Flybe Group Regulatory News (FLYB)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR SOUTH AFRICA AND SHOULD NOT BE DISTRIBUTED IN, FORWARDED TO OR TRANSMITTED INTO THOSE COUNTRIES OR INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL SECURITIES LAWS OR REGULATIONS.

THIS ANNOUNCEMENT DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NOTHING IN THIS ANNOUNCEMENT SHALL CONSTITUTE OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR ANY SECURITIES REFERRED TO HEREIN NOR SHOULD IT FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY CONTRACT OR COMMITMENT WHATSOVER. PLEASE SEE THE IMPORTANT NOTICES AT THE END OF THE SUMMARY.

THE DEFINED TERMS SET OUT IN THE APPENDIX APPLY IN THIS ANNOUNCEMENT

Flybe Group plc

('Flybe' or 'the Group')

Proposed Firm Placing and Placing and Open Offer

The Board of Flybe today announces a share issue to raise net proceeds of approximately £150.0 million by way of a Firm Placing and Placing and Open Offer of up to 141,501,920 New Ordinary Shares at an Offer Price of 110 pence per New Ordinary Share.

The Offer Price represents a discount of 7.2 per cent to the closing mid-market price of 118.5 pence per Ordinary Share on 19 February 2014, being the last Business Day prior to the announcement of the Firm Placing and Placing and Open Offer.

Qualifying Shareholders are being offered the opportunity to participate in the Open Offer on the basis of 2 Open Offer Shares for every 3 Existing Ordinary Shares held by them at the Record Date.

The Firm Placing and Placing and Open Offer is fully underwritten by Liberum Capital Limited.

Flybe will shortly be publishing a Prospectus in connection with the Firm Placing and Placing and Open Offer and will be convening a General Meeting to approve certain matters necessary to implement the proposed Firm Placing and Placing and Open Offer.

Summary

· Issue of 91,400,000 New Ordinary Shares through a Firm Placing to raise gross proceeds of approximately £100.5 million

· Issue of up to 50,101,920 New Ordinary Shares pursuant to a Placing and Open Offer to raise gross proceeds of up to approximately £55.1 million

· Qualifying Shareholders are being offered the opportunity to participate in the Open Offer on the basis of 2 Open Offer Shares for every 3 Existing Ordinary Shares

· Qualifying Shareholders are also being offered the opportunity to subscribe for New Ordinary Shares in addition to their Open Offer Entitlements under the Excess Application Facility

The Board believes that the Firm Placing and Placing and Open Offer will enable the Group to:

· strengthen the Group's balance sheet, improving operational flexibility and providing additional cash reserves to enable the Group to protect itself from unforeseen disruptions or occurrences;

· reduce fleet ownership costs by deploying capital to own aircraft with secured loans rather than full operating leases, thereby rebalancing Flybe's fleet financing structure towards ownership rather than operating leases;

· improve productivity by investing in improvements to the Group's IT and finance functions, resulting in greater robustness in infrastructure, cost savings and improved operating efficiencies within 6 to 12 months;

· enhance service to customers and develop its customer offering, product range and brand impact;

· expand the Group's branded scheduled commercial operation by developing new routes and bases within the UK within a 12 to 24 month timeframe; and

· expand the Group's white label flying.

The Firm Placing and Placing and Open Offer is conditional on, among other things, the passing of the Resolutions at the General Meeting. If the Resolutions are passed and the other conditions to the Firm Placing and Placing and Open Offer are satisfied, it is expected that dealings in the New Ordinary Shares will commence at 8.00 a.m. on 12 March 2014.

The Prospectus concerning the Firm Placing and Placing and Open Offer will shortly be sent to Shareholders and will also be made available on the Company's website www.flybe.com. Further details are set out in this announcement and in the Prospectus. A copy of the Prospectus will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.hemscott.com/nsm.do.

Commenting on the Firm Placing and Placing and Open Offer, Saad Hammad, Chief Executive Officer, said:

"We have made significant progress over the past year in stabilising, restructuring and reconfiguring the Group.

