Aer Lingus Regional Service Operator Stobart Air Ceases Trading
Aer Lingus Regional service operator Stobart Air has ceased trading.
Aer Lingus Statement
Aer Lingus stated on its website, "Stobart Air notified Aer Lingus that it was terminating its franchise agreement with Aer Lingus with immediate effect. As a result, all Aer Lingus Regional flights operated by Stobart Air are cancelled. Stobart Air referred to the continuing impact of the pandemic, which has resulted in almost no flying since March 2020. Stobart Air has ceased trading and is now in the process of appointing a liquidator. Aer Lingus apologises to customers for the inconvenience caused by the cancellation at such short notice of all flights operated by Stobart Air. Aer Lingus is now communicating to customers to advise them of their options for refund or rebooking.
"Customers who were booked to travel on flights operated by Stobart Air are advised not come to the airport and to check the Aer Lingus website for updated information on refund or re-booking options.
"All Stobart Air flights on the following routes are cancelled: Dublin / Kerry; Dublin / Donegal; Dublin / Glasgow; Dublin / Edinburgh; Dublin / Manchester; Dublin / Newquay; Belfast City / Manchester; Belfast City / Birmingham; Belfast City / Edinburgh; Belfast City / Leeds Bradford, Belfast City / Exeter; Belfast City / East Midlands."
Aer Lingus subsequently stated on its website, "Aer Lingus has announced details of a replacement schedule for Aer Lingus Regional customers.
"Aer Lingus Regional had been operated by Stobart Air under a franchise agreement. Late on the evening of 11th June, Stobart Air notified Aer Lingus that it was ceasing operations with immediate effect.
"Teams across Aer Lingus have been working through the night progressing alternative flying operations from tomorrow to provide a service for Aer Lingus Regional customers.
"Of the twelve routes immediately impacted by Stobart Air's decision to cease trading, Aer Lingus will operate five routes and, for at least the next week, BA City Flyer will operate two. Alternative operations for the outstanding routes are still being determined.
"All impacted customers are being contacted directly and offered details of an alternative flight where feasible. All impacted customers also have the option of a full refund.
"Aer Lingus wishes to apologise to Aer Lingus Regional customers who have been affected by Stobart Air ceasing operations.
"Full detail of the Aer Lingus Regional replacement schedule can be found on www.aerlingus.com."
Aer Lingus added on its website, "Aer Lingus (mainline) will operate the following routes: Dublin / Edinburgh; Dublin / Manchester; Belfast City / Manchester; Belfast City / Birmingham; Belfast City / Edinburgh.
"BA City Flyer will operate the following routes: Belfast City / Exeter; Belfast City / Leeds Bradford.
"Alternative operations for flights on following outstanding routes are still being determined: Dublin / Kerry; Dublin / Donegal.
"Customers scheduled to travel on the Belfast City / East Midlands; Dublin / Glasgow; Dublin / Newquay routes are being offered alternative flights."
Stobart Air Loss And Sale
The announcement that Stobart Air has ceased operations follows last week's news that Stobart Air experienced a €36.8 million loss last year, as well as news that the planned sale of Stobart Air to Isle of Man company Ettyl Limited, which was announced earlier this year, was in doubt due to funding concerns.
Aer Lingus Regional Contract
Stobart Air's contract to operate Aer Lingus Regional services was due to expire at the end of 2022.
It was reported late last year that businessman Conor McCarthy's Emerald Airlines would enter exclusive talks with Aer Lingus to take over the Aer Lingus Regional service following the expiration of Stobart Air's contract, and, as reported by The Irish Independent, Aer Lingus has since named Emerald Airlines as the preferred bidder to take over its regional service.
Stobart Air Majority Owner Statement
Stobart Air's majority owner, aviation and energy infrastructure group Esken, stated on its website, "Esken, the aviation and energy infrastructure group, issues the following update ahead of publishing its preliminary results for the year ended 28 February 2021 due by the end of June.
"Esken is providing an update on the sale of Stobart Air ('SA') and Carlisle Lake District Airport ('CLDA') to Ettyl Limited ('Ettyl') under the conditional contracts entered into on 20 April 2021. On 28 May 2021 and as reported to the market, Ettyl advised that its original funding package to support the transaction was no longer available and that it was in discussions on alternative funding options. It is now clear that Ettyl is unable to conclude the transactions on the original terms or to obtain an alternative funding package within the required timescale. Esken has therefore exercised its right to terminate the contracts for the transactions with immediate effect. In the absence of any alternative purchasers or sources of funding for the SA business within the timescales required, Esken has advised the board of SA that it will not continue to provide financial support to the business going forward. As a result of this, the board of SA has terminated its franchise agreement with Aer Lingus, will cease trading and is taking steps to appoint a liquidator.
