The Lessons of the Flybe Collapse

5 March 2020

With news today that Flybe has gone into administration I am dumbfounded as to why the government is being blamed for not supporting a rescue bid. Surely the focus should be on the consortium of investors that bought the business? Connect Airways – which is made up with Virgin Atlantic (30%), Stobart Air (30%) and Cyrus Capital (40%) – bought the business just over a year ago for under £3M and promised to invest £100M.

The cynic in me would point to the fact that when the consortium bought Flybe their eyes were not on the opportunity of turning around a failing regional airline, but instead on the landing slots that it controlled at both Heathrow and Manchester airports. Some of these were given to Flybe as part of BA’s takeover of British Midland and are valued at over £60M. It now seems as though the consortium bought Flybe as a distressed asset, invested nothing in it and then passed the blame to the government when it failed because ministers wouldn’t use taxpayers’ money to bail it out.

Plans to re-brand Flybe as Virgin Connect were no more than hot air. The fact that the business had over £100M of passenger duty owed to the government is bordering on the criminal, as that duty, while collected by the airline from ticket sales, is meant to pass directly to the government – not be used as cash flow. It is the same as defrauding HMRC out of VAT.

Flybe also has a universal obligation, like BT, which means some routes have to be provided even if there is no commercial benefit. One included Newquay to Heathrow. Just after receiving their £10M reprieve from the government in January, the owners of Flybe decided to move the Newquay routes to land at Gatwick, freeing up their Heathrow slots for more profitable routes. This demonstrates that no matter what the government did to try and help the airline stave off collapse, the owners had their own agenda which suited them – not the airline or the country.

It is important that the Government remains strong and seizes these landing slots as part of the unpaid duty, to one deny the owners of any financial benefit, and ensure they are put to good use in helping restore services to regional airports.

A vital part of our transition as a country post-Brexit is to have excellent transport links and regional airports play an important part in boosting investment and the economy. The government should go a step further and remove airport duty altogether to promote investment (especially if distressed carriers aren’t even paying it). Bailing out opportunistic investors is never the right action.

To me it brings back the stories of Phillip Green and the opportunistic greed that comes with offloading assets, which affect not only thousands of employees, but also livelihoods of countless suppliers and partners. Maybe Flybe was never a going be a success and had too much stacked against it. We certainly need to refocus our attention on the motivation of the buyers, rather than parking all the issues at the government’s door – they were right not to provide the bailout. The focus now needs to be on creating the right environment to help make regional airlines successful.