RE: --15 Jan 2019 15:15
Taverham
The consortium buying Flybe revised its terms for the troubled UK regional airline because of the carrier’s “very bleak” working capital situation, according to people briefed on the deal.
Connect Airways, which consists of Virgin Atlantic, Stobart Aviation and an investment company, had agreed last week to pay £2.2m for the group.
But on Tuesday it said it would instead pay £2.8m to the holding company for the main trading arm, Flybe Limited, and the digital arm Flybe.com, after original terms of the deal were not met.
The mechanics of the revised deal mean Connect will take hold of Flybe’s assets and operations by February 22, instead of waiting for the transaction for the whole company to close later this year.
The revised deal allows the consortium to pump in money straight away.
The ultimate offer to the shareholders remains unchanged at 1p per share, valuing Flybe at £2.2m. The difference will be paid out in salaries, fees and similar expenses.
Flybe’s shares fell 48 per cent on Tuesday morning to 2.16p, above the 1p offer Connect had made but down 93 per cent on a year ago, giving it a market capitalisation of £8.9m. At the end of September 2018 it had net debt of £82m.
The working capital situation looked likely to worsen, said two people briefed on the deal, because Flybe had failed to meet the conditions for receiving a promised £20m bridge loan from Connect, necessitating the new arrangement.
The new arrangement contained a revised bridge loan, which was due to disburse £10m on Tuesday, with another £10m to follow. A further £80m in funding also remains as part of the original deal.
Flybe said: “The board of Flybe believes that obtaining this revised facility from the consortium provides the security that the business needs to continue to trade successfully. This preserves the interests of its stakeholders, customers, employees, partners and pension members.”
The bridge loan condition that Flybe could not fulfil was concluding agreements with its credit card acquirers, who process transactions, to return the levels of cash they retain from Flybe’s transactions to normal ones.
The credit card acquirers have been imposing tougher conditions, which have meant Flybe must provide more cash as collateral.
Credit card acquirers have been a significant problem for Flybe because of this demand for higher levels of cash.
At the end of September 2018, Flybe’s restricted cash had increased by £8.1m to £16.4m fr
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