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Agree specky. Rothschild are a very clever bunch, but they had the benefit of facing morons on the Flybe Board who gave them every advantage. He who controls the cash controls the game.
spring@ I really hope that your initiative with SFO bears fruit. Even discounting the distorting effect of losing material £'s the utter incompetence of the Board and complete absence of acknowledgement of the shareholders position is disgusting. I can only hope that Tinkler has a go at stopping this larceny, but I suspect it will complete in the next week anyway. This will leave a very angry group of ex shareholders ranting at the world who actually probably don't care. It will take a while but we will get over the anger but not the resentment and hatred
Taverham, Virgins LHR slots are owned by them, the Flybe ones have a few years before they are grandfathered so raising debt against them currently is unlikely. Other airports slots are not attractive to lenders. But the point is valid, Virgin lost £28m in the last accounts I saw on turnover of C£1bn, not wildly larger than Flybe, but Virgins management are savvy in realising that in aviation cash is king. The Flybe Operating Board is full of corporate has beens who don't have the capacity for a street fight, plus the oh so politically PLC Board has three females and Laffin. So the diversity box was ticked but unfortunately not the cash box.
No longer a holder.
The Flybe management have shown utter incompetence to get the business into a position where they are being controlled by a suitor with the necessary but modest cash resources. Once the consortium got sight of how delicate the cash position was then it would have been obvious to them that by controlling the process they could buy the business and its strategic slot assets very cheaply. The Boards lack of foresight and planning got the business here. Earlier asset sales, such as the 20 or so LCY slots, the MRO etc would have raised suffici not, and timely cash to avoid this. Flat footed management, hopefully Laffin and COW will never work again.
Many conspiracy theories at the moment. My personal view is that the consortium were just a lot smarter than the donkeys in EXT. it hurts and angers me because of the £'s involved, but they are only doing what they were allowed to by COW and Co, who have been so so stupid.
The Flybe purchase will be transformative for both Stobart and Virgin. Good luck to them, they played a great game, but it was one sided. I hope the Flybe Board rot in hell
Still disgusted by the Board, the H1 release and subsequent communication did not give sufficient feel for how precarious this was. PWC did raise a material concern re credit card processors restricted cash requirements. They need to protect themselves from claims from customers who have paid by credit card but not yet r deuces the goods/service when the supplier goes bust. In this case flights past d for in advance. Usually when a business is doing OK the processors will take a normal credit view, but when it's struggling they go for some % of the outstanding liability as cash in a restricted account. I suspect they demanded 100% cash cover post Christmas which would have deprived Flybe of any material cash flow from sales in the traditionally active January to March period when all airlines have a seasonal boost.
But, the speed that this has happened since the sale and lease backs in November is amazing. There must have been more to it at the time of the H1 statement. Why did they leave it so late? Why did they reject Stobart in March? Why didn't they sell bits of the business with continuing value, such as the MRO, LCY slots etc? I hope there is some enquiry into this, it really is a disgrace
How on earth did it come to this? Truly shocking. The Board have been derelict and incompetent to an extent that words fail me. How can the cash at November have been exhausted so quickly? Why didn't they act to sell the business earlier if it was that precarious? There is value here, just not enough cash. The new business should flourish. I hope Laffin and COW are never seen in business again. Disgusting
This is dragging on quite a bit. Virgin in general and RB (if he is involved in any way personally, which I doubt) are renowned for buying on the cheap. I suspect that this is because the Virgin empire is not as large or successful as RB's miraculously positive PR would suggest. Read Tom Bower's book, it will burst the bubble on the UK's favourite entrepreneur.
My feeling is that there is a deal to sell the LHR and maybe LCY businesses probably to a combination of Virgin and BA and leave the the rest of the business untouched, save for banking a large chunk of cash. I also suspect that Flybe will be contracted to fly the LHR routes until the slots become grandfathered, it would be the cheapest option. There will need to be some fancy footwork as to what entity is actually being sold to ensure that the LHR slot situation is not jeopardised. The numbers could be quite significant in this scenario, as the purchasers would be getting clean packages of business without the legacy of staff, aircraft etc. The impact on Flybe would be an eventual reduction of maybe 7 or 8 aircraft and associated overheads over time which could be merged in with the overall fleet reduction programme. I would be surprised if there are many routes in those two operations that are making full bottom line profits, but will be contributing to overheads after fixed and variable costs.
