Flybe sets sights on airline rivals after raising £66m in flotation

BUDGET airline Flybe yesterday raised up to £66m to buy new aeroplanes and snap up rivals by listing on the London Stock Exchange.

Flybe, which claims to be Europe's largest regional airline, priced its initial public offering (IPO) at 295p per share, the upper end of its indicated range.

The listing price valued the airline, which serves Leeds Bradford and Doncaster Sheffield airports, at 215m. Shares in the company began conditional trading yesterday, debuting at 320p before rising to close at 341.25p – giving it a closing valuation of 249m. Official trading starts on Wednesday.

Flybe serves five winter routes from Leeds Bradford, plus two from Doncaster, and operates a fleet of 70-seat to 120-seat aircraft from regional airports. It typically focuses on internal UK routes, but also flies to around 30 continental destinations.

The group sold 24.4m shares in the offering, representing around a 30 per cent stake in the company.

The airline said half of the flotation proceeds will go towards a fleet of new aircraft and the remainder into supporting growth plans, such as code-sharing agreements and potential takeovers.

Flybe's current shareholders, which include the founding Walker family, British Airways, and chairman and chief executive Jim French, retain stakes. BA said it planned to subscribe for enough shares to retain the size of its holding.

"The company has come a long way in a short time, from its origins as a provincial carrier to being one of Europe's leading regional airlines," said Mr French when he announced the group's intention to float.

"A listing will assist Flybe in achieving the next stage in its exciting strategy for growth."

Exeter-based Flybe is one of only a few European airlines to remain profitable through the financial crisis, reporting a 6.8m surplus in the year to March 31, although this was down from 12.8m the previous year.

It employs more than 2,900 people and operates 215 routes across Europe. It carried 7.2m passengers in the year to the end of March.

The group's Leeds Bradford operation connects with Aberdeen, Belfast, London Gatwick, Exeter and Southampton, and operates up to 124 flights a week to and from the site.

Its Doncaster operation runs up to 18 weekly flights to Belfast and Jersey.

The Flybe brand is eight years old but has traded under various names, starting out as Jersey European Airways. Jersey European was founded in 1979.

In 2000 it became British European Airways as it expanded with the backing of the late Sir Jack Walker, the steel tycoon who owned Blackburn Rovers football club.

The Walker family trust owned nearly 70 per cent of Flybe before the float, but will see its shareholding diluted to 49 per cent.

British Airways retains its 15 per cent stake and top management including Mr French hold seven per cent, with the remaining eight per cent of shares owned by Flybe staff.

The airline has tried to float several times but has been forced to shelve the plans because of tough IPO markets. Flybe ordered or took options to buy 140 Embraer aircraft earlier this year to add to its fleet of 68 Embraer and Bombardier planes.

Flybe bought the former regional airline business of British Airways, BA Connect, in 2007. Its business model combines elements of its BA legacy with other elements of low-cost carriers.

This includes flying "cost-effective" distances, a high-frequency schedule and route density, a modern fleet operating from lower-cost regional airports and an "attractive passenger profile".

People on business make up 43 per cent of its passengers, while those visiting friends and relatives comprise 28 per cent. It said leisure passengers make up just 24 per cent. It has a track record of growing ancillary revenues – or passenger extras – which last stood at 13.12 per passenger.

Its planes have an average age of just 3.8 years, and its average flight time is 58 minutes. The airline faces the threat of industrial action from more than 700 pilots after a union accused it of ignoring pay concerns and putting all its resources into the flotation.

The British Airline Pilots' Association (Balpa) threatened strikes saying a pay claim submitted to Flybe in February had been ignored, as had concerns over the way the airline organises its flying schedules.

Asian market driving initial public offerings to record

While Flybe's flotation came after numerous unsuccessful attempts to list, the amount raised globally from initial public offerings (IPOs) in 2010 is actually on track to beat any other year on record.

According to Ernst & Young, listings raised $255.3bn in the first 11 months of 2010, and by the end of the year are expected to top the 2007 peak of $295bn.

Despite waves of market volatility which disrupted many planned listings, the booming Asian market accounted for 64 per cent of total IPO values.

"Benefiting from relatively low interest rates in developed markets and abundant liquidity, global investors in the last 11 months have been seeking exposure to the growth in Asia and other emerging markets," said Gregory Ericksen, global vice chair for strategic growth markets at Ernst & Young.

Asian insurance companies and banks drove global IPO markets, he added, while a focus by emerging market governments on modernising infrastructure also provided support for activity in the industrial and materials sectors.

China, boosted by investor demand for its high growth companies, dominated issuance, contributing almost half the total raised globally.

Despite volatile markets which have seen billions of dollars worth of IPOs pulled this year, Europe still saw a more than 500 per cent increase on the amount of IPO funds raised versus the same period in 2009.