"Today I am pleased to announce a £150m fully underwritten capital raise which will significantly strengthen our balance sheet and provide capital to pursue our profitable growth strategy."We enter an exciting phase in the Group's development as we continue to build Europe's best regional airline.

"I would like to thank our existing and new owners for their support of our capital raise, and also my colleagues across the Group for their continued hard work and commitment to deliver a great Flybe experience to our customers every day."

20 February 2014

Enquiries:

Important Notices:

This announcement is not for release, publication or distribution, directly or indirectly, in or into the United States, Canada, Australia, Japan or South Africa.

This announcement is an advertisement and not a prospectus and investors should not subscribe for or purchase any New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements referred to in this announcement except on the basis of information in the Prospectus which is expected to be published by the Company today in connection with the Firm Placing and Placing and Open Offer. Copies of the Prospectus will, following publication, be available from the Company's registered office. This announcement does not constitute, or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security in the capital of the Company in any jurisdiction. Any decision to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements should only be made on the basis of information contained in and incorporated by reference into the Prospectus which contains further details relating to the Company in general as well as a summary of the risk factors to which an investment in the New Ordinary Shares is subject. Nothing in this announcement should be interpreted as a term or condition of the Firm Placing and Placing and Open Offer.

This announcement is not directed to, or intended for distribution or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability, or use would be contrary to law or regulation which would require any registration or licensing within such jurisdiction.

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities in the United States, Canada, Australia, Japan or South Africa. The New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws of any state or other jurisdiction of the United States and, may not be offered, sold, resold, taken up, delivered or distributed, directly or indirectly, within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any applicable state or local securities laws. Accordingly, the New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements are being offered only outside the United States in offshore transactions in accordance with Regulation S under the Securities Act. There will be no public offer of the New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements. No money, securities or other consideration from any person inside the United States is being solicited and, if sent in response to the information contained in this announcement, will not be accepted.

This announcement does not constitute an offer of New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements to any person with a registered address in, or who is resident in, Australia, Canada, Japan or South Africa. None of the New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements has been or will be registered under the relevant laws of any state, province or territory of Australia, Canada, Japan or South Africa. Subject to certain limited exceptions, neither the Prospectus nor this announcement will be distributed in or into Australia, Canada, Japan or South Africa.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

Liberum Capital Limited ("Liberum") which is regulated and authorised in the United Kingdom by the FCA , is acting exclusively for the Company and for no one else in connection with the Firm Placing and Placing and Open Offer and will not regard any person (whether or not a recipient of this announcement or the Prospectus) as a client in relation to the Firm Placing and Placing and Open Offer and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Liberum or for providing advice in relation to the Firm Placing and Placing and Open Offer, the contents of this announcement and the accompanying documents or any matters or arrangements referred to herein or therein.

Liberum may, in accordance with applicable legal and regulatory provisions, engage in transactions in relation to the New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements and/or related instruments for its own account for the purpose of hedging its underwriting exposure or otherwise. Except as required by applicable law or regulation Liberum does not propose to make any public disclosure in relation to such transactions.

This announcement should not be considered a recommendation by Liberum or any of its directors, officers, employees, advisers or any of its affiliates in relation to any purchase of or subscription for securities. None of Liberum and its directors, officers, employees, advisers or any of its affiliates accepts any responsibility or liability whatsoever for/or makes any representation or warranty, express or implied, as to this announcement, including the truth, accuracy, fairness, sufficiency or completeness of the information or the opinions or the beliefs contained in this announcement (or any part hereof). None of the information contained in this announcement has been independently verified or approved by Liberum or any of its directors, officers, employees, advisers or any of its affiliates. Save in the case of fraud, no liability is accepted by Liberum or any of its directors, officers, employees, advisers or any of its affiliates for any errors, omissions or inaccuracies in such information or opinions or for any loss, cost or damage suffered or incurred howsoever arising, directly or indirectly, from any use of this announcement or its contents or otherwise in connection with this announcement. No person has been authorised to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorised by the Company or Liberum. Subject to the Listing Rules, the Prospectus Rules and the Disclosure and Transparency Rules, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Group since the date of this announcement or that the information in it is correct as at any subsequent date.

