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01 July 2011

Acquisition of Finncomm Commuter Airlines in Joint Venture with Finnair

 

Flybe, Europe's largest regional airline, is pleased to announce today the acquisition of Finnish Commuter Airlines ("FCA"), Finland's largest domestic air carrier in terms of number of flights, in a newly formed joint venture with Finnair, Finland's flag carrier, for a total consideration of €25 million plus net cash in the acquired business at completion.  Completion is expected to take place within the next four to six weeks, and is subject to competition clearance.

 

Consideration and Terms

Under the terms of the joint venture, Flybe will pay €12 million cash and Finnair €13 million on completion. Flybe will take a 60% stake in the joint venture, to be known as Flybe Nordic AB ('Flybe Nordic'), while Finnair will hold the remaining 40%. Flybe Nordic's holding company board will comprise three representatives from Flybe, and two from Finnair.

 

In addition to acquiring 100% of FCA including 57% of Finncomm Training Centre ('FTC') as well as small IT and charter businesses, Flybe will also make a direct purchase acquisition of 46% of Finnish Aircraft Maintenance ('FAM').

 

Flybe's total investment will be up to €23.6 million (up to £21.3 million), including net cash and loan repayment. Return on investment is expected to exceed 15% by the second full year post acquisition.

 

Information on FCA

FCA is Finland's largest domestic airline by operations, flying around 900,000 passengers per annum in the Finnish domestic and Nordic and Baltic regional markets.  It currently has 15 regional aircraft and an annual turnover of approximately €90 million. At present the business carries an estimated 34% of Finnish domestic air traffic (through a mix of scheduled and contract flying) and Flybe Nordic has identified exciting growth opportunities throughout the Nordic and Baltic states.

 

Flybe Nordic will take over FCA's existing domestic routes under the Flybe brand, using the 15 aircraft which will be leased from Finnair or from the existing owners of Finncom OY, the private investment vehicle which currently owns FCA. Working with Finnair, the acquisition also provides Flybe Nordic with a codeshare feed, existing routes, a developed infrastructure and strong distribution assets to reduce the cost of Flybe's entry into the market. Flybe will bring its market-leading expertise in building large and successful regional airline businesses.  Under the terms of transaction, 8 of the aircraft flown will be on a contract flying basis under a cost-plus arrangement with Finnair.

 

The joint venture will undertake a major marketing campaign to promote the Flybe brand to business and leisure customers in Finland, as well as leveraging Flybe's ancillary revenue model with promotions, loyalty schemes and special offers.

 

Strategic Rationale

The acquisition of FCA is in line with, and key to, Flybe's stated strategy: to export its robust and unique UK business model to Europe and to drive expansion in the European regional airlines market, in part by means of new strategic arrangements with legacy carriers to provide economic feed from the regions into primary hubs and supporting the development of new regional point-to-point flying.

At the time of its IPO in December 2010, Flybe outlined compelling opportunities for further expansion into Europe by means of organic growth, relationships with other major partners and acquisitions.

Flybe identified the Nordic region as offering particularly strong growth opportunities due to favourable market conditions, namely, a fragmented regional airlines marketplace, the weakness of certain flag carriers in this area and the stimulus of growing competition from low cost carriers, which helps legitimise Flybe's ancillary revenue model. Furthermore, in the absence of alternative viable transportation options, there is a high propensity in Finland and the wider Nordic region to fly point-to-point and accordingly, the market enjoys high yields compared with the rest of Europe.

 

Jim French, Chairman and CEO of Flybe Group plc, said:

"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. 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.

FCA is a great base to build on, with excellent routes and a talented team of employees. It also has compelling growth opportunities. Everyone at Flybe is looking forward to working with Finnair and FCA, to drive forward our strategy of creating the largest and most profitable regional airline in the Nordic and Baltic States."