Case Study

How to sell a travel business when no one is traveling

Airplanes taxing on runway at sunset

The better the question

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.

Girl checking her flight in the digital board

The better the answer

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.

Passengers getting out of the airplane on a sunny day

The better the world works

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.”

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