Shares of Carlisle-based aviation, energy and civil engineering group Stobart Group fell about 5% on Thursday after it said it will take a £50 million write down on its investment in Flybe, which has entered administration.
Flybe, which has about 2,400 staff, was bought by Connect Airways, a consortium created by Stobart Group, Virgin Atlantic and investment adviser Cyrus Capital for a cut-price £2.2 million about a year ago.
Regional airline Flybe — which connects all corners of the United Kingdom – said on Thursday it has entered administration after the UK Government walked away from a rescue package agreed in January.
The collapse comes amid a plunge in travel demand and makes the long-struggling airline one of the first big corporate casualties of the coronavirus outbreak.
Flights out of Manchester Airport and Liverpool Airport have been grounded and dozens of flights have been cancelled at Scottish airports as a result of the airline’s collapse.
Stobart’s aviation business includes London Southend Airport, Carlisle Lake District Airport and Teesside International Airport.
In a stock exchange statement, Stobart Group said: “Connect Airways is made up of a consortium of shareholders encompassing Cyrus Capital (40%), Virgin Atlantic (30%) and Stobart Group (30%) that received EU merger clearance to take control of the assets of Flybe Limited on 5 July 2019.
“Flybe, a subsidiary within the Connect Airways group of companies, has today ceased trading and will no longer be operating its planned flight schedule.
“Stobart Group, alongside its consortium partners, Virgin Atlantic and Cyrus Capital, are deeply disappointed that Flybe has been unable to secure a viable basis for its continuing operations and has therefore entered an administration process.
“The consortium wishes to express its immense gratitude to the 2,400 people employed by Flybe for their commitment and energy over the past 12 months.
“Stobart Group, Virgin Atlantic and Cyrus Capital formed the Connect Airways consortium which intervened in 2019 to prevent the collapse of Flybe and keep Europe’s largest regional airline flying.
“Customers and staff have been at the front of the consortium’s minds, and over the past 14 months Connect Airways has invested more than £135m to keep the airline flying for an extra year.
“This amount includes approximately £25m of the £30m committed in January 2020.
“Stobart Group’s initial investment was made up through the sale of Stobart Air and its aircraft leasing business, Propius.
“As a result, the non-cash balance sheet impact on Stobart Group is £43.3m and the additional £7m investment made in 2020.
“The value of both these investments will now be written down to £nil on its balance sheet.
“The group has also foregone deferred interest that it would have benefitted from in future periods.
“Stobart Group had not expected to receive a contribution from Connect Airways until after FY 2020.
“Unlike Flybe, Stobart Air is not a wholly owned subsidiary of Connect Airways.
“Stobart Air’s Employee Benefit Trust (EBT) controls 60% of the voting rights and Connect Airways controls 40%.
“As such Stobart Air’s ongoing ability to trade is not directly impacted by the decision to place Flybe Limited into administration.
“Flybe had shown promising signs of a turnaround despite the delay to receiving merger control clearance from the European Commission for its acquisition.
“However, despite the best efforts of all, not least the Flybe people, the impact of COVID-19 on Flybe’s trading means that the consortium can no longer commit to continued financial support.
“As a result of this news, London Southend Airport will see a short-term impact, with Flybe having planned to operate ten routes from the airport from Spring of this year.
“However, the long-term prospects of that airport remain compelling.”