Restructuring and turnaround strategy

Today’s disruption will require organizations to reshape. Strategic change focusing on financial and business restructuring or turnaround must be implemented with speed and certainty. We provide trusted leadership in critical and complex situations to transform, create, preserve and recover value.

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Case Study

How to sell a travel business when no one is traveling

Flybe became the first UK airline to be rescued from insolvency after EY-Parthenon protected the struggling business and found a buyer.

Case Study
The better the question The better the answer The better the world works
Case Study

How do you rescue a grounded airline when everything is up in the air?

EY-Parthenon was appointed to handle Flybe’s administration after a build-up of pressure on the struggling airline.

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.

Airplanes taxiing on runway at sunset
Case Study
The better the question The better the answer The better the world works
Case Study

Urgent action and strategic thinking

EY-Parthenon moved quickly to stabilize the situation and create conditions that would make it possible to sell the business.

The role of an administrator is to rescue a company, if possible, and if not, to recover as much value as they can for the company’s creditors. But from day one, the EY-Parthenon team had more immediate concerns. By 11 p.m. the night before Flybe entered administration, the EY-Parthenon and Flybe leadership teams agreed to ground their fleet of aircraft so that, in the early hours of the next morning, the administration could be affected.

Meanwhile, thousands of passengers were travelling to airports expecting to board a Flybe flight that day, so the first challenge the EY-Parthenon team faced was a logistical one. After they had quickly formulated an operational plan, they dispatched members of EY-Parthenon staff to 26 airports across the UK and Europe to help brief Flybe’s 2,200 employees, and communicate to over 20,000 passengers that their flights had been canceled.

A key priority was to negotiate with the Civil Aviation Authority (CAA) about Flybe’s operating license and air operator certification. Without these, Flybe would lose access to valuable assets and vital permissions to function, including UK and EU airport slots.

Finally, the EY-Parthenon team had to contact all of Flybe’s aircraft lessors, that is the companies from whom they leased their aircraft and engines. Naturally, the lessors wanted to know where their planes were parked, how they were going to be maintained and when they would be paid what they were owed.

To add to the complexity, within two weeks of the administration filing, the UK went into lockdown and the EY-Parthenon and Flybe teams were required to work from home. Without the ease of face-to-face contact, the EY-Parthenon teams were navigating new and unfamiliar practical and operational challenges on a daily (if not hourly) basis. As a solution, they transitioned the EY-Parthenon and Flybe teams to a stable online platform, from which they could interact and continue their work.

This platform enabled vital asset and property inspections via video-conferencing and, ultimately, the online sale process of an international M&A. “Carrying out an online administration was a first,” says Simon Edel, EY-Parthenon Turnaround & Restructuring Strategy Partner. “The key to a successful administration is usually founded on building essential client and stakeholder relationships face-to-face’. This was not a luxury available to us, but we were able to react and adapt quickly.”

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.

Girl checking her flight in the digital board
Case Study
The better the question The better the answer The better the world works
Case Study

Experience, capability and trust

By managing and negotiating with stakeholders, EY-Parthenon created the right conditions for an unprecedented sale of an insolvent airline.

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.”

Passengers getting out of the airplane on a sunny day

What EY restructuring and turnaround strategy teams can do for you

As part of EY-Parthenon, our financial and business restructuring professionals support EY clients, from design to delivery,  focusing on practical solutions that yield measurable results.

Organizations across the globe are facing an unprecedented array of challenges. These threats come in many forms whether they be weakened balance sheets, uncertainty over COVID-19 recovery curves, challenges of operating in a virtual environment, macroeconomic or geopolitical changes, competitor innovation or changing stakeholder expectations.

When time is important, our experienced problem-solvers provide restructuring advisory to move quickly from ideas to implementation. With access to an unrivalled bench of restructuring and turnaround professionals with industry experience, our global reach and rapid local reaction teams mean that our professionals can be quickly deployed wherever they are needed.

Connected globally, delivered locally and digitally enabled, our restructuring and turnaround strategy team is supported by a broad range of EY tools and technologies. EY M&A tools: Connected Capital Technologies help EY professionals deliver actional insights at a faster pace and deeper level than before, helping to ensure we can provide value to our clients.

We can help you answer common turnaround and restructuring challenges including:

  • How can I rapidly improve the financial and operational performance of my business?
  • Who can help me develop options for a rapid turnaround, rescue, recovery or contingency plan; then help me find capital to support it and negotiate with my stakeholders?
  • Who can help me lead the restructuring, or offer interim management roles such as Chief Restructuring Officer (CRO) or Chief Restructuring Advisor (CRA)?
  • How can I make more informed decisions about working capital and liquidity management?
  • Who can help me take an investor lens view to my portfolio evaluation?
  • How can I reshape the business model through business redesign?
  • How do I make strategic decisions in times of ambiguity and uncertainty?
  • How can I ensure that my tax strategy will maximize value in my turnaround plan?
  • Contingency planning and insolvency solutions services

    Most restructurings need a “Plan B” — whether as a contingency plan to provide comfort for directors and stakeholders or, alternatively, for financial stakeholders to create a credible point of leverage to break the deadlock and help all parties reach a consensual deal. In particularly challenging situations, when directors and businesses are facing increasing risks and challenges to continued trading, we create the time, space and environment to develop and deliver the right solutions.

