Kleinman: Brutal winter could ground Flybe despite buyer interest, Truell’s trump card and wheel turns for auditors
If only achieving take-off for Flybe’s profits was as easy as it seems to be for its share price.
Not content with a 70 per cent uplift after I reported that Virgin Atlantic was in talks to buy the regional airline, the stock soared again on Monday as investors boarded on hopes of a bidding war involving British Airways’ parent, International Airlines Group (IAG).
The shares have retreated marginally since then, but those who have bought in recently would be wise to keep their oxygen masks handy.
For one thing, I’d be amazed if reports describing IAG as the leading bidder were accurate. Flybe, after all, is the holder of Heathrow slots that BA was forced to relinquish when it bought Bmi in 2012. Regardless of its ring-fencing for domestic flights, Willie Walsh, IAG’s chief executive, would have to make some heroic assumptions about competition regulators’ view of his share of slots at London’s biggest airport to believe he’d be allowed to reacquire them.
Without those slots, it’s hard to see how buying Flybe would make sense for IAG, whereas for Virgin Atlantic, the industrial logic is obvious, with the opportunity to use the regional airline’s domestic flights to feed into a long-haul network.
The other determined buyer appears to be Stobart, which made something of a hash of its previous attempt to take over Flybe earlier this year.
Whoever buys it will be faced with the task of restructuring a bloated fleet, in an industry struck by the aviation equivalent of the high street’s crisis – a bitter price war and rising fixed costs. And hiding in plain sight is a very stark fact: airlines do not put themselves up for sale in November unless their finances are precarious going into a long and arduous winter. It’s hard to see Flybe surviving far into 2019 without a rescue mission.
Truell’s trump card
Norway Plus, Canada Plus Plus, no deal or a second referendum: with the parliamentary arithmetic stacked against Theresa May, the issue of the Irish backstop continues to weigh on the Brexit agenda.
Now, Edi Truell, the City financier, has stepped forward with what he describes as a workable solution. Truell’s vehicle, Disruptive Capital, is proposing a cross-border paperless trade system (using technology part-supplied by EssDocs, in which he is a shareholder) that he claims could be in place by Brexit day next March.
CargoDocs dTrack, to give the product its trading name, would enable instant monitoring of goods trading across the Irish border by providing full traceability – and eliminate the need for the backstop.
That will appeal to Cabinet Brexiters like Andrea Leadsom, the leader of the House of Commons, who wrote in a letter to her constituents on Wednesday that a technological solution was required to resolve the Irish border issue.
Her next call should probably be to Truell.
Wheel turns for auditors
Ask any finance director what the least favourite part of their job is, and the chances are that presiding over a change of auditor will be right up there.
The 100 Group, the body which represents the finance chiefs of major UK-listed companies, has made clear to competition watchdogs its view that increasing the frequency of audit rotation would do nothing to aid competition.
The latest FTSE 350 firm to hop onto the cycle of audit tendering is, I’m told, Halfords, which has used KPMG to supervise its accounts since 2009.
In a well-functioning market, the bikes and car-parts retailer is exactly the sort of business that audit firms aspiring to gatecrash the Big Four’s dominance should be in with a shot at.
With Grant Thornton in self-imposed exile from new audit mandates in the UK’s blue-chip share index, that realistically leaves just BDO in with a shot at taking the work.
Regulators would be well-advised to keep a close eye on the Halfords process. With each FTSE 350 audit tender which rotates to one of the other members of the audit profession’s dominant quartet, the clamour for more draconian reforms will only get louder.