Shareholders were told yesterday that if they didn’t agree to the sale to Connect, the board was legally bound to close the airline and go into administration.
Back in December the shareholders gave permission to change the way the company (Flybe Group) was listed on the stock exchange so that it could sell quickly, parts of the business to raise capital.
Shareholders lead by Hoskins Partners who own nearly 19% wanted to know why the company wasn’t sold to Stobart Aviation in 2017 when its valuation was £0.40 a share, and why should they sell for £0.01 when the list price was £0.16 even now? At the time of the Stobart Aviation offer, the company was doing reasonably well, but 2018 fuel costs and exchange rate volatility issues related to Brexit, caused a sharp reversal.
These were aggravated by the credit card companies and banks. The card companies (90% of tickets are bought on a credit card because it offers buyers more protection from insolvency of the airline than buying on a debit card, which offers none). The card companies, aware of Flybe’s cash shortages and afraid of taking a hit on tickets they would have to refund if the company went down, threatened to withdraw card facilities which would have crippled the airline. The banks were declining to extend Flybe’s credit line and it was approaching the 30 day operating minimum reserves that would trigger CAA intervention.
The Connect deal was accepted at what amounted to 1p per share because it was able to offer Flybe £20m in immediate cash, of which Flybe has already taken £10m. The board also said that they had the right to sell the groups companies, because shareholders agreed to that change last December.
It was in effect, sell to Connect or close down. If they company failed then pensioners, staff and passengers would all loose out and shareholders would get nothing. As it is the £2.8m Connect will pay will go to cover costs, not to shareholders.
In effect Flybe is technically bankrupt, if not legally so. Failure to approve the sale will mean administration. The shareholder meeting is due on March 4th, but the sale closes to Connect on February 22nd.
The important aspect of this is that Flybe Group – which is what the shareholders own, is selling the groups companies, Flybe and its components, to Connect. The rest of the group assets however would be sold to shut down the Group and hand back cash to shareholders, the only way they’ll get any money.
It seems shareholders currently have no choice.