The return of Flybe one year after being placed into Administration

Flybe ceased to trade a year ago when the parent company within the Flybe group of companies was placed into Administration on 5th March 2020. This article summarises the first year following the airline landing in Administration.

An Administrators primary role in an insolvency is to maximise the return to creditors, if possible, by rescuing the company, selling the business, or at least maximising the value of the assets.

In the case of an airline, this throws up some interesting challenges, as the way in which an airline is financed is unusual and many of the assets are unique and intangible.

So, what were the Assets owned by the ‘Group’?

‘Group Business Sale’

The Administrators have sold the Flybe ‘business’ to Thyme Opco Ltd, which following completion of the sale changed its name to Flybe Limited. The ‘business’ sale included certain landing slots, the company name, brand and intellectual property and certain stock and equipment. The consideration payable by the purchaser is ‘confidential’ but includes a performance element based on the future success of the ‘New Flybe.

Sale of ‘Flybe Aviation Services Ltd’ (FAS)

The shares in FAS, which provided maintenance and repair services, were held by the parent company, and sold by the Administrators as a solvent entity to AAG Defence Services Ltd. The proceeds of £4.6m were paid to Virgin Atlantic Airways Ltd, Stobart Aviation Ltd and DLP Holdings S.A.R.L under security for their combined secured debts of over £130m.

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Freehold Training Academy.

A sale of the Exeter property to Devon County Council achieved net proceeds of £3.1m, which was paid to the company pension scheme under a fixed charge over the property.

Other assets:

Carbon credits £7m, Cash at Bank £6.7m, Debtors £3.7m, and Spares and Parts £2.4m.

So, what happened to all the airplanes?

Flybe operated 65 aircraft, all of which were returned to their respective financiers or lessors.

What about the engines?

Ten of the aircraft engines were owned by Flybe and not subject to finance and were sold by the Administrators for £2.4m. The remaining engines – valued at £85m, were subject to lease agreements and returned to the lease companies.

What about the customers who didn’t get to fly?

The difficulties being encountered by Flybe were well know before the Administration. On the commencement of Administration, the various Credit Card companies were holding £58.6m in Flybe receipts in anticipation of having to provide refunds in the event Flybe was unable to fulfil the booking. Out of these deposits, after refunding customers, £5.8m was subsequently paid to Flybe.

What about the Creditors?

The total debts due to unsecured creditors are estimated at £600m-£650m.

These debts include a pension scheme shortfall of £96m, Shareholder loans of £110m, and an amount due to the Environment Agency of £52m. Other liabilities include finance agreements on the airplanes and engines, airport landing fees, duty, and trade suppliers.

What about the Employees?

Employees of insolvent companies can make claims to the Redundancy Payments Office (RPO) in respect of amounts owed for arrears of wages, holiday pay, notice pay and redundancy. The payments are calculated on a maximum weekly wage of £544, so some of the higher paid employees will not have received their full entitlement. The amount paid out by the RPO and the balance of employee claims will be included in the Administration as creditors.

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And the costs of the Administration?

The costs of the Administration to date total in excess of £10m, with additional legal fees of £3.8m.

Dealing with the untangling of the business and disposal of its various assets has been a complex exercise, hindered by the general difficulties being faced by the airline industry because of COVID.

There will have been difficult legal issues dealing with the regulators, including the Civil Aviation Authority’s Consumer and Markets Group who control the Operating Licence, and the Safety and Airspace Regulation Group. These legal issues have arisen at a time when not only the position has evolved due to COVID, but also because of changes to the UK law as a result of Brexit.

What’s next?

Whilst the main issues will have been resolved, there will still be a lot of corporate tidying up to be completed and it is likely that the parent company will move from Administration to Liquidation in due course.

As regards the new Flybe business, it will be taking off in a new post COVID environment, so it will be interesting to see how the business model adapts to a very different situation.

 

AUTHOR: Carl Faulds (Managing Director)