Sky News has learnt that Virgin Atlantic has opened discussions with Flybe’s advisers about making an offer for the London-listed company, four years after announcing the closure of Little Red, an earlier attempt to crack the domestic UK market.
Sources said the transatlantic airline was pursuing an interest in Flybe because of the opportunities a tie-up would provide to feed passenger traffic into Virgin Atlantic’s long-haul network, as well as its access to valuable take-off and landing slots at London Heathrow Airport which are ring-fenced for domestic flights.
The two carriers already operate a code-share pact aimed at improving access to Virgin Atlantic’s long-haul routes for regional customers using the regional airline’s flights into Heathrow and Manchester.
Rothschild, the investment bank, is advising Virgin Atlantic on its interest in Flybe.
Although an offer from Virgin Atlantic for Flybe would not be large in monetary terms – the latter had a market capitalisation of just over £20m at Thursday’s closing share price – it would be a significant combination in a British aviation sector which is viewed as requiring further consolidation.
Rising oil prices and the weakening of sterling have put airlines under intense pressure, with a deepening industry price war accentuating the financial squeeze.
Monarch Airlines crashed into insolvency in 2017, while more recently, Primera Air, a budget carrier which began offering long-haul flights from British airports this year, filed for administration.
If Virgin Atlantic succeeded with an offer, the Flybe brand would also be unlikely to survive, according to industry analysts.
Sir Richard launched Little Red in 2013 after gaining slots that arch-rival British Airways was forced to relinquish after its takeover of bmi.
However, the tycoon threw in the towel less than two years later, blaming the “meagre package of slots” with which it had operated.
A takeover of Flybe by Virgin Atlantic could be complicated by competition from a rival bidder such as Stobart Group as well as the protracted state of negotiations about Virgin Atlantic’s ownership.
The company agreed a three-way deal last year with Air France-KLM and Delta Air Lines under which the Franco-Dutch group would acquire a 31% stake in Virgin Atlantic from Sir Richard’s holding company for £220m.
Virgin Group intends to retain a 20% stake and the right to appoint the airline’s chairman, while US-based Delta would retain its existing 49% shareholding.
The transaction remains subject to regulatory approvals, which could be affected by a no-deal departure by the UK from the European Union.
Virgin Atlantic’s need to secure a berth as part of an alliance with better-resourced rivals was underlined again this year when it reported a £28.4m loss before tax and exceptional items for 2017.
The company announced a change of leadership in June, with Craig Kreeger due to step down next month as its chief executive after nearly six years at the helm.
He will be replaced by Shai Weiss, its chief commercial officer.
Industry insiders confirmed that Virgin Atlantic and Stobart were the leading potential bidders for Flybe, with easyJet understood not to be interested in making an offer for the company.
Stobart, which is the focus of a bitter courtroom battle between board members and its former chief executive, abandoned a previous bid earlier this year.
Since confirming that it was exploring a sale, Flybe has taken further steps to shore up its finances, announcing an extension of its borrowing facilities and a £5m sale and leaseback of an aircraft hangar.
The Exeter-based carrier, which last week reported a halving of pre-tax profit for the first half of the year, has drafted in bankers at Evercore to handle the talks about a potential deal.
Although tiny in financial terms, Flybe remains one of the UK’s best-known airline brands, carrying thousands of passengers between largely second-tier British airports as well as European destinations.
At the end of September, Flybe retained a fleet numbering 78 aircraft, and has promised investors that it would continue to reduce capacity to focus on its most popular routes.
Flybe and Virgin Atlantic both declined to comment on Thursday evening.
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