Esken plots a route to recovery following collapse of its airline disposal
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Aviation and energy group Esken, formerly Stobart Group, is in talks to secure a funding injection for its London Southend Airport business.
It revealed, late this afternoon (June 14) that is is in the final stages of agreeing the deal with Carlyle Global Infrastructure Opportunity Fund with regards to a long term strategic funding transaction relating to the development of its London Southend Airport (LSA) asset.
Under the proposed terms of the partnership, Carlyle would provide £120m of funding, net of Carlyle costs, via a loan, convertible at Carlyle’s option into an equity stake of 29.99% in LSA, which would release £100m of liquidity into the rest of the Esken Group.
In a trading update this morning, the Carlisle-based group said this will support the airport’s recovery from the pandemic, and provide financial support for the group to meet its obligations with its banks as its funding facilities near maturity next year.
It also warned it might have to raise more funds through equity as part of its recovery.
The trading update follows the announcement over the weekend that the group had started steps to appoint a liquidator to its Stobart Air operations following the collapse of a deal to sell it, and its Carlisle Airport asset, to Isle of Man-based Ettyl.
Esken said it will now retain Carlisle Airport, but will explore strategic options for the site, including potential alternative commercial opportunities.
The group said the impact of the pandemic has been both greater and over a longer period than anticipated for its energy and aviation divisions.
It said Stobart Energy will return to pre-COVID-19 levels in the current financial year and opportunities are being explored for additional supply contracts.
The prime asset in the aviation business is London Southend Airport (LSA). The group said it will continue to invest in the airport, as the industry embarks on a recovery from the impact of the pandemic.
Esken said it has been in discussions over the past nine months with Carlyle and is now in the final stages of agreeing documentation.
This transaction will also enable the group to repay its outstanding bank facilities and significantly reduce the funding requirement of the business, although it said it is also considering, potentially, a ‘modest’ equity issue.
Esken said it will seek to exit from all other non-core infrastructure assets, which have a net book value of around £39m, to focus on its two core assets.
In a trading update, following its previous announcement on March 11, it said 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 business is trading in line with management’s expectations for financial year 2022 and continues to develop the business to post-COVID-19 levels as all plants are fully operational compared with 2020 and 2021.
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 while green routes are limited.
Esken said 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.
Executive chairman, David Shearer, 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.”
He added: “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.”