(Alliance News) - Shares in Esken Ltd dropped on Monday as it confirmed Stobart Air has ceased trading and is taking steps to appoint a liquidator.
Stobart Air is owned by Esken Ltd, formerly Stobart Group Ltd.
Shares in aviation and energy infrastructure firm Esken were down 17% at 25.75 pence in London early Monday, having fallen to a low of 23.05p.
Esken back in April had agreed to sell Stobart Air to Isle of Man-based Ettyl for a nominal GBP2, plus up to GBP7.5 million by 2024 depending on performance. Late last month, Esken first said the sale was delayed as it awaited change of control consents that would have allowed Stobart Air to keep its contracts under the new ownership. Then it said it had become aware that Ettyl's proposed financing was no longer available and that Ettyl was in discussions with another potential financing source.
However, "it is now clear" Ettyl is unable to conclude the deal on the original terms or obtain an alternative funding package within the required timeframe, Esken said on Saturday. Therefore, Esken has terminated the sale and advised the Stobart Air board it will not continue to provide financial support to the business.
"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," said Esken.
In late April last year, what was then Stobart Group agreed to buy Stobart Air and Propius for up to GBP8.6 million from administrators Ernst & Young, taking back control after their sale to joint venture Connect Airways.
Esken on Saturday said it will continue to be responsible for the lease obligations on eight ATR aircraft to April 2023 and will try to sublease these to another operator. It also has some obligations to Aer Lingus.
Aer Lingus was forced to cancel a number of regional flights over the weekend after Stobart Air ended its contract with the Irish airline, which is part of International Consolidated Airlines Group SA. The announcement affected several flights from Dublin and Belfast City airports to UK cities.
IAG shares were down 1.9% on Monday morning.
Overall, the cash outflow if Esken is unable to sublease the planes will be GBP34 million in financial 2022, up from the GBP16 million cash flow hit previously expected from Stobart Air. In financial 2023, this is GBP22 million, up from GBP9 million, and in financial 2024, it is GBP26 million, up from GBP24 million.
Meanwhile, Esken will retain ownership of Carlisle Lake District Airport, rather than receive GBP15 million from its sale.
More positively, Esken said it is in the final stages of agreeing a "strategic funding" investment into London Southend Airport by an unnamed partner with "significant investment experience in the airport sector globally". Esken is in talks about its bank facilities, totalling GBP120 million, that expire in January 2022, and the funding agreement for the airport would repay its outstanding bank facilities.
However, Esken warned there is no guarantee that the funding agreement will be completed.
It also seeking to sell all its other non-core infrastructure assets. These have a net book value of GBP39 million. After their disposal, Esken will be focus on two operating businesses: Aviation and Energy.
Esken said the Energy division is trading in line with management expectations for financial 2022. Aviation, which also includes Stobart Aviation Services, continues to be hurt by government travel restrictions.
"It is disappointing for all stakeholders that we have been unable to conclude the sale of Stobart Air as a going concern despite," said Executive Chair David Shearer.
"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."
By Lucy Heming; lucyheming@alliancenews.com
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