LONDON, June 12, 2021 /PRNewswire/ -- 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.
Stobart Air and Carlisle Lake District Airport (together 'the
transactions')
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 8 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.
|
FY22
|
FY23
|
FY24
|
|
£m
|
£m
|
£m
|
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.
Strategic Update
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 Energy 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
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 update
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.
Trading Update
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.
David Shearer – Executive
Chairman 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."