Good morning! 

Flybe (LON:FLYB)

Share price: 60p
No. shares: 223.1m
Market Cap: £133.9m

Sunday Times article - I note that there was a very unbalanced article in the Sunday Times yesterday about Flybe (LON:FLYB) which suggested that things were going terribly wrong there. I've noticed that where an individual or company refuses an invitation to be interviewed (which the CEO of Flybe apparently did in this case), then the journalist concerned seems to regard it as open season to do a hatchet job! (possibly aided & abetted by "helpful" PR people from competitors?!)

Having gone carefully through the facts myself, the S.Times article seemed to greatly exaggerate the problems the company has - which are mainly due to 9 surplus aircraft (pending disposal, but accruing considerable costs of c.£26m p.a. while they are grounded), and stiffer competition than expected on some routes. A fuel hedging policy has back-fired, since it has inadvertently locked in high priced fuel for the next year or so.

Given Flybe's strong balance sheet, none of these things look likely to affect the company's solvency, in my opinion. It has net tangible assets of £167.5m, at the last balance sheet date of 30 Sep 2014. An additional provision may well be needed against the surplus aircraft though, although I am told they are modern planes, so it's only a matter of time before they are disposed of.

As you can see from the trading update from 26 Jan 2015 (below), the company's underlying trading is around breakeven, after one-offs of around £16m relating to an EU compensation ruling, and the sale of their loss-making Finnish operation. So in other words, the underlying business is at a run rate of about £16m p.a. profit, with the temporary issue of 9 surplus planes being an additional cost of £26m p.a.. So even if they cannot dispose of the surplus planes, then the run rate is currently a loss of about £10m p.a. - which is a very different picture to the one painted in the S.Times yesterday, where the journalist included very little in the way of figures, but speculated that the company might struggle to raise fresh cash (not seeming to realise that it doesn't need to).


My opinion - Flybe is in a 3-year turnaround, and so far a lot of positive things have…

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