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Flybe row takes off as Hosking seeks EGM to oust chairman

A battle over the cut-price sale of Flybe will gather pace next week after the airline's biggest shareholder demanded the sacking of its chairman.

Sky News has learnt that Hosking Partners wrote to Flybe on Friday to requisition an extraordinary general meeting (EGM) aimed at ousting Simon Laffin, the City grandee who has chaired Flybe for five years.

The fund management firm run by Jeremy Hosking, a prominent investor, wants to install Eric Kohn, an experienced aviation executive, in Mr Laffin's place.

A statement confirming the EGM request is expected to be made by Flybe to the London Stock Exchange (Other OTC: LDNXF - news) as soon as Monday morning.

If elected, Mr Kohn would lead an investigation into the sale process run by Flybe's board which resulted in vastly discounted 1p-a-share offer from a Virgin Atlantic-led consortium being recommended earlier this month.

Just four days later, Flybe restructured the deal to sell the regional carrier's main assets for just £2.8m in a transaction which does not require shareholder approval.

The other investors in Connect Airways, the company formed to acquire Flybe, are Stobart Group - which tabled a separate bid for the airline early last year - and Cyrus Capital Partners, an investment firm.

This week, Stobart issued millions of shares equating to a 4.65% stake to Cyrus.

Hosking, which owns nearly 19% of Flybe, initially expressed doubts about the takeover in a letter ten days ago which accused directors of breaching their duties to investors and warning that it could seek an injunction to try to block the deal.

It was unclear this weekend whether an injunction remained an option being pursued by Hosking.

Flybe shares whipsawed this week amid market speculation about other potential bidders for the company, even as people close to the situation highlighted the inability of rivals to gatecrash the deal already struck with Connect Airways.

On Thursday, Flybe issued a statement confirming that if the sale of its operating businesses takes place as planned next month, "Flybe Group plc (LSE: FLYB.L - news) will then be a non-trading entity with neither subsidiaries nor other material assets".

Flybe is Europe's biggest regional airline and one of Britain's best-known aviation brands.

Hosking's effort to eject Mr Laffin thrusts a veteran of blue-chip boardrooms firmly into the spotlight.

A former finance director of Safeway, he has served as a director of companies including Mitchells & Butlers (LSE: MAB.L - news) , the pubs group, and Northern Rock after it was nationalised in 2008.‎

His prospective successor, Mr Kohn, is comparatively little-known, but has advised and sat on the boards of several airlines, and led listed businesses including Avcorp Industries (Toronto: AVP.TO - news) , an aerospace manufacturer.

Hosking's anger has been sparked by a number of factors, including the huge discount to the airline's prevailing share price at which Connect Airways' bid was pitched.

The fund manager is expected to argue in a statement to fellow shareholders that Flybe's board, led by Mr Laffin, failed to pursue viable alternatives to the consortium's offer.

Flybe has argued that the restructuring of the deal had been made necessary by its urgent need for liquidity, with the consortium extending an emergency £10m bridging loan in recent days to provide it with cash.

That claim has been challenged by Hosking because of Flybe's cash balance and its ability to raise funds from the sale of potentially lucrative assets such as its take-off and landing slots at London airports.

Hosking is also furious because Flybe's switch from a premium to a standard listing on the London market - implemented this week - means that investor approval is now only required for the holding company bid.

‎At the 1p-a-share offer price, Hosking Partners' stake is worth roughly £400,000.

Flybe shares closed on Friday at 3.4p, giving it a market value of £7.37m.

Investors' anger at the bid process has been exacerbated by the fact that early last year, Stobart made a takeover approach to Flybe understood to have been valued at roughly 40p-a-share.

This was rejected by Flybe's board.

In a further development, Stobart's estranged former chief executive, Andrew Tinkler, has swooped to snap up a stake of more than 10%‎ in Flybe.

Until this month, it appeared that Virgin Atlantic and Stobart were ‎likely to table competing offers for the regional airline, before it emerged that they had teamed up as part of the same consortium.

Hosking has raised concerns about the process through which they formed an alliance, and has highlighted the recent rise in Stobart Group's shares as evidence of a value transfer from Flybe to its prospective acquirers.

Under their plans, Stobart Air will be folded‎ into Connect, with all of Flybe's services rebranded under the Virgin Atlantic name.

The chief executive and chief financial officer of Flybe will transfer to the bidding consortium, according to documents published by the company.

A Flybe spokesman said: "We have received correspondence from Hosking Partners, which we are considering.

"The board reaffirms that it has acted at all times in the interests of both its shareholders and stakeholders as advised by its financial and legal advisers, through an extremely difficult and challenging period.

"The board continues to have full confidence in its Chairman, Simon Laffin, and believes that any independent scrutiny of its conduct will support its decision-making, made by the whole board."

Directors were "focused on delivering the best outcome for all the company stakeholders, including shareholders, employees, pension scheme members and other creditors," the spokesman added.

Flybe launched a formal sale process last autumn , blaming a toxic cocktail of currency volatility, rising fuel costs and Brexit-related uncertainty.

An industry price war has also exacerbated airlines' financial troubles, with Ryanair blaming the issue for a profit warning this month.

While small in financial terms, Flybe remains one of the UK's best-known airline brands, carrying thousands of passengers between largely second-tier British airports as well as European destinations.

For Virgin Atlantic, still part-owned by Sir Richard Branson's Virgin Group, control of Flybe's regional network will provide a valuable feed into its long-haul flights to international destinations.

Its return to the domestic UK aviation market will come four years after it announced the closure of Little Red, its previous attempt to make money from a notoriously difficult sector.

A Hosking Partners spokesman declined to comment.