A Complete Fly-by: Flybe leaves firms chasing funds

June 2, 2020

2 min read

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What's going on here?

Insolvent airline Flybe owes law firms £100,000 in legal fees as a result of creditor claims, following its collapse on 5 March 2020.

What does this mean?

The aviation industry has taken one of the biggest hits during the coronavirus outbreak (to see our article on that, click here) despite attempts by the government to save British transport links. Whilst Virgin Atlantic, who are part of Flybe’s ownership consortium, invested £135m to keep the struggling airline going, the help of the government was sought to provide short-term loans to Flybe in order to secure their future and avoid the risk of bankruptcy (to see our article on that, click here). 

With the collapse of the airline culminating in creditor claims nearing £320m, Eversheds Sutherland, Addleshaw Goddard and Sidley Austin are among a group of law firms demanding their earnings. Administrator EY, whom Bryan Cave Leighton Paisner is acting for, estimates that a maximum of £600,000 will be available as the prescribed part in the pay-out. The prescribed part is a ring-fenced fund which is set aside to satisfy unsecured debts, which otherwise rank behind the debts owed to a floating charge holder (a form of security). The result for these law firms is that they will be entitled to only a small portion of the amount that they are owed.

What's the big picture effect?

Flybe’s departure marks another blow for the aviation industry, with predictions by the International Air Transport Association showing that airlines could lose up to a quarter of a trillion dollars’ worth of revenue this year as a result of the ongoing coronavirus outbreak, with the bleak possibility of bankruptcy for many. This comes despite industry attempts to cut costs, by cancelling flights and convincing employees to take unpaid leave. Some airlines, including Virgin Australia and the US airline Compass have also entered administration with the possibility of imminent shut down.

UK Chancellor Rishi Sunak has so far failed to take steps to support the aviation industry, urging airlines to turn to other forms of funding, despite critics hinting that a breakdown of government support may result in the loss of 1.6m UK jobs. British Airways are already set to drop 12,000 of their employees and EasyJet has dismissed 4,000 of its UK based cabin crew for two months. The aviation industry will have an inevitably essential role in the world economy recovery process once the threat of the virus is under control, making it fundamental for operators to preserve business capital in the short-term

All things considered, Flybe’s creditors could find themselves in a not so unique position. With a growing number of airlines facing financial difficulties, demand for the sale of businesses and company assets will increase the need for essential legal support. Yet, if firms do not demand immediate payment for their services, they will end up as unsecured creditors. Furthermore, it is likely that the attempts made in the industry to preserve capital will be unsuccessful if that capital is ultimately spent on legal fees to keep fleets in the air.  

Report written by Evangeline Taylor

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