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Failure of Flybe’s Finnair Pact Sends UK Carrier Tumbling

Published on Nov 14 2014 8:03 AM in General Industry

Failure of Flybe’s Finnair Pact Sends UK Carrier Tumbling

Flybe Group has scrapped a joint venture with Finnair that had contributed a quarter of its revenue under management after failing to agree plans to end losses.

Flybe will sell its 60 per cent stake in the three-year venture to Finnair or a new majority shareholder for a nominal one euro, the companies said, leading the UK airline to book a non-cash charge of £9.9 million pounds.

While Flybe has been turning a profit on flights provided on a contract-only basis, it lost money on eight joint venture routes that fed Finnair’s lucrative long-haul services, Chief Executive Officer Saad Hammad said in an interview.

The Exeter-based company has signed a new contract-based deal with an unspecified major European carrier starting from 2015, he added.

"The commercial flights were heavily loss-making and Flybe wanted to turn those into contract flights or make heavy cuts,” Finnair CEO Pekka Vauramo said of the decision to terminate a venture that had accounted for one-third of its European traffic. “We couldn’t accept that.”

Hammad said the agreement to the dissolve the alliance was the "best deal" he’d ever done, and that the “positives” of the decision would probably be recognised in coming weeks.

The parties aim to complete the split this year, pending regulatory approval.

Hammad said 26 jet and turboprop planes leased to the venture will return to Finnair, while Flybe is close to sealing a deal to dispose of nine remaining Embraer SA (ERJ) E195 jets of 14 separately deemed surplus to requirements.

The UK carrier canceled orders for 20 E175 jets in September and deferred others as part of a deal that will bring more Bombardier Inc. (BBD/B) Q400 turboprops into the fleet.

Finnair said its own loss from the exit plan could approach €20 million, adding that flights will continue normally.

News by Bloomberg, edited by Hospitality Ireland

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