Regional airline, which faces cashflow crisis, is being taken over by consortium for £2.2m

This article is more than 1 year old

This article is more than 1 year old

The consortium led by Virgin Atlantic and Stobart Group has been forced to rush through an injection of cash into Flybe, after the struggling regional airline failed to mollify banks that were withholding money.

Virgin Atlantic, which is still part-owned by billionaire Richard Branson, Stobart and investment house Cyrus announced the £2.2m bid for Flybe on Friday, under the banner of Connect Airways, a joint venture. Connect also pledged to inject £80m for investment and £20m in a loan to keep Flybe’s operations running.

However, Connect on Tuesday announced that Flybe had not satisfied its conditions for the loan, prompting a need for an urgent injection of capital.

Virgin Atlantic swoops on troubled Flybe with £2.2m bid Read more

It is understood that Flybe failed to persuade the banks that take card payments on its behalf to pass on the much-needed cash.

The banks were withholding the money in case Flybe collapsed and defaulted. The airline had on Friday acknowledged a “rapid and significant tightening on Flybe’s liquidity from the card acquirer market”.

Connect will now buy Flybe’s main trading company, Flybe Ltd, and its website company, Flybe.com Ltd, for £2.8m. As part of the latest deal, £10m of the £20m loan will be injected on Tuesday, while “improved agreements” have been reached with Flybe’s banks.

However, the new cash injection into the trading companies will not increase the amount of cash available for Flybe Group shareholders, many of whom are expected to lose money if the £2.2m purchase of the main holding company goes ahead at 1p a share. Connect’s offer was itself a big discount to to the 16.38p price before the offer was disclosed last week.

In a statement to the stock market on Tuesday, Flybe said the latest move “provides the security that the business needs to continue to trade successfully”, underlining the difficulties faced by the airline.

Flybe, which runs regional routes in the UK and Europe, has struggled with rising fuel costs, currency volatility and political uncertainty.

However, Virgin Atlantic coveted the company’s landing slots at major airports, as well as the ability to feed regional customers to its long-haul routes.

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The updated offer came shortly after the ousted Stobart boss Andrew Tinkler bought a large shareholding in Flybe.

Tinkler, who was forced out in June last year following an acrimonious boardroom battle, bought 12.2% of Flybe shares, according to a stock market announcement published on Monday. He is thought to have bought the shares at a premium to Connect’s offer.

Stobart, which sold off its trucking business in 2013, now focuses on infrastructure, including owning Southend airport.