"The board of Esken has undertaken certain contingency planning measures and has agreed in response to these developments that it will continue to fund the lease obligations on the eight ATR aircraft through to termination of the leases in April 2023 under the terms of its pre-existing guarantee. Esken confirms that it will take immediate steps to seek sublease arrangements for the aircraft with alternative operators to mitigate the impact on the group.
"Esken also remains responsible for certain obligations to Aer Lingus under the franchise agreement which were also the subject of a pre-existing guarantee and have become payable following termination of the franchise agreement. These obligations and the guarantees entered into in early 2017 were the reason that the group reacquired the airline and its related leasing company in April 2020. This enabled the group to manage and seek to mitigate the impact of these liabilities following the administration of Connect Airways Limited.
"In the announcement on 20 April 2021, Esken set out the cash flow impact on the group on the assumption that the transactions concluded. The following table reflects the amended position over the period to the end of the leases assuming that the group is unable to sublease the aircraft.
|Cash outflow reported previously||16||9||24|
|Additional cash impact arising from liquidation||18||13||2|
|Total Cash outflow||34||22||26|
"Since April 2020, Esken has taken all steps to minimise the cash requirement of SA while seeking to find a purchaser, recognising the importance of the airline to connectivity between the UK & Ireland, the 480 jobs involved and the fact that a sale would be a better outcome for shareholders. Esken has been successful in reducing the impact of its pre-existing obligations and in agreeing terms under which it has control of residual obligations through to expiry. However, the continuing impact of the pandemic, which has resulted in almost no flying since April 2020, and the decision taken by Aer Lingus to award preferred bidder status to another party for the franchise agreement beyond its expiry in December 2022 significantly hampered the exhaustive steps taken to secure a future for the business and its staff.
"Esken will retain the ownership of CLDA rather than it being sold for £15 million (reflected in the cash impact above), but will actively explore strategic options for the use of this asset in discussion with stakeholders including potential alternative commercial opportunities for the airport."
Esken continued on its website, "The impact of the pandemic has been both greater and over a longer period than anticipated at the time of the capital raise in June 2020. This has led the board to undertake a further review of the strategy and the medium-term funding requirements for the group. This concluded that the group holds two attractive businesses which can generate significant value for shareholders as markets recover post COVID-19. The key strategic objective will therefore be to drive shareholder value from these assets with any decision on the realisation of value being deferred until the businesses recover fully from the pandemic and become mature cash generative business units. While it was previously intended at the time of the capital raise to seek to monetise the gnergy business by June 2022, the board has concluded that this is not the right option for shareholder value.
"Stobart Energy is a recovering cash generative business with a strong market position and long-term supply contracts. It is anticipated that financial performance will return to pre COVID-19 run rate levels in the current financial year. Opportunities are being explored for additional supply contracts and to broaden the base of the market offering within the energy from waste space where existing operational expertise can be applied. The business offers the opportunity to generate returns from an asset with infrastructure characteristics and a compelling environmental benefit by recycling waste wood to produce energy rather than it going to landfill.
"In the aviation business, the prime asset is London Southend Airport ('LSA'), which prior to the pandemic offered passenger services to over 40 destinations to a market of c.8 million people living within one hour travel time to the Airport. Whilst aviation has been one of the hardest hit sectors by the pandemic the fundamental long term value drivers of the Airport remain sound. This has been recognised through strategic partnership discussions in relation to LSA which are covered below.
"Esken will continue to invest in the infrastructure of the airport in step with passenger demand recovery allowing LSA to meet the needs of airline partners for an efficient cost effective London airport and offering a safe and enjoyable passenger experience. In addition there is an opportunity to develop the logistics offering both with the existing global logistics partner and other related businesses. Given the award of the Thames Freeport status in the estuary and proximity to east London, the airport is well placed to capitalise on accelerated airfreight growth and movements.
"In line with the previously stated strategy, Esken will actively look to exit from all other non-core infrastructure assets owned by the group having a net book value of c. £39 million at 28 February 2021. When this process is complete Esken will become a focussed group with two operating businesses."
Strategic Partnership For LSA
Esken continued, "Over the last nine months, Esken has been in discussions with a strategic financial partner in relation to the development of LSA as aviation recovers from the pandemic. This partner has significant investment experience in the airport sector globally and will deploy its resources alongside the operational management team at LSA through the COVID-19 recovery phase and future development of the airport. Esken is now in the final stages of agreeing the documentation for a strategic funding transaction into LSA which would release significant liquidity into the group while underpinning the funding requirement of the Airport in the medium term. The transaction would be conditional on obtaining shareholder approval. Further details are expected to be announced at the time of the issue of the full year results anticipated by the end of June. Esken nevertheless cautions that no guarantees can be given at this stage that the transaction will be forthcoming."
