Thursday, 21 February 2019 14:32

Flybmi Collapse Sounds Alarm Bells for Airline Suppliers

Another week, another tale of company administration, job losses and suppliers facing an anxious wait on whether they’ll ever get anything back on unpaid invoices.

The collapse of Flybmi, the small regional airline based at East Midlands Airport, has resulted in the ‘majority’ of the company’s 376 staff being laid off with immediate effect. Following Monarch last year, it is the second UK airline to go under in less than 12 months.

It is also one of the first doomed businesses to lay at least part of the blame for its demise on Brexit, with directors saying in a statement:

“Current trading and future prospects have also been seriously affected by the uncertainty created by the Brexit process, which has led to our inability to secure valuable flying contracts in Europe and lack of confidence around Flybmi’s ability to continue flying between destinations in Europe.”

First of all, this should be put into context. Flybmi is one small airline operating in an extremely competitive market which has long fought a losing battle with profitability. The fact that it focused on providing a service for business commuters meant, in the interests of maintaining a regular timetable between destinations, it often flew with its small aircraft only half-full.

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Since it broke away from BMI when the larger carrier was taken over by British Airways in 2012, it has been propped up by more than £40m of investor funding - a subsidy of £13 per passenger it has carried since. With those sorts of figures, Brexit or no Brexit, it could be argued that it was always a case of when, not if, Flybmi was forced to shut down.

However, mention of Brexit does underline just how exposed airlines, particularly those operating between the UK and EU countries, are to the uncertainty surrounding the UK’s departure. Following a spate of small carrier collapses across the continent, the European Regions Airline Association has warned that FlyBMI is ‘only the beginning’ of what could happen if aviation trade rules are not sorted out quickly.

With trading conditions already challenging, the inability to put in place robust forward planning beyond March 29th has the potential to cripple smaller operators, who will not have the capacity of the financial reserves to adjust to any significant changes in trading conditions.

That also spells bad news for the air passenger industry supply chain. Flybmi’s administrators BDO said: “We are contacting suppliers to explain how to apply for monies owed to them.” With £40m in investments on the books, it is highly debatable whether applying will ever yield any returns.

These suppliers must now be looking anxiously at other contracts wondering what sort of a financial position their clients are in. Any further collapses and we could easily see companies throughout the wider industry ecosystem dragged under too, as the loss of payments hits their liquidity too.

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Image "BMI_Airbus_A319-131" by Wikimedia Commons user "Dn280" used in accordance with CC BY-SA 3.0

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