The statements contained in this announcement that are not historical facts are "forward-looking" statements. These forward-looking statements are subject to a number of substantial risks and uncertainties, many of which are beyond the Company's control and actual results and developments may differ materially from those expressed or implied by these statements for a variety of factors. These forward-looking statements are statements based on the Company's current intentions, beliefs and expectations about among other things, the Company's results of operations, financial condition, prospects, growth, strategies and the industry in which the Company operates. Forward-looking statements are typically identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "intends", "estimates", "plans", "assumes" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. By their nature, forward- looking statements involve risks and uncertainties, including, without limitation, the risks and uncertainties to be set forth in the Prospectus, because they relate to events and depend on circumstances that may or may not occur in the future. In addition, from time to time, the Company or its representatives have made or may make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in, but are not limited to, press releases or oral statements made by or with the approval of an authorised executive officer of the Company. No assurance can be given that such future results will be achieved; actual events or results may differ materially from those expressed in or implied by these statements as a result of risks and uncertainties facing the Company and its subsidiaries. Many of these risks and uncertainties relate to factors that are beyond the Company's ability to control or estimate precisely, such as changes in taxation and fiscal policy, future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward-looking statements. The forward-looking statements contained in this announcement speak only as of the date of this announcement and the Company undertakes no duty to update any of them publicly in light of new information or future events, except to the extent required by applicable law, the Prospectus Rules, the Listing Rules and the Disclosure and Transparency Rules.

No statement in this announcement is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings per Ordinary Share for the current or future financial years would necessarily match or exceed the historical published earnings per Ordinary Share. Prices and values of, and income from, shares may go down as well as up and an investor may not get back the amount invested. It should be noted that past performance is no guide to future performance. Persons needing advice should consult an independent financial adviser.

Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

This announcement has been prepared for the purposes of complying with applicable law and regulation in the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the United Kingdom.

Expected Timetable

Introduction

The Board announces that the Company proposes to raise up to £155.65 million (approximately £150.0 million net of expenses) by the issue of 91,400,000 New Ordinary Shares through a Firm Placing and up to 50,101,920 New Ordinary Shares through a Placing and Open Offer at 110 pence per New Ordinary Share. The Offer Price of 110 pence per New Ordinary Share represents a 7.2 per cent. discount to the Closing Price of 118.5 pence on 19 February 2014 (being the last Business Day prior to the announcement of the Firm Placing and Placing and Open Offer).

The Firm Placing and Placing and Open Offer is fully underwritten by Liberum Capital Limited.

It is the Board's opinion that the Firm Placing and Placing and Open Offer will enable the Group to pursue its strategy of building resilience and targeting profitable growth. The Board therefore considers the Firm Placing and Placing and Open Offer to be in the best interests of Flybe and Flybe Shareholders as a whole and unanimously recommends that Flybe Shareholders vote in favour of the Resolutions.

Shareholders will be asked to approve the Resolutions, details of which will be set out in the Prospectus. The General Meeting is being convened for 11.00 a.m. on 11 March 2014 at the offices of Instinctif Partners, 65 Gresham Street, London EC2V 7NQ.

Background to and reasons for the Firm Placing and Placing and Open Offer and future strategy of Flybe

The Directors believe that the Firm Placing and Placing and Open Offer will provide the platform for Flybe to improve further the efficiency and profitability of the Group. The Directors also believe that the Firm Placing and Placing and Open Offer will enable Flybe to build resilience and target profitable growth.

Background to and reasons for the Firm Placing and Placing and Open Offer

In January 2013, following a significant decline in financial performance in prior years, the Group announced its intentions to embark on a turnaround strategy and set out a plan intended to return the Group to profitability in the 2013/14 Financial Year.

