The past 18 months have certainly been challenging for the travel industry, but it was events prior to the pandemic that led to the EY-Parthenon Turnaround & Restructuring Strategy team working with Flybe for the first time.

The independent airline, founded in 1979, played an important role in the UK economy, providing valuable connectivity between the regions through airports such as Birmingham, Southampton, Manchester, Exeter, Edinburgh and Belfast. As of January 2020, Flybe operated 38% of all UK domestic flights.

But in January 2019, it was in financial difficulty and had entered discussions with several parties about a possible sale. The offers Flybe received were lower than expected and the EY-Parthenon team was engaged to carry out contingency planning in case the company had to be put into administration. The team already had extensive experience of the aviation sector, having worked with companies including BMI, Monarch, Alitalia and Thomas Cook.

However, shortly afterwards, a sale was agreed to a consortium consisting of Virgin Atlantic, Stobart Aviation and DLP Holdings. With the threat of administration over, the EY-Parthenon team withdrew.

Exactly a year later, Flybe contacted EY-Parthenon again. The COVID-19 pandemic had started to affect the business and flight bookings were falling. Several other issues were also having a negative impact on the business, including rising fuel costs, currency volatility, market uncertainty and Air Passenger Duty liabilities. The company had been talking to the UK government and shareholders consortium about a £100mn loan, but as travel restrictions were imposed and devastation to the airline industry grew, further funding became improbable. Flybe had no choice but to file for administration in March 2020. Alan Hudson, Simon Edel, Joanne Robinson and Lucy Winterbourne of EY-Parthenon were appointed to handle the process, conscious that no UK airline had ever been rescued from an insolvency.

Creating the basis for a sale

With the immediate priorities addressed, the EY-Parthenon team could start thinking strategically, as Joanne Robinson, EY-Parthenon Turnaround & Restructuring Strategy Partner explains: “There was a focus on what short-term sources of liquidity we could access and monetize. We needed to have some lifeblood in the administration to run a marketing process and see if there was a better outcome than the liquidation of the group.”

This led to major milestones like the sale of a subsidiary called Flybe Aviation Services, which held the strategically important maintenance contract for RAF Brize Norton, and the sale of the airline’s training academy in Exeter, which will now be a hub for tertiary-level skills training by Exeter College.

Credit card acquirers had also reserved large amounts of cash collateral from Flybe’s former customers, in case they ever needed to fulfill refund claims for canceled flights. These funds were a key source of liquidity for the administration and, through close collaboration with the credit card acquirers, EY-Parthenon managed to negotiate their release sooner than expected.

The EY-Parthenon team successfully reactivated Flybe’s maintenance license with the CAA, which allowed it to run a maintenance, repair and overhaul business for the aircraft lessors and others. This generated trading income and helped preserve the value of each aircraft until it was collected.

Having stabilized the business, the EY-Parthenon team was able to run a full global M&A process to sell the airline. “Within 48 hours of starting, we had contacted over 70 airlines across the globe,” says Mike Parr, EY-Parthenon Transaction Strategy & Execution Partner. “That got us sufficient interest to keep the airline alive in a challenging market, where consumers were adapting to staying at home and not flying.”

The M&A process attracted nine credible expressions of interest and the ultimate sale of Flybe to a new company, called Flybe Ltd and, as Edel explains, “the sale provided the possibility for growth, new jobs and the chance for Flybe Ltd to be a valuable economic contributor to regional communities across the UK and EU.” In the context of the Government’s ‘leveling up’ agenda and its emphasis on restoring regional connectivity, the prospects are good.

EY-Parthenon’s work with Flybe is ongoing and has involved more than 150 people from seven different sub-service lines.

“It’s a multidisciplinary team that has touched almost every part of the firm,” says Edel, adding that this is one of our key strengths. “We’re a trusted brand, we’ve got the depth of experience in the aviation sector, we’ve got the breadth of capability and we’re trusted by all around the table.”

Looking back on the past year, Parr reiterates the complexity of the task the EY-Parthenon team was faced with. “The number of stakeholders that you need to manage to keep an airline alive is phenomenal,” he says. “It starts with the employees and creditors, but there were also the regulators, or CAA, other governmental departments, airport slot coordinators, and suppliers.

“Being able to manage that and keep all these moving parts aligned and in sync was difficult, but what we achieved has ultimately facilitated the rescue of an airline, which stands to make an important contribution to local economies and the air travel sector as each rebuild after the end of the pandemic.”