The airline said on Wednesday that it was in discussions with “a number of strategic operators” about a potential sale of the company as it reported a 54% drop in first-half profits to £7.4mln on a 2.4% drop in revenues to £419.2mln.
IAG seen as a potential bidder as it eyes expansion
The move comes after the company warned last month that it would post a full-year loss of £22mln due to subdued consumer demand, higher fuel costs and a weaker pound following the Brexit vote.
Now that a sale of Flybe is on the cards, the question is who would be willing to come to the rescue, given that many airlines are facing similar challenges.
Neil Wilson, chief market analyst at Markets.com, said the “usual suspects” of British Airways owner International Consolidated Airlines Group PLC (LON:IAG) and easyJet PLC (LON:EZY) were probably the “best shouts” as possible rescuers.
“Exposure to UK market may be a tad risky for others right now, although it will be a bargain,” he added.
Flybe - will be snapped up on the cheap now. Couldn't continue way it was. Been flagging it for over 2yrs. More to come in European short haul although the way oil is going there may be a reprieve for some— Neil Wilson (@marketsneil) 14 November 2018
IAG is seen as a potential candidate because the group, which also owns Aer Lingus, Vueling and Iberia, has been looking to expand. The company has had its eye on buying Norwegian Air Shuttle but it has been turned down on two takeover offers previously.
READ: FlyBe lifted as it puts itself up for sale blaming Brexit and fuel costs for slashed profits in half year
While many analysts see the benefit in combining IAG and Norwegian, it depends on the price.
“IAG has been rebuffed twice before, so it’s unlikely to get Norwegian on the cheap. That heightens the risk of overpaying,” said George Salmon, equity analyst at Hargreaves Lansdown.
In contrast, IAG could fetch Flybe at a good price, given the budget airline’s willingness to sell and the fact that its shares have fallen almost 75% since September.
The group used to own a stake in Flybe but sold the shares in 2014, saying its holding in the airline has “never been a strategic one”.
The sale came as Flybe carried out a turnaround plan to restore its financial health. At the time, IAG said "This decision is no reflection of our view of Flybe which is making good progress with its turnaround plan. This is the right time to sell."
easyJet could swoop in to boost UK network
If IAG hasn’t changed its mind about Flybe, easyJet may decide to swoop in with an offer to buy the company.
easyJet recently expanded its German operations with the €40mln acquisition of operations from collapsed Air Berlin last year and could also beef up its UK network of flights through the acquisition of Flybe.
Flybe has the highest number of flights at a dozen UK airports, including Aberdeen, Belfast City, Birmingham, Glasgow, Manchester and Southampton.
Having a strong presence in both the UK and the European Union is currently key for airlines operating across both sides amid concerns about the loss off flying rights in the event of a “no deal” Brexit outcome.
Stobart touted as possible contender for Flybe
Market participants have also suggested Stobart Group PLC (LON:STOB), the owner of London Southend Airport, could reconsider buying Flybe after ending takeover talks earlier this year.
Aside from a potential sale, Flybe said in Wednesday’s announcement that it was reviewing other "strategic options”, including cutting more flights to strengthen its balance sheet and preserve cash resources.
Flybe has appointed Evercore as its financial adviser to assist with its review of options to address market challenges.