In May 2013, the Group released an update on the progress of this turnaround plan together with details of additional savings and revenue enhancement opportunities targeted by the Group, under the banner of "Making Flybe Fit to Compete", along with the Group's refocused network strategy. Key elements of the update included the exchange of Flybe's arrival and departure slots at Gatwick for £20.0 million, deferring the delivery and pre-delivery payment commitments on 16 new aircraft, and an announcement that the turnaround would deliver savings to the Group of approximately £40 million by March 2014. The exchange of the Gatwick slots was approved by Shareholders on 2 August 2013, £17.5 million of the total proceeds has been received by Flybe and the final balance of £2.5 million of the total proceeds is contracted to be received by Flybe in June 2014.

In August 2013, the Group introduced management changes and split the roles of Chairman and Chief Executive Officer, appointing Saad Hammad to be the new Chief Executive Officer. Saad Hammad brings considerable airline, commercial and business transformation experience. From October 2005 to April 2009, Saad Hammad was Chief Commercial Officer of easyJet plc at the time of the airline's commercial transformation that delivered significant revenue growth while increasing easyJet's European network, helping form the basis of easyJet's current pan-European market position.

It was also announced in August 2013 that Andrew Knuckey, Chief Financial Officer since 2007, had decided to step down from the Board and leave the Company as soon as a successor can be appointed and a suitable handover has been completed. The search for his successor is continuing and an announcement will be made in due course.

Simon Laffin was appointed non-executive Chairman in November 2013, replacing Jim French who had previously held both the Chairman and Chief Executive Officer roles.

Future strategy of Flybe

Upon joining Flybe, Saad Hammad initiated a full strategic review of the Group's operations. As a result of that review, the Board believes that Flybe will achieve a sustainable competitive position in the European regional airline sector, based on:

1. Flybe developing an efficient operation, using regional aircraft that can operate profitably on 'thinner' regional routes, being routes with less than 400,000 passengers per annum;

2. Flybe offering a high frequency operation at smaller, more convenient regional airports serving local business and leisure passengers and accessing international hubs; and

3. Flybe providing a professional and personal service to all customers, with reliable on time performance.

The Directors intend for Flybe to become Europe's best local airline with sustainable competitive positioning delivering regional connectivity through two main business activities:

a) a regional branded airline, providing scheduled services connecting passengers travelling in the regions, both on business and visiting friends and relatives, to each other and to international carriers at metropolitan airports; and

b) a regional "white label" provider, where Flybe provides crew under contract on a maintained and insured aircraft belonging to Flybebut operated on behalf of a third party airline (as it currently does for Finnair in Finland and Brussels Airlines in Belgium).

The Directors believe Flybe has developed expertise and specialist skills in operating a regional branded airline alongside a regional white label operation, with the synergies between the two business activities driving economies of scale in both buying and operations. In addition, the two business activities complement each other in both earnings and risk profile. The regional branded airline's operations are both higher margin and higher risk (due to the exposure to passenger demand, fuel costs and foreign exchange rates), with the white label business's operations lower margin and lower risk due to income generated under contracts for the provision of the white label service.

Saad Hammad's review identified a number of actions necessary to improve further the efficiency and profitability of the Group. Further to the review, the Board has now identified a three stage strategic programme:

1. Take immediate action - aimed at returning the Group to profitable operations, including the removal or rationalisation of unprofitable routes and bases, adjusting the fleet mix, further cost reductions and improved commercialisation;

2. Build resilience - strengthen the balance sheet to put the Group on a firm foundation for the future and deploy capital more effectively; and

3. Target profitable growth - implement the Group's plans for a profitable growth strategy in both Flybe-branded scheduled flying and white label operations, whilst enhancing service to customers in branded flying.

Each of these three stages is outlined in detail below.

1. Take immediate action

On 11 November 2013, Flybe announced that its airline business would implement additional immediate actions, on top of those already being implemented in the Turnaround Plan, to ensure a solid platform for profitable growth. These further initiatives cover both Flybe's UK scheduled flying operations and its Finnish joint venture ("Immediate Actions").

Within the UK, these Immediate Actions involved an optimisation of the Group's configuration by:

· establishing a simplified integrated management structure and organisation (now referred to as "One Flybe");

· rationalising the route network;

· reviewing the fleet mix;

· removing surplus aircraft capacity;

· improving aircraft and crew utilisation;

· implementing further cost reductions through redundancy of approximately a further 500 employees;

· rationalisation of suppliers and contract re-negotiations; and

· engaging with key suppliers to improve cost arrangements.

