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It's good news for regional passengers who rely on Flybe's services, but Virgin Atlantic will have plenty of work to do to make sure it can make the most of a combined long-haul, short-haul operation.

Virgin Atlantic and a consortium of other buyers are looking to takeover struggling UK regional airline Flybe in a $2.8 million (£2.2 million) deal.

The joint venture company includes Virgin as well as infrastructure company Stobart Group and investment firm Cyrus Capital. The Flybe board has recommended to shareholders that the they should accept the offer.

The move would  represent a return to short-haul aviation for Virgin Atlantic just over four years after the closure of its Little Red operation. The new owners will rebrand Flybe as Virgin Atlantic but Stobart Air, which will also become part of the group, will exist separately. Stobart Air operates a wet lease and aircraft leasing business.

Flybe put itself up for sale in November last year after issuing a profit warning. Like with other smaller airlines it has struggled with higher fuel costs and has also had to deal with the plunge in the value of the pound following the 2016 Brexit vote.

The carrier started life in 1979 as Jersey European Airways, offering flights from the Channel Islands to the UK. The airline gradually morphed into a pan-European airline serving smaller regional airports abandoned by both full-service and low-cost carriers. Its fleet is mainly comprised of smaller turbo-prop aircraft that carry fewer than 100 passengers.

Airline industry consultant John Strickland said it was broadly positive news.

“It will provide much needed certainty for many of the UK’s regions for whom these air services are so important,” Strickland told Skift via email.

“For Virgin it will gain additional feed opportunities at Manchester and more modestly at Heathrow. Though in the latter case it would be preferable if in future Flybe services could transfer from Terminal 2 to Terminal 3 for a seamless interface with Virgin’s long haul operations.”

As part of the deal the consortium will make $26 million (£20 million)available in short-term loans to support Flybe’s “ongoing working capital and operational requirements” and if and when the deal goes through it will make another $103 million (£80 million) of further funding to the combined group to “invest in its business and support its growth.”

Cyrus Capital and the Virgin Group previously worked together to launch Virgin America.

A spokesperson for Virgin Atlantic said the Flybe rebrand would coincide with a refurbishment program of its fleet.

“[T]he industry is suffering from higher fuel costs, currency fluctuations and significant uncertainties presented by Brexit,” said Christine Ourmières-Widener, CEO of Flybe.

“We have been affected by all of these factors which have put pressure on short-term financial performance. At the same time, Flybe suffered from a number of legacy issues that are being addressed but are still adversely affecting cashflows.

“By combining to form a larger, stronger, group, we will be better placed to withstand these pressures. We aim to provide an even better service to our customers and secure the future for our people.”

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Tags: europe, flybe, m and a, mergers and acquisitions, virgin atlantic

Photo credit: A Virgin Atlantic aircraft. The carrier is part of a consortium looking to takeover Flybe. Transport Pixels / Flickr

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