.23 Nov 2018 14:55
Probably already posted but great post on advfn by colin
Virgin has leverage as part of an alliance, SkyTeam, to free up the LHR slots and create real value as set out below. Lufthansa or other members of Star Alliance could do similar but have less benefit from UK regional feed. BA and One World would be limited as the slots at LHR that Flybe are using are restricted to use in Europe and are remedy slots which any association with BA via One World would contaminate and render worthless
Follow it through below, there is REAL AND MATERIAL value here for Sky Team/Virgin
This is worth multiples of the current share price, it needs realising and COW and advisers need to get it for shareholders
"Bit of a surprise to me initially, but I can see the logic from their shareholders perspective. Delta (48%), AF-KLM (31%) and Branson (21%) are the shareholders but still subject to EU Competition clearance. It’s all about the feed traffic to airports the shareholders operate long haul to or have long haul hub at in UK and Europe, being EDI, LHR, MAN, LGW, AMS and CDG. Flybe have code shares with Virgin and AF, but not Delta and I think now not with KLM although they used to. Flybe’s attraction is big market share, operations and slots at MAN, EDI and seven short haul slot pairs at LHR which will become theirs if they operate the slots for one more full IATA year beyond end March 2019. Each of Virgin and Delta operate out of each of those UK airports and hence highly value connecting passengers.in addition Flybe operate to from EXT, SOU, MAN, BHX, to CDG and AMS providing feed to AF-KLM hubs. These are big routes, probably 70k passengers a month and the feed is very valuable to AF-KLM. What Virgin will be looking for from the deal will be a relatively cheap and reliable method of delivering feed traffic, and comparing the cost of doing that with the benefits to them, plus what can be developed such as new Virgin and Delta operations from BHX, the absorbtion of the rump of Flybe into the AF regional business, HOP!, and evolving the use of the seven somewhat limited LHR slots Flybe will have access to, by for example swopping them for existing AF LHR slots which are used to fly to CDG and selling those unconstrained former AF slots to Delta or someone else for long haul operation for a really large sum of money.
The issue is whether Flybe and its advisers see the opportunity for Virgins shareholders and its value and are able to negotiate on that basis rather than getting dragged down to levels near the current MC.
So, in summary it’s about feed traffic to MAN,EDI, CDG and AMS and a shuffle of the (constrained to European operation) LHR slots Flybe will own in a year or so with current ( unconstrained )AF slots for which they could earn £30m per pair, and Flybe have seven pairs which can be used in the game of shuffle
Evercore and COW have a good hand here, but a rival suitor would help"
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