Flybmi Calls It A Day
News late Saturday that the small UK-based airline Flybmi has been placed in the hands of administrators is further proof, if it was needed, of just how badly the regional European airline industry is struggling. Fuel costs, currencies and high competition are clearly to blame but so too is damaging Brexit uncertainty.
Back in 2017 the collapse of Monarch had sounded big warning signs within the airline industry and this was followed in October last year when the Cyprus based airline Cobalt Air collapsed. Last October Ryanair gave a stark warning of its belief that more airlines would go bust over the following 12 months and as if to confirm that belief was right the German airline Germania collapsed earlier this month. Now Castle Donnington based Flybmi has gone the same way.
In the great scheme of things, unless you know your airline history or maybe fly from East Midland Airport on a regular basis, you may never have actually heard of Flybmi. Might the airline be rescued? Possible but unlikely in my view.
Flybmi isn’t exactly large, having only 17 aircraft and 376 employees, but its loss to those that know and use it or who are maybe this morning stuck at one of the various European cities to which the airline used to fly, or that have future bookings, will be hard felt.
Is this the end or might we be hearing of some more airlines calling in the administrators? Another somewhat larger regional airlines called Flybe (no connection to Flybmi) has been much in the news of late as it put itself up for sale following its long struggle to cope with higher fuel costs, Brexit uncertainty, currency volatility and the ever increasing amount of competition from the likes of EasyJet, Ryanair, and other low cost flyers.
The jury is still out on Flybe and, given the importance of this airline in the wider community, we are all keeping our fingers crossed for a successful outcome. Even so, do not be surprised to see other small regional airlines collapsing on the other side of the English Channel.
Back to Flybmi, an airline that has a very interesting if somewhat chequered history that I will now recount:
Flybmi is in fact what is left of the once superb airline created in the 1960’s by Sir Michael Bishop and called British Midland (BMI). Flying Vickers Viscounts, and later Boeing 737’s, and giving passengers excellent and reliable service, Sir Michael carved out a sizable regional market for the airline flying routes from East Midland and Birmingham Airport to London, Glasgow, Edinburgh, Brussels, Paris, and Amsterdam plus a host of other places. BMI was certainly a very worthy competitor to British Airways back then and over the years the airline acquired no less than 11% of the lucrative take-off and landing slots at Heathrow Airport, a figure that was second to the 40% of slots at that airport owned by British Airways at that time.
By the late 1990’s, and seeking to begin the process of gradually extricating himself from the airline that he had created, Sir Michael sold a 20% stake in BMI to Lufthansa. For Lufthansa the only attraction of buying the stake in 1999 was to potentially increase access to the highly lucrative Heathrow take-off and landing slots. These slots, in those days, could not actually be bought and sold individually mainly because it was unclear who actually owned them as specific assets – the airport operator (then BAA) or the airline.
Three years later, in 2002, Lufthansa increased its share in BMI to 30% by which time BMI had joined the Star Alliance. The original deal that Sir Michael had done with the German airline was extremely clever in that he built in an option with an expiry date of 2006 that would force Lufthansa to acquire his remaining ‘50% plus one share’ stake at the same price as the original 20% had been purchased. At the time the deal was done that would have placed a value of around £300 million on Bishop’s remaining 50% stake.
In the meantime, Virgin Atlantic, which was also looking to ‘acquire’ more Heathrow slots if it could find them, showed a tentative degree of interest acquiring the remaining 50% stake in BMI from Sir Michael although in the end nothing came of that although I seem to recall Virgin did make an offer at some point later. It should be noted at this point that the Stockholm based Scandinavian Airlines had owned a 20% stake in BMI for some years.
The problem for Lufthansa in respect of being forced to take up the agreed option was that by 2005 the real value of the 50% stake in BMI had substantially declined due to a slump in airline travel that had taken place after September 2001. Lufthansa was less keen to do that and the German airline demanded that in order to proceed Sir Michael should inject a further £100 million working capital into BMI.
However, after much wrangling Lufthansa, did in 2008 acquire the 50% stake in BMI owned by Sir Michael Bishop and a year later the German airline acquired the remaining 20% from Scandinavian Airlines.
In 2011 Lufthansa attempted to sell the BMIbaby and BMI Regional offshoots of BMI but failed. This mean that when the German airline finally managed to sell BMI’s mainline operations to International Airlines Group, parent company of British Airways, Iberia, Air Lingus, in 2012 and because it had failed to get rid of BMIbaby and BMI Regional beforehand, it received far less than the £172.5 million it would have done had IAG not been forced to take them on.
Lufthansa was forced to make an £84 million payment into a new BMI fund in order to compensate part of the employees’ losses in benefits and in order to allow IAG to take over BMI it was then forced by the European Commission to give up 14 daily slot pairs at London Heathrow and also carry transfer passengers for competing airlines at the UK hub airport. In September 2011 BMIbaby was closed.
The final twist came very quickly afterwards in May 2012 when BMI Regional was sold by IAG to an Aberdeen based consortium called Sector Aviation Holdings for £8 million cash. The sale included all of BMI Regional’s fixed assets and liabilities including 18 owned or operating lease aircraft and the deal was said at the time to secure 330 jobs.
CHW (London – 17th February 2019)