European ‘red tape’ contributed to Flybe crisis, says Stobart Group

Delays caused by European ‘red tape’ contributed to airline Flybe almost crashing into administration.

That was the claim by Stobart, the Carlisle-based group which is one of the three owners of the struggling airline that was saved from administration this week by a pledge of more funding from it backers, moves by the Government to review its APD (air passenger duty) tax and HMRC’s offer to stagger outstanding APD payments from Flybe.

In a statement to the stock exchange, Stobart explained the background to its takeover of Flybe a year ago by the Connect Airways consortium, made up of Stobart (30%), Virgin Atlantic (30%) and hedge fund Cyrus Capital (40%), and moves to keep the airline flying.

The consortium announced its intention to acquire the assets of Flybe in January 2019.

However, said Stobart, it did not receive merger control clearance from the European Commission for its acquisition of Flybe until July 5, 2019.

It said: “The delay in receiving control, coupled with a number of other factors including legacy issues, impacted on the delivery of the consortium’s turnaround plan for Flybe.

“This resulted in a situation in which a further injection of funds is required to ensure continued flying.”

Stobart revealed that the shareholder consortium has, to date, provided £110m of funds to Connect Airways, and Stobart Group has invested £45m through a combination of cash and the sale of Stobart Air, Stobart Group’s regional airline, and its aircraft leasing business, Propius.

Stobart said the Connect Airways consortium has worked tirelessly alongside Flybe and the UK Government to look for solutions to ensure the financial viability of the airline so that consumers can continue to have confidence in flying with Flybe.

Following these discussions, it has been agreed that:

• As announced, the Government will review the application of APD, with the intention to provide a further update at the time of the March Budget.
• The Government has further announced a review of regional connectivity. Government support for regional routes that connect key parts of the UK economy would further enhance the viability of UK domestic flight provision, as well as supporting economic growth in those regions.
• The Connect Airways consortium has committed to providing Flybe further short-term funding with Stobart Group contributing up to £9m of capital, with the funds drawn down only if required.

Stobart said the combination of Flybe with Stobart Air and Propius provides the opportunity to establish a compelling proposition with a comprehensive regional network in the UK and Ireland, while enabling Stobart Group to concentrate on its strategic focus for developing airport and aviation services assets.

Stobart Group owns both Carlisle Airport, and London Southend Airport.

The investment provided the potential for growth at London Southend Airport. On November 13, 2019, Flybe announced its intention to offer flights to 10 destinations from London Southend Airport from Summer 2020.

These destinations are expected to attract around 500,000 passengers annually to London Southend Airport.

Rival airlines have attacked the Government’s efforts to help Flybe.

Willie Walsh, boss of British Airways group IAG, and Ryanair chief executive Michael O’Leary say the moves could contravene state aid rules. However, the Government insists its proposals fully comply with regulations.