11/02/12, 00:06:05 EST

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Regional airline sale costs BA £150m

ft.com

British Airways announced on Monday the completion of the sale of a large part of BA Connect, its lossmaking UK regional operations, to Flybe. The deal cost BA about £150m, including financial guarantees.

In return BA is taking a 15 per cent stake in Flybe but is expected to sell that holding when Flybe launches its initial public offering, planned for after mid-2008. BA is also expected to launch on Monday a campaign to try to persuade the UK government and the European Union to reject the revised “open skies” deal provisionally agreed last week by US and European Commission negotiators. European transport ministers are due to discuss the deal in three weeks’ time, but Martin Broughton, BA chairman, is expected to tell a conference in London on Monday that the agreement is too heavily skewed in favour of US interests. It would open London Heathrow, the leading European gateway for transatlantic flights, to full competition, taking away the present restrictions, which allow only BA, Virgin Atlantic, American Airlines and United Airlines to fly directly between the US and Heathrow. Worries about the easing of restrictions at Heathrow sent BA shares sharply lower on Monday. The shares were the worst performers on the FTSE 100 after falling more than 8 per cent or 43p to 488½p. BA announced last November that it was taking a £106m write-down on the BA Connect business, but it is understood that it is having to provide significantly greater financial support to Flybe as part of the final deal. Flybe is expected to receive financial protection from BA during a transition period that will offset the inefficient operation of the BA Connect fleet of 50-seat jets. These aircraft will be disposed of by 2009-10 as leases expire and will be replaced as Flybe takes delivery of larger aircraft, both turboprops and jets. BA will also provide some protection on the residual values of the older aircraft, until they are retired. BA is expected to provide £62m in cash support, £34m to write down aircraft values, £33m to fund fully the pension scheme for affected employees and £20m of financial guarantees for credit card bookings, where loss-making routes are being eliminated. The deal will almost double the size of Flybe and make it the largest regional airline in Europe. Flybe’s turnover in the year to March rose from £304m to around £350m, with passenger volumes up from 4.75m to 5.5m. The enlarged business is expected to have an annual turnover of more than £500m, flying close to 10m passengers a year. Flybe is 81 per cent owned by Jersey-incorporated Rosedale (JW) Investments, one of the family trusts established to oversee the estate of the late Jack Walker, the steel stockholding millionaire and owner of Blackburn Rovers Football Club.

 Printable Version  | published Mar 05, 2007