Covid air travel shutdown proves insurmountable for Stobart

Covid restrictions and a struggle to find a buyer for the business saw Aer Lingus's regional flights partner, Stobart Air, collapse of the weekend.

Stobart operated the Aer Lingus Regional network, mainly connecting British regional airports with the Republic, under a deal that was due to run until the end of next year. It also operated Government-funded public service obligation services between Dublin and Kerry and Dublin and Donegal.

The airline's British-based owner, aviation and energy group Esken, told its Irish subsidiary this week that it would not continue to provide it with financial support, forcing the regional carrier's board to wind up the business.

Government restrictions, including a ban on non-essential journeys and a demand that travellers from Stobart’s main market, Britain, self-isolate, left the airline with around 6 per cent of normal passenger numbers.

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Esken had been funding the carrier, but warned last year that it could not back the business indefinitely.

Stobart’s collapse has prompted Aer Lingus to consider stepping in to cover some of those routes on an interim basis, but the company was not in a position on Sunday to say which services, or when.

Struggling

The regional airline told Aer Lingus of its decision to cease trading late on Friday. Stobart had been struggling with a more than 90 per cent collapse in passengers since March 2020, but hopes of a sale to Isle of Man-based Ettyl Ltd had kept it on life support in recent months.

Ettyl's own efforts to raise money for a deal ran aground over the last two weeks. The company raised concerns with the Isle of Man police about one of the acquisition's possible backers after discovering an issue with paperwork.

At the end of May, Ettyl told Esken that its original finance for the Stobart take over was no longer in place, and it was seeking alternative funds. Esken subsequently terminated the contract to sell the airline.

In a statement on Saturday, Esken said it had told the Irish airline’s board that it would no longer fund the carrier “in the absence of any alternative purchasers or sources of funding for the Stobart Air business within the timescales required”.

Esken put Stobart on the market last year, saying it hoped to have made progress on a sale by the end of February. Ettyl had emerged as Stobart’s likeliest suitor in mid-March and entered a conditional contract with the seller in April.

Crypto entrepreneur

Jason Scales, Ettyl's 26-year-old head, who runs The Hubb in the Isle of Man, has no experience in aviation. Billed as an entrepreneur, he has made his money from crypto currency. Stobart would have been his first venture in the air.

Ettyl’s failure to raise cash for the acquisition was the last twist in a story dating back to last year when Esken took effective control of Stobart for €9.8 million in April 2020.

The Irish carrier had been part of Connect Airways in which the London-listed Esken group held stake. Esken, previously called Stobart, had owned a majority stake in Stobart Air – an employee trust also owns shares – but transferred this to Connect in late 2018.

Connect itself ran into trouble early in the pandemic, when its other subsidiary, British regional airline, Flybe, had to be wound up. Following that, Stobart appeared likely to seek protection from creditors in the Irish courts, but instead Esken moved to buy almost 80 per cent of it.

At that point it pledged to provide €25 million to fund Stobart, including covering the €14.3 million a-year it was paying to lease its aircraft, through a sister company, Propius.

As the pandemic dragged on and the Irish Government toughened an already strict stance on travel, Esken said that it could not continue to fund Stobart indefinitely. So the British company put the airline up for sale.

Regional franchise

Stobart's main attraction was that it operated the Aer Lingus regional franchise, which it at its peak ran to 900 flights a-week across 30 routes in Ireland, Britain and western Europe.

However, Stobart failed to secure agreement to continue that contract when it ends next year. In late 2020, following a tender process that lasted several months, Aer Lingus entered talks with Emerald Airways, founded by aviation veteran, Conor McCarthy, to provide the regional service from January 2023.

While this made Stobart less attractive to any prospective buyer, sources say the immediate cause of its collapse was the fact that the business was not viable, as ongoing travel restrictions left it with few passengers.

Esken pointed out that “almost no flying since April 2020”, along with the Aer Lingus decision to name Emerald as preferred bidder for the regional franchise from 2023, had had hampered efforts to secure the airline’s future. Stobart itself blamed the virtual halt to air travel since March last year and the absence of alternative purchasers or funding.

Options

The airline’s collapse means 480 workers face the loss of their jobs while it throws a question mark over the 30 routes that Stobart flew before the Covid crisis. Aer Lingus has stepped in, for now, to operate five of the 12 routes that were still operating up to the weekend. BA CityFlyer – part of the IAG group that owns the Irish carrier – has agreed to run flights on two of the routes for at least the next week.

Longer-term there are essentially three options open to Aer Lingus. First, it can pull, or mothball, some of the routes operated on its behalf by Stobart. With air travel still not encouraged and limited demand for seats on the Stobart routes, there might be scope to at least suspend some flights.

There is speculation that Aer Lingus could ask Emerald to begin operations sooner than January 2023, when it is due to take on the regional franchise.

The two parties only recently began final contract talks for the expected 2022 takeover of the regional services. Emerald is going through the process of getting the licences it needs from the Irish Aviation Authority (IAA) and Commission for Aviation Regulation. It must also acquire aircraft of its own.

Finally, Aer Lingus can continue to operate at least some of the routes itself.

Aer Lingus has spare capacity as Government restrictions similarly limit its operations, so it can take on some of the regional routes. However, it lost more than €100 million in the first three months of the year and is closing its Shannon Airport base. The airline has also highlighted the Government’s failure to restore the common travel area with Britain as an ongoing problem.

Meanwhile, Stobart’s collapse highlights the depth of the crisis that Irish aviation now faces.