The Group also announced its intention to improve its commercialisation by:

· filling critical management gaps within Flybe's commercial team;

· optimising pricing and revenue management;

· refocusing its network development;

· driving route management improvements;

· improving the impact of marketing initiatives; and

· developing further trading partnerships.

In addition, the Directors intend to improve the profitability of the Group's joint venture with Finnair by:

· further enhancing cost and operational efficiency in white label flying; and

· reducing the number of aircraft deployed on loss-making scheduled flying operations.

The Directors believe that the immediate actions in the UK will deliver further cost benefits of approximately £7 million in 2013/14 and £26 million in 2014/15, with around 450 anticipated redundancies (reduced from an anticipated 500 redundancies due to mitigating actions by the Group) and estimated one-off and surplus capacity costs of approximately £14 million in 2013/14 plus a further approximate £27 million in 2014/15. Taking into account the Group's announcements in January and May 2013 of anticipated redundancies of 300 and 290 respectively, these additional 450 anticipated redundancies would combine to take anticipated redundancies under the Turnaround Plan and Immediate Actions to 1,040.

2. Build resilience

Strengthen the balance sheet

The Directors believe that the Group will significantly benefit from a strengthening of its balance sheet, improving operational flexibility and providing additional cash reserves to enable the Group to protect itself from unforeseen disruptions or occurrences. A stronger liquidity position is expected by the Directors to assist additionally in securing better credit terms from a number of suppliers. In addition, the Directors are aware that the CAA recommends that existing licence holders have financial resources in excess of three months of the future operating costs of the business. The Directors believe that maintaining a seasonal minimum of the equivalent of 10 weeks' operating costs in unrestricted cash, cash equivalents or highly liquid short term investments will provide significant resilience to the Group.

3. Target profitable growth

The Directors believe that Flybe can achieve profitable growth in both branded and white label operations. In addition, the Directors believe that enhanced customer service in Flybe's branded operations is needed to drive profitable growth.

a. Reduce fleet ownership costs

The Directors intend to deploy capital to own aircraft with secured loans rather than full operating leases, thereby rebalancing Flybe's fleet financing structure more towards ownership rather than operating leases. The former typically provides a cheaper form of ownership, but requires an equity stake to be held, normally being 20 to 30 per cent. of the value of the aircraft. Currently, 87.1 per cent. of the fleet is financed through operating leases, which is sub-optimal versus Flybe's peers. The Directors believe that deploying capital in this manner will deliver an estimated return on equity investment of between 15 and 18 per cent.

b. Improved productivity

The Directors believe that increased investment in improvements to the Group's IT and finance functions will result in greater robustness in infrastructure, cost savings and improved operating efficiencies within 6 to 12 months.

c. Expansion of Flybe-branded scheduled operations

The Directors believe that the expansion of Flybe-branded scheduled operations will primarily involve the development of new routes and bases within the UK within a 12 to 24 month timeframe. Following completion of the route rationalisation strategy being carried out as described within the "Immediate Actions" above, the Directors intend for the Group to create a number of new routes in the next two years and will work with a number of regional airports, such as Manchester, to develop their capacity as domestic and internationals hubs. As part of this progressive route expansion, the Directors have identified nine routes from the New Route Planning Selection Model that has been adopted by the Group. The Directors believe that an additional 10 aircraft will be required in order to service these identified routes, which they plan to fund at a 75 per cent. loan to value ratio, thereby requiring approximately £35 million of equity financing and £103 million of debt financing. The Directors expect this planned funding structuring to be operating cash flow positive (after loan amortisation and setup costs) after year one of the funding structure. The Directors believe that "thinner" regional routes are unattractive for full service airlines and European LCCs. New route development will prioritise domestic routes in the UK between poorly connected catchment areas as well as the building of service density to European destinations which the Directors believe are underserved by current carriers and where the Directors believe that Flybecan maximise its competitive advantage of smaller aircraft that can operate from airports that have relatively short runways. In addition, Flybe's aircraft and infrastructure are well suited to short sectors, with 79 per cent. of Flybe's routes on sectors less than 350 miles in distance.

