • The airline, which employs 2,300 people, said it faces the prospect of companies that process bank-card transactions lifting the required level of collateral, bringing its ability to continue as a going concern into doubt. It has so far provided 16 million pounds ($21 million), equivalent to 30 percent of the total that could be required.
  • Flybe focuses on cities largely ignored by network and low-cost operators, ranking as Europe’s biggest airline using planes with 100 seats or less. While a valuable market, the smaller aircraft generate lower operating margins, leaving the company particularly vulnerable to fluctuations in costs and demand.

Market Reaction

  • The stock rose as much as 41 percent before trading 6 percent higher as of 11:37 a.m. in London. It dropped 41 percent on Oct. 17, the most since Flybe floated in 2010, after the company said softer second-half sales would lead full-year profit to miss analyst estimates.
  • The shares are trading down 61 percent this year, valuing the company at 27 million pounds.

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  • Other carriers have already succumbed to oil’s rise. Belgium’s VLM announced its liquidation in August, when Switzerland’s Skywork Airlines AG also ceased flights. The German arm of Small Planet filed for insolvency in September, with Azur Air halting operations in the country, and Nordic leisure carrier Primera Air collapsed on Oct. 1.
  • Click here to see Flybe’s statement on its sale plans and here for the latest earnings update.

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