Funding And Liquidity
Esken continued, "The group raised £100 million by way of a capital raise in June 2020 together with additional bank facilities of £40 million ("Facility B") to enable Esken to navigate the impact of the pandemic expected at that time whilst maintaining the operational integrity of its core businesses. The group's bank facilities totalling £120 million expire at the end of January 2022 and Esken has been in continuing dialogue with its banks in relation to the repayment of these facilities as well as its medium term funding requirements to meet its ongoing working capital needs. It was a term of Facility B that in order to continue to draw on that facility Esken must satisfy the banks as to its ability to repay the facilities by the due date. The group has drawn £10 million of its £40 million additional facility but the drawing of any amounts under this facility in excess of £15 million beyond 30 June 2021 is subject to certain conditions. Esken is currently in discussions with its banks in relation to the satisfaction and/or waiver of such conditions in order to ensure continued access to the facilities.
"The strategic funding proposal in relation to LSA would, if completed, enable Esken to repay the outstanding bank facilities and would significantly reduce the funding requirement of the business to underpin its business plan and meet its legacy obligations and working capital needs. Esken is, and will be, in discussions with its banks and other stakeholders in relation to this requirement, including potentially a modest equity issue on an accelerated basis and expects to conclude these discussions prior to the issue of its financial results for the year to 28 February 2021. Esken cautions that no guarantees can be given at this stage that the discussions with its banks or in respect of an equity raise will result in agreement or a transaction being concluded."
Esken added, "Esken is also providing a further update on its current operating performance following its trading statement on 11 March 2021.
"The two core businesses of aviation and energy are currently returning to operations in different phases as a result of the continued impact of government travel advice.
"The energy division has continued to see the business operate at the expected levels now that the availability of waste wood from the construction industry has returned to pre-COVID-19 levels. The business has continued to see gate fees move in line with the expected increases as we move into the summer seasonality and increased wood supply from the construction sector. The business is trading in line with management's expectations for FY22 and continues to develop the business to post covid-19 levels as all plants are fully operational compared to FY20 and FY21.
"The challenging aviation sector travel advice and limited availability of travel routes has meant the continuation of a slower recovery for LSA. However, there has been a return to some passenger flying though this will continue to be at low levels whilst green routes are limited. The management team remain focused on maintaining the tight cost control demonstrated throughout this period and remain prepared for the increased level of activity once routes open up and travel returns. The business remains resilient through the continued global logistics operation which has now returned to similar levels to last year following the early reduction in operations due to planned Brexit risk mitigation in January and February 2021.
"Stobart Aviation Services is also seeing the slower return to flying through this summer but as with LSA it has taken steps to ensure the cost base is reflective of this reduced level of activity and is ready in anticipation of the return of travel at the bases it serves."
Executive Chairman Statement
In a statement also published on Esken's website, Esken executive chairman David Shearer said, "It is disappointing for all stakeholders that we have been unable to conclude the sale of Stobart Air as a going concern despite the tireless efforts of my executive colleagues, the management team of the airline and the team of advisors who have supported them. I am acutely aware of the impact this will have on the staff, customers and the businesses associated with the airline, but the continuing impact of the pandemic in terms of lockdown and limited travel has prevented us from achieving a better outcome.
"Our focus now is to secure the position for the rest of the group and ensure that we have the necessary resources to support the recovery plans for our two core businesses as we anticipate the return to normal activity levels in a post-COVID world. The discussions on future financing including the strategic partnership for LSA are continuing and I fully expect to bring these to a positive conclusion when we announce our year end results by the end of June."
Kerry Airport CEO Statements
According to The Irish Independent, Kerry Airport CEO John Mulhern described the announcement that Stobart Air has ceased trading as being a "most unfortunate development".
The Irish Independent quotes Mulhern as saying, "Kerry Airport will navigate this period with all the strength and resourcefulness it has demonstrated during the last year of COVID uncertainty and on several occasions in its history.
"A line of communication on the recovery of our Dublin-Kerry route has already commenced with the Department of Transport."
Mulhern reportedly added that Kerry Airport was contacted by Kerry TD Brendan Griffin, who said that he is ahead of the situation and will be supporting the Kerry-Dublin route's return.
© 2021 Hospitality Ireland – your source for the latest industry news. Article by Dave Simpson. Click subscribe to sign up for the Hospitality Ireland print edition.