Flybe disputes BA's writedown of shareholding

By David Kaminski-Morrow

UK operator Flybe is disputing British Airways' opinion over its prospects after the flag-carrier wrote down its investment in the regional airline.

In notes to its recently-released full-year results, British Airways includes a £13 million ($20.7 million) impairment on its investment in Flybe. BA took a 15% share of the regional carrier in 2006 as part of its sale to Flybe of its BA Connect regional operation.

BA had already recognised a £6 million impairment of its Flybe investment, the result of a "significant and prolonged" decline in fair value following fuel-price rises.

But in its 2008-09 fiscal notes it says a further review of Flybe has revealed a "lower rate of forecast revenue and earnings growth than previously expected". This, it says, has resulted in a "further decline" of fair value, and BA has posted an additional £13 million impairment of Flybe, valuing the investment at £30 million.

Flybe has responded with "surprise" to the impairment and "disagrees" with BA's conclusions. It says the impairment is "inappropriate", claiming that the flag-carrier is "undervaluing" the regional airline and has "failed to take into account" several important considerations.

"We believe that the decision is principally based on BA's view of their own performance and prospects rather than an analytical view of Flybe's track record and future prospects," it states.

Flybe states that its turnover in the year to 31 March was up 7%, with cash reserves of £57 million, and that it expects to post a pre-tax profit. It also says it is "one of a handful" of European carriers forecasting a profit for 2009-10.

Its business model, it says, is aligned more with that of low-cost carriers which have performed better than the network airlines. Flybe also claims to have reduced capacity without affecting its core route structure.

"Flybe has carefully positioned itself during these difficult times," it says. "It has managed to strongly increase market share in its core domestic operations, positioning itself well for further profit growth when the current recession ends."

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