Stobart Group has reached agreement with EY, the administrators of Connect Airways Limited, to acquire Stobart Air and leasing firm Propius for £8.5 million.
Propius is an aircraft leasing business that leases its eight ATR aircraft to Stobart Air. Stobart Air operates regional flights under a franchise agreement for Aer Lingus along with the provision of charter and wet lease operations.
The businesses were owned previously by Stobart Group and were sold to Connect - a JV between Stobart Group, Virgin Atlantic and Cyrus Capital Partners - in February 2019 to form the now defunct Flybe airline.
Stobart Group is a guarantor for various obligations of Propius following a sale and leaseback of aircraft arrangement which was entered into by Propius in April 2017, including maintenance commitments under the aircraft leases. Guarantees were also granted by Stobart Group with respect to the obligations owed by Stobart Air arising under the franchise agreement with Aer Lingus and certain fuel and currency hedging arrangements entered into when the businesses were under Stobart Group ownership.
These guarantees were required to remain with Stobart Group following the completion of the Connect Sale, as the holders of the guarantees were not prepared to see them released in view of the perceived covenant quality of Connect. As part of the Connect Sale, it was also agreed that Stobart Group would continue to make repayments of the maintenance reserve loan advanced by Propius over time rather than in a single payment at completion.
The Board of Stobart Group has reviewed all options available to the Company in relation to the future of Stobart Air and Propius and concluded that best course of action was to buy back Stobart Air and Propius.
This will give Stobart Group effective control over the pre-existing obligations it has in respect of those businesses. The intention is that Stobart Group will continue its current positive dialogue with Aer Lingus to conclude a long-term franchise extension and ensure that the businesses are put on a sound financial footing.
Stobart Group expects to fund the operations of Stobart Air and Propius over the period through to achieving positive cash flow.
As part of the Transaction, a €20 million 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, will be novated back to the Stobart Group.
Warwick Brady, chief executive of Stobart Group, said, "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.
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."