The attractions of the LHR slots to Virgin have been rehearsed on here ad nauseum, it's hugely attractive to them and their shareholders. LCY operations should be massively attractive to BA as it r duces competition on the high frequency EDI, and gives them a new route to BHD to integrate with their existing LHR-BHD operations, freeing up some long haul slots by substituting LCY rotations. The combination of LHR and LCY routes is a massive attraction to BA's global corporate and especially banking customers who they have worldwide deals with. Regulatory issues will not be too significant as It does not directly involve LHR but BA do have a big presence at LCY so maybe the will have to make some slots available for new operators on specific routes, but they know any credible new competition is unlikely so this won't be a big disincentive to them.
My guess is that this is taking a long time because it is complex, and Evercore will be wanting to maximise the price/their contingent fee. It may also be so that the Standard listing takes effect on 17.1.19. and it's simpler to complete rather than having to go through the rigmarole of Class 1 etc etc
If my musings above are anywhere accurate the next question is what does the future hold for the remaining Flybe business? I would say it's pretty good as they will have significant cash, a planned decrease in aircraft leaving a strong regional and near European business, but the necessity to credibly reduce overheads in line with the new operations scale. Maybe Stobart takeover the remaining simpler business.....any views welcome
....as we move towards a trading update later this month. Hopefully we will hear that trading is continuing to meet/beat expectations
Oh dear, Mr Angry and his mates appear to have arrived on this Board today.
I am not going to respond directly any more than I have already. I will continue to post things as I see them and hopefully the majority on here will find it useful.
Profit profit.....thank you for your somewhat heated reply. I am not going to get into a “my Willie is bigger than yours” discussion about business experience.....but yes I have and also been on the Boards of several listed companies and a partner in PE funds etc. If that is relevant and soothes your temper fine, if not who cares?
The staff Flybe hires were already costing more than their wage bill due the recharge from MAEL, and they need the line maintenance specialists who know the E175/195 and in particular Q400’s which need TLC to keep them flying.
Cage duly rattled, I’m off to the gym
I agree we shouldn’t get carried away. These are line maintenance engineers who turn the planes round, donovernight chexks and fix moderate issues with the aircraft at MAN and BHX. They were outsourced to MAEL in 2013, so they are coming home. There will be a bit of a saving as the MAEL margin will be gone. Don’t read too much into it, Flybe has to have line engineers who know their idiosyncratic types of aircraft and keep them flying until heavy, base maintenance is carried out in EXT hangars in line with scheduled inputs.
It must be working given Flybe’s (continuing) position as most punctual UK airline in 2018, following several years in same position.
But it’s got nothing to do with the finances.....which I think are now fine anyway as forward sales will be picking up post Christmas
Stationhouse, I was surprised at the lease profile when I saw it back in November in the H1 statement.
Gives an acquiror some flexibility to reduce the fleet fairly promptly. And once overheads and the Board are cut post acquisition the whole business should be profitable so the carrying cost whilst it’s restructured won’t be high
Not such a big issue if you look at the detail. Average life of outstanding leases at 30.9.18. is only 2.75 years, which implies leases on about 30% of fleet expire in 2021. E195’s gone next year. In aviation terms this is pretty fast. Flybe have been reducing the fleet by natural attrition whilst earning a marginal contribution to overheads on all bar four routes. There’s an interesting slide in the H1 slide presentation that illustrates this.
Eliminate competition. Feed LHR, free up LHR slots by substituting LCY ones for short haul. STOP Virgin/AF/Delta/Lufthansa/United/Middle Easterns. And if IAG can’t have the LHR remedy slots somewhere in their organisation then at worst deferring them being available to others for probably four years due specific grandfathering process.
