Flybe: is collapse imminent?

Coronavirus worsens airline's prospects

Flybe, Britain's biggest domestic airline, has warned the government that it could collapse within days after a slump in bookings triggered by the coronavirus.

Sky News has learnt that Flybe has renewed a plea for ministers to provide emergency financial support, even as ongoing talks about a state loan on commercial terms appear to have been rejected.

Sources said on Wednesday that there was a possibility that Flybe could fall into administration within a matter of days, although "last-ditch" discussions involving its shareholders and the government were continuing.

One insider said the chances of the airline surviving until a promised review of Air Passenger Duty (APD) charges in next Wednesday's Budget now looked "more remote".

"The Budget now looks a long way off," said the source. "An already difficult situation has been made a lot worse."

The outbreak of the coronavirus, which has hit hundreds of airlines around the world, has prompted a "collapse" in bookings at Flybe.

Sir Richard Branson's Virgin Atlantic, a shareholder in Flybe's parent firm, was the latest airline to announce measures to mitigate the impact including reviews to flight schedules, a pay freeze and time-limited pay cuts for executives.

Flybe is said to have requested additional government support in recent days to mitigate the impact of COVID-19. Its other shareholders are Stobart Group, a listed infrastructure company, and Cyrus Capital Partners, a hedge fund.

The renewed fears of administration for the Exeter-based carrier, which would put more than 2000 jobs at risk, come about seven weeks after Flybe secured a stay of execution with the government's vow to review APD and take other steps to bolster regional connectivity.

In the last few days, Mark Anderson, chief executive of Flybe's parent, Connect Airways, held talks with the UK airports into which the airline flies to request deep discounts to their charges for a two-year period.

One source said Mr Anderson had made it clear that Flybe's collapse would also have a profound impact on the airports' future.

Flybe has a presence at locations including Birmingham, Exeter, Newquay, Liverpool, Manchester and Southampton.

If it does collapse, EY, the accountancy firm, is expected to oversee the insolvency.

EY was preparing to be appointed as administrator in January, before last-ditch talks secured a reprieve foe the troubled company.

The then business secretary, Andrea Leadsom, and the transport secretary, Grant Shapps, hailed the airline's survival.

Since then, however, the Cabinet reshuffle and disagreements over the terms of a £100m government loan have cast a renewed shadow over Flybe's prospects.

Last week, Sky News obtained a letter from Mr Anderson to ministers in which he warned that most of its routes were likely to be abandoned if the company collapsed.

In the letter to the new business secretary, Alok Sharma, Mr Anderson says he is "doing everything possible to secure our long-term future - addressing our cost base and working with our key partners including UK airports that depend on our survival".

The regional airline, which is responsible for almost 40% of all domestic UK flights and carries more than 9m passengers annually, believes it is unfairly penalised by the APD system because the duty is levied on both legs of a regional flight.

Mr Anderson told the business secretary that 88 of its 120 routes are not flown by any other airline.

"If Flybe were to cease trading, only a small number of our routes are likely to be taken up by another carrier, almost certainly at reduced frequencies," he wrote.

Contingency plans that would allow the government to continue operating Flybe routes seen as critical to preserving vital regional connections are being drawn up, according to rival airline executives.

In his letter to Mr Sharma, Mr Anderson said that Flybe had proposed "introducing a new domestic APD band set at £6.50 (half the current band A rate)".

He added that adding new Public Service Obligation (PSO) routes, which receive public subsidy to make them viable, was also necessary.

Mr Anderson said Connect had "proposed that government apply PSOs to a range of existing intra-regional routes, providing immediate support for their continued viability through a new fund".

The Flybe chief has insisted that the company is not seeking a bailout, and any deal agreed with ministers would require the airline's shareholders to commit tens of millions of pounds in new equity.

However, the talks have sparked controversy across the industry, with Ryanair and British Airways' parent, International Airlines Group, threatening legal action against the government for breaching state aid law.

Michael O'Leary, Ryanair's chief executive, accused the Treasury of being "blindsided by billionaires", asking him: "If these billionaire shareholders are not willing to put their hand in their own deep pockets to bail out the loss-making Flybe, then why is your government and HMRC [the tax authorities] giving them a bailout?"

Flybe declined to comment.