    We work with management and financial stakeholders to use the pace, protection, powers and flexibility available under insolvency laws to address the issues threatening the survival of a business.

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  • Corporate simplification services

    Group structures can become increasingly complex over time, leading to increased costs and risks.

    We have experience supporting the complete spectrum of organizations in simplifying their corporate structure. Our team integrates restructuring, tax and financial advisory knowledge to help organizations assess, rationalize and simplify their legal entity structures across the following key phases of corporate simplification: setup, group complexity analysis, program management, due diligence, and issue resolution and entity eliminations.

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  • Liquidity and working capital services

    Especially in times of uncertainty and disruption, many management teams struggle to sustain good control over short-term cash flows and the working capital that drives them, leaving the business vulnerable to market and operational changes.

    We have experience supporting the complete spectrum of companies, whether a successful business seeking to enhance shareholder value or an organization experiencing a cash crisis. We help you develop the three main ingredients of strong working capital management: identification of cash-generating opportunities, cash flow forecasting, and visibility and control through our advanced digital analytical techniques.

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  • Interim management: Chief Restructuring Officer/Advisor

    EY can help with interim management acting as a Chief Restructuring Officer (CRO) and offering Chief Restructuring Advisor (CRA) services. Restructuring or turning around an organization brings many challenges on top of the daily demands of running a business, for example: managing competing agendas, creating time to develop options, knowing which option is the right one when information may be imperfect and executing decisions at pace to maintain stakeholder support in a stressed environment.

    We create understanding, alignment and support with internal and external stakeholders. We focus on actions that deliver transformational outcomes and provide interim management solutions, including offering a CRO or CRA, to help you deliver results.

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  • Preserving stakeholder value

    Stakeholders are asked to respond quickly when businesses underperform or suffer liquidity shortfalls or value erosion. We help provide support and communications in a rapidly changing environment when information is incomplete, agendas no longer align, and confidence is reduced.

    We work with all stakeholders to preserve, create and recover value through restructuring advice, critical appraisal of a company’s ongoing viability, stakeholder intermediation, options analysis and entity priority analysis.

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  • Debt restructuring, raising capital and M&A services

    Preserving value for a company and its stakeholders often requires a reshaping of the capital structure and assets in the portfolio. This is achieved by a combination of selling non-core assets or business units to generate cash, attracting new capital and rescheduling or retiring existing obligations. Our team is experienced in helping you prepare proposals, obtain stakeholder support and execute the transaction.

    In the USA, Ernst & Young Capital Advisors, LLC (EYCA) is a registered broker-dealer and member of Financial Industry Regulatory Authority (FINRA: finra.org) and offers investment banking services with access to a network of EY debt restructuring, M&A, debt capital markets and equity capital markets professionals across the globe.

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  • Rapid value creation services

    Most businesses are likely to experience operational challenges and underperformance at some point. While the root causes can be buried, the negative impact can be highly visible — profit warnings, declining performance metrics, failure to achieve project milestones, loss of customer contracts or management departures.

    Whether a business is in crisis or is simply facing an operational challenge, our team is experienced in helping underperforming or stressed businesses to develop and implement operational strategies to drive rapid performance improvement.

  • Private equity value creation services

    Private equity (PE) firms are increasingly required to identify and deliver operational improvements to achieve targeted returns.

    Our value creation leaders provide hands-on support, from strategy to implementation, to help PE companies accelerate cash and profit improvements and deliver their investment case. Our PE team has extensive experience in complex carve-outs, functional transformations, and instances of stress or distress.

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  • Non-performing loan services

    Non-performing loans (NPLs) remain a challenge for banks, particularly in these times of economic uncertainty.

    Our loan portfolio solutions team brings together experienced operators and deal advisors to advise financial institutions about their non-performing loan portfolios and also the buyers of those portfolios, delivering value through our breadth of knowledge and expertise.

  • Restructuring and turnaround tax services

    At whatever stage an organization is on the performance curve, tax is an area that cannot be overlooked. Tax strategies can have an enormous impact on your business recovery. When well managed they can be vital in enabling a business turnaround, however when ignored they can eliminate options.

    Whether your business is underperforming, stressed or distressed, our global network of tax professionals can help you create, preserve or recover value. The global EY network combines local tax knowledge across a broad spectrum of industry sectors, to help you make informed decisions and navigate the tax implications of all your business-critical decisions.

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Contact us for immediate support

We have a clear view of the critical questions and new answers required for effective crisis management, business resilience and continuity through these volatile and uncertain times.

Restructuring and turnaround awards and recognition

Some of the recent awards won by member firms of Ernst & Young Global Limited include:

Image for 2020 TRI Awards - International Firm of the Year

TRI Awards 2020: International Firm of the Year winner (global award)

Image for 2021 IJGlobal Awards

IJGlobal Awards 2020:  European Social Infrastructure Healthcare PPP deal of the year winner (EMEIA award)

Image for 2020 TRI Awards - Best use of Technology

TRI Awards 2020: Best Use of Technology winner (UKI award)

Image for 2021 Turnaround Atlas Awards

Pre-Pack Restructuring Of The Year — Mid-Markets; Industrials Restructuring Of The Year; Private Equity Deal Of The Year — Large Mid-Markets