Coronavirus Tips UK Airline Flybe Into Insolvency

By Rick Archer
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Law360 (March 5, 2020, 11:48 AM EST) -- The coronavirus is taking the blame for tipping struggling British airline Flybe into bankruptcy, with the "added pressures" the virus has put on the travel industry being cited as a reason for Thursday's insolvency filing of Europe's largest regional airline.

Flybe, which had been facing serious financial woes and was seeking a government bailout, announced Thursday it had entered administration and grounded all of its planes and cancelled all future flights.

"Despite an agreement with the government to provide assistance to the company, added pressures on the travel industry in the last few weeks have further deepened the severity of its financial situation," Alan Hudson, one of the administrators appointed to the case from the accounting firm EY, said in a statement Thursday.

The firm said the coronavirus-fueled downturn in flight bookings had worsened a financial situation already impacted by "rising fuel costs, currency volatility, and market uncertainty."

Flybe, which carries 8.5 million passengers a year and handles nearly 40% of domestic British flights, is Europe's biggest regional airline. In February 2019 it was purchased by Connect Airways, a consortium led by U.K.-based Virgin Atlantic and Stobart Aviation.

According to EY it currently has about 2,400 employees, the majority of which will be laid off.

In January, the British government announced a bailout of Flybe, which had been on the brink of collapse, battered by the falling value of the pound since the 2016 Brexit referendum, uncertainty in the travel industry and growing competition from other regional carriers.

The proposed bailout had included deferral of a £106 million ($138 million) tax bill, a possible loan and a government promise to review air passenger duty levels before the U.K. government's next budget is submitted this month.

The bailout has faced criticism from British Airways' parent company, which argued it violated European Union rules on state aid, and watchdog group Tax Watch UK, which argued the tax payment delay could be an unfair subsidy.

Requests for comment from Flybe were forwarded to EY, which did not immediately respond Thursday.

On Tuesday the U.K. insurer Direct Line said it has so far received more than £1 million ($1.26 million) in travel insurance claims as thousands rush to cancel vacations in the wake of the coronavirus outbreak.

--Additional reporting by Joanne Faulkner, Joseph Boris and Martin Croucher. Editing by Marygrace Murphy.

Update: This story has been updated with additional information.

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