Flybe, Finnair Resume European Airline Consolidation

 - July 25, 2011, 12:29 PM

The effort by UK low-fare regional Flybe and Finnair to break through European structural barriers to consolidation took the form of an agreement last month between the airlines to jointly acquire Finnish Commuter Airlines (FCA), a Finnish regional carrier owned by Finncomm Oy. The companies plan to create a new joint venture called Flybe Nordic AB, 60 percent owned by Flybe and 40 percent by Finnair.

Consolidation in the European airline industry has slowed in recent years for various reasons, not least the lack of capital availability. Flybe, however, raised some £60 million ($100 million) late last year in an IPO meant, first, to fund fleet expansion and, second, to position it for any potentially attractive airline acquisitions, or “strategic arrangements with other European airlines.”

“Partnerships and acquisitions are at the core of our European growth strategy, which is to export our strong and proven UK business model to become Europe’s leading and most profitable regional airline,” said Flybe chairman and CEO Jim French. “Selective acquisitions offer the fastest and most visible route to profitability in the regional airline sector, whilst partnership with Finnair allows us to provide feeder traffic services under an agreed contract, reducing new route risk. This deal not only meets our stated strategic objectives but is a perfect example of the successful execution of our strategy.”

Under the plan, Flybe Nordic AB will acquire FCA for €25 million ($36.2 million) plus net cash in the acquired business at completion of the transaction, expected to take place within four weeks of the July 1 signing. FCA will continue operating its existing domestic routes under the Flybe brand. Flybe plans to assume control of the day-to-day operation and management of the airline starting August 1.

Under the terms of the contract, Finnair will buy the FCA fleet of nine ATR 72s at market price and lease them back to FCA. Finnair has also committed to buy three Finncomm-ordered ATR 72s, scheduled for delivery this coming autumn and autumn 2012. It will lease the airplanes directly to FCA at a market price. Plans call for Finncomm Oy to lease the remaining four ATR 42s it owns to FCA “for certain predefined periods.” FCA will continue to lease two Finnair-owned E170s.