Flybe confirmed to the London Stock Exchange this morning that it had agreed to buy a new airline, Flybe Ireland, from Ryanair for €1 million.
The deal is contingent on Ryanair's takeover of rival Aer Lingus, a proposal which is currently being considered by the European Commission.
However, Aer Lingus said today that Ryanair's proposed deal with Flybe was "unrealistic", adding that Ryanair's third attempt to acquire Aer Lingus was likely to fail.
Speaking after Aer Lingus announced a 40% leap in operating profit to €69.1 million, Aer Lingus chief executive Christoph Mueller said the airline could flourish on its own.
Its share price has climbed from €1.10 at the start of the year to €1.28, which is just short of the €1.30 offered by Ryanair.
If its bid for the former Irish flag carrier is successful, Ryanair has agreed to pump €100 million into Flybe Ireland and to hand over to the new airline 43 routes, all within Europe, plus at least nine Aer Lingus Airbus A320 aircraft.
It will also transfer to Flybe Ireland a number of flight crew, aircraft engineers, management and facilities and all forward sales cash and liabilities, estimated at around €50 million. Flybe Ireland is expected to provide a €20 million pre-tax profit in the first 12 months.
The airline, which will be wholly owned by Flybe, will have bases in Dublin and Cork, from where it will fly to 34 destinations, half of which are already served by Flybe from its UK bases.
Under the terms of the deal, it will have the right to use the Aer Lingus brand for up to three years.
A crucial part of the agreement with Ryanair is that Flybe Ireland would be committed to operating an agreed frequency on routes, with the ability to terminate a certain number of routes per year.
If the airline exceeds the route termination threshold, it will be forced to pay a financial penalty.
The EC is expected to announce its decision on whether to approve Ryanair's bid for Aer Lingus on March 6. If it gives the go ahead, Ryanair will make a new offer to Aer Lingus' shareholders. If it is accepted, Flybe said it expected to launch flights from Ireland for winter 2013/14.
Commenting on today's announcement Jim French, Flybe chairman and chief executive, said: "Flybe would be delighted to be granted the opportunity to service the Irish aviation market through Flybe Ireland, an airline which would be based in Ireland and dedicated to developing a broad range of scheduled services for business and leisure markets.
"However, before Flybe Ireland can come into being there are many hurdles to overcome, not least the EC accepting the remedies offered by Ryanair in its offer to take over Aer Lingus, and then the shareholders of Aer Lingus accepting an offer from Ryanair."
Flybe has already secured approval for the deal from 64% of shareholders. The EC had insisted on the pledging of irrevocable acceptances by over 50% of Flybe's shareholders as a condition precedent for the deal to create Flybe Ireland proceeding.
By Linsey McNeill
Wednesday, February 6, 2013