The Group is also looking at opportunities to develop new bases within a one to two year time frame. The Directors are currently evaluating these opportunities and will make further announcements as appropriate once commercial evaluations and negotiations with the relevant airports have progressed.

d. Expansion of white label operations

Flybe's joint venture with Finnair, Flybe Finland, moved to profitability in H1 2013/14. Flybe Finland operates 22 of its 28 aircraft on profitable contract flying operations which balance its activity in scheduled flying. The Directors believe that there are other opportunities to roll out Flybe's white label offering and have identified a number of national airlines in Europe for whom white label flying could be attractive, and are in ongoing commercial discussions with several of these airlines. The Board believes there is an initial requirement for six additional aircraft in order to service white label opportunities, which they plan to fund at a 75 per cent. loan to value ratio, thereby requiring approximately £23 million of equity financing and £69 million of debt financing. The Directors expect this planned funding structure to be operating cash flow positive (after loan amortisation and setup costs) after year one of the funding structure, with setup costs paid back in year two. The Directors anticipate that capital commitments would only be made by the Group after contracts have been signed. The Directors believe that Flybe needs financial strength in order to be seen as a credible player in the white label market.

e. Enhanced service to customers

The Directors believe that, in its branded business, the Flybe customer offering, product range and brand impact need to be developed further. With improved marketing, the Directors intend to increase the number of visitors to the Group's website and enhance conversion rates by:

· an improved customer proposition that enhances the brand promise and identity. The Directors intend that this will be communicated through new creative copy, backed by increased media spending; and

· improvements in the product that will mark the Flybe experience as different to others. The Directors intend that this will include a simplified offering, rationalised pricing, an improved website, sustained focus on on-time performance and a relaunched customer loyalty programme, focusing on more frequent passengers with a view to increasing their use of Flybe further through improved rewards and benefits and by having reciprocal earning and spending agreements with partner airlines.

The Directors anticipate that the enhanced services to customers will be in place over the next 12 months.

Principal terms of the Firm Placing and Placing and Open Offer

Flybe intends to issue 91,400,000 New Ordinary Shares through the Firm Placing and up to 50,101,920 New Ordinary Shares through the Open Offer at 110 pence per New Ordinary Share to raise gross proceeds of up to £155.65 million.

The Firm Placing and Placing and Open Offer requires Shareholder approval, which will be sought at the General Meeting.

The Offer Price of 110 pence per New Ordinary Share represents a 7.2 per cent. discount to the Closing Price of 118.5 pence on 19 February 2014 (being the last Business prior to the announcement of the Firm Placing and Placing and Open Offer).

Firm Placing

The Firm Placees have agreed to subscribe for 91,400,000 New Ordinary Shares at the Offer Price (representing gross proceeds of £100.5 million). The Firm Placed Shares are not subject to clawback and are not part of the Open Offer.

Placing and Open Offer

The Company has raised approximately £55.1 million (gross) through a Placing and Open Offer of up to 50,101,920 New Ordinary Shares at the Offer Price. Liberum Capital, as agents for the Company, have placed the Placing Shares with further investors subject to the Qualifying Shareholders' right to take up their rights under the Open Offer.

Subject to the fulfilment of the conditions set out below and in Part 2 of this document, Qualifying Shareholders are being given the opportunity to subscribe for New Ordinary Shares pro rata to their existing shareholdings at the Offer Price on the basis of:

2 New Ordinary Shares for every 3 Existing Ordinary Shares

held and registered in their name at the Record Date. Qualifying Shareholders may apply for any whole number of New Ordinary Shares. Excess applications will be satisfied only to the extent that corresponding applications by other Qualifying Shareholders are not made or are made for less than their pro rata entitlements. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down according to the Directors' discretion.

