Flybe Group plc (FLYB.L) announced that it has reached a conditional agreement to transfer its 25 pairs of arrival and departure slots at London Gatwick airport or LGW to easyJet Plc (ESYJY.PK,EZJ.L) for consideration totalling 20.0 million pounds. The Slots represent all Flybe's slots at LGW.
Flybe currently operates seven routes into and from LGW and, in the year to 31 March 2013, Flybe flew 550,000 passengers on routes departing from LGW.
As per the deal, the consideration will be satisfied by: an initial amount of 7.5 million pounds paid on the date that the approval of Flybe's shareholders to the Exchange is obtained; 10.0 million pounds to be paid in November 2013 after the summer slots are exchanged following the IATA slot conference; and the remaining 2.5 million pounds to be paid in June 2014 after the winter slots are exchanged following the IATA slot conference.
Flybe noted that the proceeds from the proposed Exchange will reduce the indebtedness of the Group and be used to help finance the restructuring plan announced on 23 January 2013 and for general working capital purposes.
Flybe said it expects that, under the agreement with easyJet, it will continue to operate all of the Slots until March 2014, during which time there will be no changes to flights, frequencies or timings to or from LGW.
Flybe would then intend to exit its seven routes operated to and from the LGW market.
Flybe stated that it has decided to sell the Slots following a discriminatory pricing regime applied by the airport's owners to the operators of smaller, regional aircraft which, in Flybe's case, has resulted in a 102% increase in charges over the last five years. This means Flybe has a significant per seat cost penalty at LGW against the operators of larger, 150+ seat aircraft, such as easyJet and IAG.
Flybe viewed that the increase in charges, combined with the penalistic levels of Air Passenger Duty imposed on UK domestic airlines by successive Governments, have resulted in Flybe's services to and from Gatwick becoming unsustainable in the long-term.
As at 30 September 2012, a proportion of the Slots were recorded on Flybe's consolidated balance sheet as a non-current intangible asset with a net book value of 8.5 million pounds.
As a result of the Exchange, Flybe said it will receive cash proceeds significantly above the book value for this asset, thereby increasing shareholders' funds. It also enables the Group to realise value for these Slots which are currently being used by Flybe for routes on which it is not earning a satisfactory operating return on the assets deployed.
The Exchange is subject to approval by Flybe's shareholders. It is expected to complete in July 2013.
In a separate press release, easyJet confirmed that it has completed an agreement with Flybe Group plc to acquire 25 pairs of arrival and departure slots at Gatwick airport for a total consideration of 20 million pounds.
The slots will transfer from summer 2014 and will allow easyJet to provide additional frequencies on popular existing routes from Gatwick as well as add new destinations across the UK and Europe.
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