Esken, the aviation and energy infrastructure group, has sold its entire shareholdings in Stobart Air Unlimited Company (SA) (which operates regional flights under a franchise agreement for Aer Lingus) and Stobart Air (UK), the owner of Carlisle Lake District Airport (CLD') to Ettyl. The sale is subject to certain change of control and bank facility consents and is expected to complete by early May 2021.
Esken took the decision in April 2020 to buy back its shareholding in SA and the aircraft leasing company Propius from the Administrator of Connect Airways to take control of various legacy guarantees and obligations which the company had and which predated the sale of those operations to Connect in January 2019. Esken describes the buy-back as a “necessary action at the time” in order to mitigate the potential impact of these guarantees being called and to allow the Company to conclude a refinancing of the business in order to mitigate the impact of the COVID-19 pandemic on Esken and its subsidiaries. Esken's always intended to seek a new owner by 28 February 2021 following an anticipated extension of the Aer Lingus Franchise when it expires in December 2022. The pandemic led to a more protracted period towards this aim.
Ettyl is an Isle of Man based company backed by private investors. The company has agreed to acquire Esken's economic interests in Everdeal 2021 Limited and Everdeal Employees 2019 Limited, both holders of shares in SA, for £2 plus the value of any cash on the balance sheet payable at completion together with a contingent consideration of £7.5 million payable upon and to the extent of the occurrence of certain trigger events at any point up to 1 July 2024. Any contingent consideration will become payable in three equal instalments over 18 months from the date of any trigger event. The sale of the businesses is expected to complete by early May 2021.
Esken will make a payment on completion of up to £9.4m and will be responsible for the settlement of pre-completion liabilities totalling £25.8million of which £19.1 million are the subject of pre-existing parent company guarantees. These sums represent unpaid creditors of £12.4 million, which will be paid as they fall due in the months ahead and maintenance reserves of £13.4 million, which will be paid towards maintenance obligations as they arise over the remaining term of the aircraft leases. Ettyl will take responsibility for operational cash outflows from 1 April 2021 and these will be set-off against sums due by Esken under the SA sale agreement.
Prior to the completion of the sale of SA, Esken will take back 100% ownership of Propius, an aircraft leasing company, for £1. Esken will retain responsibility for the continuing lease obligations of Propius under the existing lease arrangements until April 2023. Propius' liabilities under its existing aircraft lease agreements will be mitigated and subsidised by SA as Propius will enter into a sub-lease of the aircraft with SA for a period from the date of completion to the Lease End Date for which it will receive total lease payments of approximately £14 million. Under the sub-leases, SA will become liable for the ongoing maintenance of the aircraft from the completion date including return conditions at the Lease End Date. Propius will therefore be responsible for total lease payments of approximately £9 million after receipt of the sub-lease payments and in addition will pay a sum of £15.5 million in April 2023, being the break fee under the existing leases. Ancillary costs associated with the break fee such as hedging and related costs may also be payable at that time.
The obligations of Propius under the leases will continue to be supported by a parent company guarantee from Esken until April 2023. Subsequent to that date, any continuing use of the aircraft will be a matter between Ettyl and the lessor directly and it is anticipated that Propius will then become a dormant company.
Ettyl will also acquire Esken's entire shareholding in Stobart Air (UK), the owner of CLDA, for a cash consideration of £15 million plus the value of any cash on the balance sheet. The sale of SA and CLDA are inter-conditional and so the net effect of the two transactions is that the consideration of £15 million in respect of the sale of CLDA will be offset against the obligations in relation to the pre-completion liabilities and completion payments due to Ettyl from Esken in respect of the sale of SA at completion. Satisfaction of the completion conditions is required such that the sale of both SA and CLDA complete on the same date.
Should either CLDA or SA be sold subsequently resulting in a gain to the buyer's equity in those assets, Esken will be entitled to an additional consideration of up to £30 million in the first 12 months and up to £20 million in the second 12 months following completion.
Once the deal is finalised, Ettyl states that Stobart Air will continue to operate the existing Aer Lingus Regional franchise that is currently contracted to run through to December 2022 – subject to change of control consents.
The company also intends to retain all staff currently employed by Stobart Air and Carlisle Lake District Airport.
Ettyl says that it will provide further information on development plans for Stobart Air and Carlisle Lake District Airport over the coming weeks and months.
“We are delighted to have signed agreements for these acquisitions. In the immediate term it will be very much business as usual in respect of both Stobart Air and Carlisle Lake District Airport’s operations and our deal ensures that the great teams within those businesses are retained,” said Jason Scales, Chief Executive Officer, Ettyl. “We will be making further announcements over the coming weeks and months regarding our plans. Ettyl sees significant opportunities for increased regional connectivity as economies recover from the impacts caused by the pandemic and return to stability across the UK and Ireland.”