Under the Open Offer, Flybe intends to issue up to 50,101,920 New Ordinary Shares at the Offer Price (representing gross proceeds of up to £55.1 million) to be made available pursuant to the Open Offer.

Fractions of Ordinary Shares will not be allotted and each Qualifying Shareholder's entitlement under the Open Offer will be rounded down to the nearest whole number.

The New Ordinary Shares when issued and fully paid will rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends or other distributions made, paid or declared after the date of their issue.

Qualifying Shareholders with holdings of Existing Ordinary Shares in both certificated and uncertificated form will be treated as having separate holdings for the purpose of calculating their entitlements under the Open Offer.

The Firm Placing and Placing and Open Offer is fully underwritten by Liberum Capital on, and subject to, the terms and conditions of the Underwriting and Sponsor Agreement, further details of which are set out in paragraph 9.1 of Part 7 of the Prospectus.

Application has been made for the Open Offer Entitlements and Excess Open Offer Entitlements to be admitted to CREST. It is expected that the Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST at 8.00 a.m. on 21 February 2014. The Open Offer Entitlements and Excess Open Offer Entitlements will also be enabled for settlement in CREST at 8.00 a.m. on 21 February 2014. Applications through the means of the CREST system may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim.

Qualifying Shareholders may apply for Excess Shares pursuant to the Excess Application Facility. Qualifying non-CREST Shareholders will have received an Application Form with the Prospectus, which sets out their maximum entitlement to Open Offer Shares as shown by the number of Open Offer Entitlements allocated to them, and gives them the opportunity to apply for Excess Shares under the Excess Application Facility. Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of their Open Offer Entitlements and Excess Open Offer Entitlements as soon as possible after 8.00 a.m. on 21 February 2014.

Shareholders should note that the Open Offer is not a rights issue. Qualifying CREST Shareholders should note that, although the Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of entitlements under the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim raised by Euroclear's Claims Processing Unit. Qualifying non-CREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded.

Further information on the Open Offer and the terms and conditions on which it is made, including the procedure for application and payment, are set out in Part 2 of the Prospectus and, where relevant, in the Application Form.

For Qualifying non-CREST Shareholders, completed Application Forms, accompanied by full payment in accordance with the instructions in the Prospectus, should be returned by post or by hand (during normal business hours only) to Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to arrive as soon as possible and in any event so as to be received no later than 11.00 a.m. on 7 March 2014. For Qualifying CREST Shareholders the relevant CREST instructions must have settled as explained in this document by no later than 11.00 a.m. on 7 March 2014.

Applications by Qualifying Shareholders will be satisfied in full up to their Open Offer Entitlements. In addition and subject to availability, the Excess Application Facility will enable Qualifying Shareholders to apply for any whole number of Excess Shares in excess of their Open Offer Entitlements up to a maximum number of Excess Shares not exceeding 50,101,920. Qualifying non-CREST Shareholders should complete the relevant sections of the Application Form. Qualifying CREST Shareholders will have Excess Open Offer Entitlements credited to their stock account in CREST and should refer to the Prospectus on how to apply for the Excess Shares pursuant to the Excess Application Facility. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down according to the Directors' discretion.

The Firm Placing and Placing and Open Offer is subject to the satisfaction of the following material conditions:

(i) the passing of the Resolutions;

(ii) Admission becoming effective by not later than 8.00 a.m. on 12 March 2014 (or such later time and/or date as Liberum Capital and the Company may agree, not being later than 8.00 a.m. on 27 March 2014); and

(iii) the Underwriting and Sponsor Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms prior to Admission.

Accordingly, if any of such conditions are not satisfied or, if applicable, waived, the Firm Placing and Placing and Open Offer will not proceed and any Open Offer Entitlements and Excess Open Offer Entitlements admitted to CREST will thereafter be disabled.

