Stobart Group buys back ex-Flybe sibling Stobart Air

(Sharecast News) - Stobart Group has reached agreement with EY - the administrators of Connect Airways - to acquire Stobart Air and Propius, it announced on Monday.
Connect Airways was a consortium established in 2016 to acquire and operate regional airline Flybe, and to eventually fold the then-separate airline Stobart Air and leasing operation Propius into it.

Flybe entered administration and ceased operations on 5 March, citing the major downturn in demand as a result of the Covid-19 coronavirus pandemic as making its service unviable.

The London-listed Stobart Group said on Monday that the Stobart Air and Propius businesses had continued to operate independently within Connect Group, and were thus unaffected by the collapse of Flybe.

It said the consideration for the transaction would consist of a payment of up to ?8.55m, including an initial consideration of ?0.3m in cash at completion, and a deferred consideration of ?2m would be paid no later than 15 December 2020.

A contingent deferred consideration up to a maximum of ?6.25m would also be payable, based on the equity value achieved after disposal costs on a realisation of value in respect of one or both of the businesses by Stobart Group prior to 31 December 2023.

That would be by reference to 75% of the first ?5m of equity value, being a payment of up to

?3.75m, as well as 50% of the next ?5m of equity value, being a payment of up to

?2.5m, and any equity value above ?10m being retained by Stobart Group.

Stobart Group said it expected to fund the operations of Stobart Air and Propius over the period through to achieving positive cash flow.

The businesses had "actively sought" to reduce their cash requirements during the Covid-19 crisis, and Stobart said it expected to fund in the order of €25m (?21.88m) over the next 12 months, including lease payments.

The transaction, which had now been completed, would result in Stobart Group acquiring a 40% voting interest and 75% economic interest in the ultimate holding company of both Stobart Air and Propius, and a 15% shareholding in the company that holds the remaining 60% voting interest and 25% economic interest in such holding company, with the Stobart Air Employee Benefit Trust retaining the balance.

That, the board said, would provide the company with an effective indirect economic interest of 78.75% in Stobart Air and Propius.

The structure was in place prior to the Connect sale, and was required to ensure that Stobart Air met the requirements of its Air Operator Certificate to operate out of Ireland.

As part of the transaction, a €20m loan by the Stobart Group to the holding company of Stobart Air and Propius, and subsequently novated from the Stobart Group to Connect in connection with the Connect sale, would be novated back to the Stobart Group.

That was included within the overall consideration, and the loan would then become an intra-group matter.

"This transaction allows Stobart Group to take control of the outstanding legacy issues which date back to 2017 when Stobart Air and Propius became subsidiaries of the company," said chief executive officer Warwick Brady.

"The original strategy to mitigate these issues over time through the combination of the businesses with Connect was impacted by the failure of Flybe and resulting administration of Connect in March 2020.

"We believe that Stobart Air has a viable future after Covid-19 and are working with Aer Lingus as our franchise partner to place the business on a secure footing and manage the impact of the legacy obligations in a controlled manner."

At 1519 BST, shares in Stobart Group were up 1.16% at 63.73p.