Virgin Atlantic will be the largest shareholder in a new airline group comprising Flybe and Stobart Air, Sky News learns.
By Mark Kleinman, City editor
Flybe, the regional airline, is close to being taken over by a consortium led by Virgin Atlantic in a cut-price deal that will underscore the aviation sector’s huge financial challenges.

Sky News has learnt that Virgin Atlantic has agreed to join forces with Flybe’s other suitor, Stobart Group, to form a new company that will also comprise the Stobart Air franchise operation.

An offer for Flybe worth significantly less than the company’s closing share price on Thursday of 16.38p will be announced to the London Stock Exchange on Friday, according to sources close to the deal.

The takeover will come less than two months after Flybe put itself up for sale, blaming a toxic cocktail of currency volatility, rising fuel costs and Brexit-related uncertainty.

Although it is small in financial terms, Flybe remains one of the UK’s best-known airline brands, carrying thousands of passengers between largely second-tier British airports as well as European destinations.

Under the terms of the proposed deal to be announced on Friday, Virgin Atlantic will operate the network of regional flights provided by a combination of Flybe and Stobart Air.

The carrier part-owned by Sir Richard Branson is expected to be the largest shareholder in the newly formed company, with Stobart Group and Cyrus Capital Partners owning smaller but still substantial stakes.

Stobart is understood to be contributing the assets of Stobart Air rather than any cash in exchange for its stake.

For Virgin Atlantic, control of Flybe’s regional network will provide a valuable feed into its long-haul flights to international destinations.

Its return to the domestic UK aviation market will come four years after announcing the closure of Little Red, its previous attempt to make money from a notoriously difficult sector.

Flybe also has access to valuable take-off and landing slots at London Heathrow Airport which are ring-fenced for domestic flights.

The two carriers already operate a code-share pact aimed at improving access to Virgin Atlantic’s long-haul routes for regional customers using the regional airline’s flights into Heathrow and Manchester.

Rothschild, the investment bank, is advising Virgin Atlantic, while Evercore is advising Flybe.

The consortium’s offer for Flybe is likely to value its shares at around£20m, providing few crumbs of comfort for the airline’s long-suffering shareholders.

Nevertheless, if the deal is completed, it would be a significant combination in a British aviation sector which is viewed as requiring further consolidation.
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Rising oil prices and the weakening of sterling have put airlines under intense pressure, with a deepening industry price war accentuating the financial squeeze.
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