Use of proceeds

The Directors intend to use the net proceeds of the Firm Placing and Placing and Open Offer as follows:

· approximately £68 million for additional working capital to strengthen the Group's balance sheet. The Directors believe that the Group will significantly benefit from a strengthening of its balance sheet, improving operational flexibility and providing additional cash reserves to enable the Group to protect itself from unforeseen disruptions or occurrences. A stronger liquidity position is expected by the Directors to assist additionally in securing better credit terms from a number of suppliers;

· approximately £14 million to reduce fleet ownership costs. The Directors intend to deploy capital to own aircraft with secured loans rather than full operating leases, thereby rebalancing Flybe's fleet financing structure more towards ownership rather than operating leases;

· approximately £5 million to improve productivity. The Directors believe that increased investment in improvements to the Group's IT and finance functions will result in greater robustness in infrastructure, cost savings and improved operating efficiencies within 6 to 12 months;

· approximately £5 million to enhance service to customers. The Directors believe that, in its branded business, the Flybe customer offering, product range and brand impact need to be developed further. With improved marketing, the Directors intend to increase the number of visitors to the Group's website and enhance conversion rates by offering an improved customer proposition that enhances the brand promise and to identify improvements in the product that will mark the Flybe experience as different to others;

· approximately £35 million to expand the Group's branded scheduled commercial operation with new routes and bases. The Directors believe that the expansion of Flybe-branded scheduled operations will primarily involve the development of new routes and bases within the UK within a 12 to 24 month timeframe; and

· approximately £23 million to expand white label flying. The Directors believe that there are other opportunities to roll out Flybe's white label offering and have identified a number of national airlines in Europe for whom white label flying could be attractive, and are in ongoing commercial discussions with several of these airlines.

The Firm Placing and Placing and Open Offer is conditional upon Shareholder approval.

Current trading and prospects for Flybe

On 3 February 2014, the Company released an interim management statement for Q3 2013/14. Q32013/14 trading was in line with the Board's overall expectations. Key highlights were that UK scheduled revenue per seat was up 2.3 per cent., whilst costs per seat (excluding fuel and restructuring costs) were down 5.2 per cent. In Finland, revenue from white label flying increased by 23.7 per cent.

Phase 1 of the Turnaround Plan (announced by the Company in January 2013), Phase 2 (announced by the Company in May 2013) and the Immediate Actions (launched by the Company in November 2013), are all now well advanced. The Immediate Actions were announced with targets to deliver underlying benefits of £7million in the 2013/14 Financial Year and £26 million in the 2014/15 Financial Year, with around 500 proposed redundancies and estimated one off and grounded aircraft costs of £14 million in the 2013/14 Financial Year plus a further £27 million in the 2014/15 Financial Year. It is now anticipated that job losses will total around 450 and work is continuing to reduce the cost of aircraft grounding.

The Directors believe that each of these actions is essential to provide the Company with a sustainable cost base and a platform upon which it can profitably grow its business in the future, as it implements the twin strategy, announced in November 2013, of being both a UK regional branded airline and a European regional white label provider.

Flybe UK's current forward passenger sales revenue is as follows:

· Q4 2013/14 shows an increase over Q4 2012/13 of approximately 3 per cent. driven by an increase in passenger volumes partially offset by lower yields; and

· Forward sales for the 2014 Summer Season are currently broadly in line with the 2013 Summer Season.

Outlook

The UK economy has returned to growth, although the aviation sector remains highly competitive. The Directors believe that Flybe's strong position in the regional aviation market is an attractive and sustainable one that plays an important part in aviation connectivity for regions, airports, passengers and indeed other airlines. In the short-term, the Company's revenue will be affected as it discontinues unprofitable routes. However, the Group's improved cost structure will, the Board believes, provide Flybe with a firm foundation for future profitable growth.

General Meeting

The Firm Placing and Placing and Open Offer is subject to a number of conditions, including Shareholders' approval of the Resolutions proposed at the General Meeting. Notice convening the General Meeting to be held at the offices of Instinctif Partners, 65 Gresham Street, London EC2V 7NQ on 11 March at 11.00 a.m. is included in the Prospectus.

Recommendation

The Board considers the Firm Placing and Placing and Open Offer and the Resolutions to be proposed at the General Meeting of the Company to be in the best interests of the Company and its Shareholders as a whole.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of all of the Resolutions to be proposed at the General Meeting.

Appendix