Marginal changes in long haul passenger numbers and yields have enormous profit effects
Station house, thanks for the input.
You are right that synergies would be reduced as Flybe's Embraers cannot be used at LCY. The longer term plan is for the E195 to go and a fleet of 15 E175 to remain. However I would have thought that the bigger attraction at LCY would be Flybe's c 20 slot pairs there. The actual number is a bit hazy as I don't know whether the routes operated by franchises use Flybe slots or the franchisees. Blue Island operated JER for years prior to becoming a Flybe franchise so I guess they own those slots. Anyway, the physical slots would be attractive to CityFlyer, and the reduced competition on EDI (Flybe 7x daily, BA 9x daily) and a new complementary route to Belfast City which Flybe fly 6x daily, which fits well with BA's multiple Belfast LHR services a day
There could be competition issues but London is treated as one market and in the past BA have been adept at getting their own way. Extra slots at LCY for EDI and BHD could free up some short haul LHR slots for BA too.
I imagine the overriding issues with the remedy slots at LHR would deter IAG from a complete takeover, but the Flybe LCY business could make a lot of sense for them
Thanks Pianista. Had a bit of a brain wobble and couldn’t find the data. Doesn’t mean there is no hedging beyond that though. Positive impact of drop in fuel limited for the next 10 months or so
The H1 results showed 96% hedges for the remainder of F/Y 2019. I can’t find it anywhere but believe F/Y 2020 was 60% hedged for H1 but don’t know the H2 position
Any one else have firm data?
Current into plane cost should be $250 a tonne less than the current years hedge, which would save c $25m in a full clear year
JH77, sorry to be a propellerhead, but you will have flown the EMB 100 or 70. These are certified for LCY which requires specific characteristics and pilot training due the short runway and relatively steep approach angles. The E195 and E175 are not certified at LCY and I don’t think ever will be as they are extended in length and I think can’t meet the criteria for rotation at take off and landing, with high risk of tail strokes. I am sure a pilot will correct me if I am wrong as to the reason.
Hi Westminster.
I think there are three potential areas for creating cash by asset disposals
First the MRO could be sold for c10 earnings, and those earnings would be underpinned/subsidised by a long term maintenance deal with Flybe. You are right that this could put up maintenance costs but raising cash is king at the moment. Historically the MRO has made £3-5m profit, and there used to be a 50:50 split between external and internal work but I think this is now more internal, so £30-50m would be a good starting point, but sale will be complicated due Flybe’s viability....bit chicken and egg
Second, the Training Academy business or physical assets could be sold. I am not sure if the makeup of the business but at one stage there was talk of third party business being grown, so it might not be all Flybe, but nevertheless a similar situation to the MRO, sale with long term contract for Flybe. Guess at £5-10m
Third, the A400M military aircraft maintenance business, could be sold to a recognised military contractor. Have heard £2-3m pa profit here so again £20-30m starting position.
Fourth, slot sales at LCY and LGW which are not strategic to Flybe, c12 pairs at LCY and 3 at LGW in total say 20 prime pairs. There is value in the LGW ones and there probably is in the LCY ones but BA have a big position there so the price will be suppressed. Say £5-8m total
Fifth, upfront airport deals at airports where Flybe have a very strong or dominant position...”pay us or your whole business disappears” Anyone’s guess, but say £5m
Just a few ideas.....hopefully management have these plus others under consideration
And then there is the deal with Virgin or whoever......the 12 LHR remedy slots have been pulled together under one operator and this is a unique opportunity to access a well balanced and sizeable portfolio in a controlled manner over a few years to fit with new aircraft deliveries. Problem is that if Flybe goes bust these slots go back into the remedy slot pool and could be taken up by a mix of operators and the three year grandfathering clock starts again.....it would be 2022 onwards before this opportunity arises again. Big incentive to keep Flybe flying.
Any other ideas welcome
You have mentioned the Amadeus situation before, pray tell more....