Birmingham-headquartered Flybe was losing an average of up to £5 million ($6.1 million) during each month of its brief existence, the administrators of the collapsed UK regional carrier have disclosed.
On the back of those losses and outstanding loans or credit facilities, the airline’s total deficiency is over £82 million.
Flybe entered administration and ceased all flights on 27 January, having only commenced operations the previous April.
An attempt to resurrect the Flybe brand following the failure of its predecessor in March 2020, the latest incarnation had ambitious plans to create a thriving regional aviation business with bases at Birmingham, Belfast International and Glasgow, but also with a presence at hub airports London Heathrow and Amsterdam Schiphol, alongside other UK sites.
Flybe was owned by Thyme Parentco, a UK-registered holding company, the majority of whose shares were in turn held by DLP Holdings – a Luxembourg-based fund associated with Cyrus Capital, the owners of the original Flybe at the time of its collapse. Flybe acquired the assets of its predecessor for just £1.
But detailing the collapse in their statement of administrators’ proposals, Mike Pink and Amy Rose from Interpath Advisory reveal that Flybe struggled virtually from the moment it was relaunched.
Initial funding in the form of a £20 million loan was received from DLP and £20 million in equity from its shareholders, of which DLP was the largest. On top of which, DLP provided a £5 million credit facility, which was not initially drawn.
“At the time the financing package was agreed it was forecast this would be sufficient for the company [Flybe] to bridge to become financially self-sustaining,” the report says.
But procuring aircraft proved challenging: when Flybe began operations in April 2022 it had secured just two leased De Havilland Canada Dash 8 twin-turboprops.
A fleet of 17 Dash 8s was planned – through leases with Aergo Capital and Nordic Aviation Capital – but by the time Flybe ceased operations just nine aircraft had been delivered, eight of which were in service.
Coronavirus travel restrictions also hampered the airline’s early days, the administrators note.
“The ongoing impact of Covid-19 on travel, and the continued delay in delivery of 17 aircraft, impacted the ability of the company to scale up capacity and left it operating at much lower levels than forecast,” the report says.
“Given the delay in receiving leased aircraft, the company was unable to provide the seat capacity or service the number of routes it had anticipated which caused significant reputational and financial impact on the business.”
As a result, DLP was forced to increase the size of the credit facility – raising it to £33 million in August 2022, of which £29 million was ultimately drawn – “in order to sustain the company whose average losses were between £4 million to £5 million a month.”
In the meantime, DLP was seeking a strategic partner or a sale of Flybe. But having “exhausted those options”, administration became inevitable, says the report.
As particular value was placed on Flybe’s slots at Heathrow and Schiphol, the administrators were hopeful the carrier could be sold as a going concern “by progressing the sale process that had been under way prior to [their] appointment”.
A sale on a going-concern basis was essential as “[Civil Aviation Authority] licences are not transferable, and there were a number of legal and contractual restrictions impacting the transferability of the slots”, it notes.
Those sale efforts ended on 14 February when the final interested party withdrew having “concluded they would be unable to take forward a deal to rescue the business”.
No value can be realised from the “highly prized” Heathrow slots, the administrators add, as “they were not Flybe’s to sell or transfer”. Instead they have reverted back to original owner British Airways, which had been forced to relinquish them by the European Commission on competition grounds.
Of the 279 staff employed by Flybe when it went into administration just 10 back-office staff remain to aid with its winding up.
DLP is the sole secured creditor in the company on the back of its £20 million loan, the provision of £29 million in credit and £1.5 million in interest.
But the administrators point out: “The level of recovery that DLP Holdings will receive in respect of their security will be dependent on the outcome of the administration. They will suffer a shortfall in relation to their indebtedness.”
Ordinary and secondary preferential creditors – employees and the UK tax authorities, respectively – should receive full payment of their combined claims for £676,000, while unsecured creditors will receive an as-yet undetermined dividend on their claims of £20 million.
According to the statement of affairs, the administrators expect to realise around £9.4 million of the airline’s assets, leaving a total deficiency of £82 million.