The UK’s Stobart Group has confirmed this morning that it has bought struggling Dublin-based carrier Stobart Air for an initial £300,000 (€344,000).
It could ultimately pay as much as £8.25m (€9.45m) more.
It will also have to stump up about €25m in the next 12 months to fund Stobart Air and aircraft lease payments.
Stobart Air operates the Aer Lingus Regional service on a franchise basis. Stobart Group said it’s also in talks with Aer Lingus to extend that current contract beyond its 2022 end date.
Aer Lingus said: "Regional connectivity is an important element of the Aer Lingus model and we will continue our dialogue with Stobart Group and Stobart Air.”
Stobart Group has bought a 49pc stake in Stobart Air from accountancy firm EY, the administrator of Connect Airways, the UK firm of which Stobart Air is a part. The other 51pc of Stobart Air was ostensibly owned by its staff.
Stobart Air confirmed that it is also buying a leasing unit, Propius, as part of the deal.
The Irish Independent first reported almost two weeks ago that Stobart Group was poised to buy the stake in Stobart Air from EY.
But Stobart Group said this morning that the deal with EY gives it 40pc voting interest and a 75pc economic interest in the ultimate holding company of both Stobart Air and Propius – Everdeal 2019.
It also now has a 15pc shareholding in the company that holds the remaining 60pc voting interest and 25pc economic interest in that company, with the Stobart Air Employee Benefit Trust retaining the balance, according to Stobart Group.
The transaction gives Stobart Group an effective indirect economic interest of 78.75pc in Stobart Air and Propius, it said.
Connect Airways was formed last year to facilitate the acquisition of Flybe. Connect’s shareholders are Stobart Group, a unit of Virgin Atlantic, and Cyrus Capital Partners. But Flybe collapsed in February this year, and was put into administration, as was Connect Airways. Stobart Air was not, however.
Stobart Group said this morning that it has also agreed to pay a deferred consideration of £2m (€2.3m) by December 15 this year. It has also agreed to a contingent deferred consideration of up to a maximum of £6.25m (€7.1m). That latter sum will be 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 the end of 2023.
The value of the combined gross assets of Stobart Air and Propius as at 31 August 2019 was £91.2m (€104.5m). The combined pre-tax profit for Stobart Air and Propius for the year ended February 28, 2019 were £5.5m (€6.3m).
"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 Stobart Group chief executive Warwick Brady this morning.
“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.”
The Irish Independent has previously revealed that Stobart Group has about $100m in liabilities connected to Stobart Air. With Stobart Air facing examinership, the Stobart Group would see those liabilities effectively crystallise unless it could prevent such a move.
“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,” Stobart Group confirmed this morning.
“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,” it added.
“The board of Stobart Group has reviewed all options available to the company in relation to the future of Stobart Air and Propius during this unprecedented time,” it said in a statement to the stock market this morning.
“This included allowing the businesses to enter some form of insolvency process and a range of ways to support them going forward particularly in light of the strong relationship which exists between Stobart Group and Aer Lingus,” it added.
“The board has concluded that the best course of action financially for the company and its shareholders is for it to buy back Stobart Air and Propius. This action will give Stobart Group effective control over the pre-existing obligations it has in respect of those businesses,” according to the group.
It added: “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.”