Flybe is just hours away from collapse after months of talks with the UK government failed to secure a crucial £100m loan and the coronavirus slashed passenger demand for the already-struggling regional airline.
The UK carrier is expected to enter administration in the early hours of Thursday morning, putting more than 2,000 jobs at risk. Its last flights were set to land at about 11pm on Wednesday, with an announcement due shortly after.
“The impact of coronavirus has made a bad situation worse,” said one person close to the airline. “It has been in a pretty precarious position for a while — it doesn’t take much to push it over the edge.”
Some of Flybe’s final handful of flights on Wednesday evening were marred by delays and diversions, with one plane earlier in the evening diverted from Glasgow to Manchester.
Some passengers took to Twitter on Wednesday evening to say they had been informed by their pilots that Flybe was entering administration. Twitter user @McCreadyFrank tweeted: “Just been announced from Captain that Flybe went into Administration”, adding later that it was “Very emotional for all the crew there, cuddles and handshakes from everyone.”
And the flybe.com website appeared to stop working just before 11pm.
Flybe and the UK government had been holding last-ditch talks on Wednesday afternoon as the regional airline appealed for government support.
The Financial Times revealed earlier on Wednesday that the government had rejected the idea of a £100m state loan to the ailing airline, leaving Flybe’s management clinging to the hope of a cut to air passenger duty in next week’s Budget to help it survive.
But Flybe became increasingly concerned that any cuts to APD might not kick in until 2021, which would be too late.
“They are in last-ditch talks today. They have enough money to get to the end of the week but a decision is likely to be made later today or in the next 48 hours,” said one person with knowledge of the matter. “Flybe initially had enough money to see them past the Budget next week, but because of the impact on coronavirus which has hit bookings, it has sped things up.”
Flybe, which is Europe’s largest regional carrier, employs 2,000 people. It is responsible for nearly 40 per cent of all domestic UK flights and carries more than 9m passengers annually.
It was taken over by Connect Airways — a consortium of Virgin Atlantic, Stobart Air and hedge fund Cyrus Capital — last year to prevent it falling into administration. Connect agreed to invest £30m into the airline to continue operations as part of a government rescue package in January.
The company’s shareholders are increasingly preoccupied with the threat to their own businesses from the spread of coronavirus.
Virgin Atlantic’s chief executive is to take a 20 per cent pay cut for four months as part of emergency measures designed to protect the British carrier’s profitability as coronavirus hits passenger demand.
The airline — which has suffered a 40 per cent drop in customer demand compared with a year ago — is also freezing recruitment and offering ground-based employees unpaid leave. Rival airlines are also pausing recruitment and investment.
A potential loan to Flybe was part of a rescue package announced almost two months ago. But the airline’s request has not met certain criteria set by the government, according to Whitehall officials.
The situation was complicated after Flybe mortgaged the majority of its remaining assets — including buildings, equipment and intellectual property — to its owners last year. This made it more difficult for the UK government to provide a loan on commercial terms.
Potential state interventions also included a review of the APD system and of potential subsidies for regional routes.
Flybe had told the government that it could be saved by deep cuts to APD for domestic routes.
It argued that return journeys from the UK to overseas destinations attracted only a single payment of £13, while domestic journeys had to pay £13 on the outward and inward flights. The company pushed for the charge to be halved to £6.50 for domestic air travel.
About £250m of the exchequer’s annual £3.7bn APD take comes from domestic flights, of which £106m is paid by Flybe. “If APD is halved for domestic flights, it would make all the difference to the company’s survival,” said one person close to the situation. “And then of course it wouldn’t need the £100m loan.”
Flybe has warned that if it were to collapse, most of the routes it operates would probably be abandoned entirely. Its executives have told the government that 88 of its 120 routes are not flown by any other airline.
Whitehall officials are drawing up contingency plans to keep critical routes going in the event of Flybe’s failure, according to rival airlines.
Garry Graham, deputy general secretary of the Prospect union, said the possibility that the government would fail to provide the loan was “very worrying”.
“This risks the government turning its back on these areas of the country and the workers at those airports,” he said.
“The government needs to come forward with concrete proposals on how it will support the services Flybe provides and is a crucial test of its commitment to every region of the UK,” he added.
The rescue discussions have prompted anger from some rival airlines, with Ryanair and British Airways’ owner, International Airlines Group, both threatening legal action on state aid grounds.
Flybe and the government declined to comment.
