Shares of Esken Limited, the aviation and energy infrastructure group formerly known as Stobart Group, fell about 16% on Monday after it published a complex trading statement amid the collapse of Stobart Air.
“Esken is providing an update on the sale of Stobart Air (SA) and Carlisle Lake District Airport (CLDA) to Ettyl Limited under the conditional contracts entered into on 20 April 2021,” said Esken.
“On 28 May 2021 and as reported to the market, Ettyl advised that its original funding package to support the transaction was no longer available and that it was in discussions on alternative funding options.
“It is now clear that Ettyl is unable to conclude the transactions on the original terms or to obtain an alternative funding package within the required timescale.
“Esken has therefore exercised its right to terminate the contracts for the transactions with immediate effect.
“In the absence of any alternative purchasers or sources of funding for the SA business within the timescales required, Esken has advised the board of SA that it will not continue to provide financial support to the business going forward.
“As a result of this the board of SA has terminated its franchise agreement with Aer Lingus, will cease trading and is taking steps to appoint a liquidator …”
Esken said it will retain the ownership of Carlisle Lake District Airport “rather than it being sold for £15 million” but will actively explore strategic options “for the use of this asset in discussion with stakeholders including potential alternative commercial opportunities for the airport.”
Announcing a “strategic update” Esken said: “The impact of the pandemic has been both greater and over a longer period than anticipated at the time of the capital raise in June 2020.
“This has led the board to undertake a further review of the strategy and the medium-term funding requirements for the group.
“This concluded that the group holds two attractive businesses which can generate significant value for shareholders as markets recover post COVID-19.
“The key strategic objective will therefore be to drive shareholder value from these assets with any decision on the realisation of value being deferred until the businesses recover fully from the pandemic and become mature cash generative business units.
“While it was previously intended at the time of the capital raise to seek to monetise the Energy business by June 2022, the board has concluded that this is not the right option for shareholder value.
“Stobart Energy is a recovering cash generative business with a strong market position and long-term supply contracts.
“It is anticipated that financial performance will return to pre COVID-19 run rate levels in the current financial year.
“Opportunities are being explored for additional supply contracts and to broaden the base of the market offering within the energy from waste space where existing operational expertise can be applied.
“The business offers the opportunity to generate returns from an asset with infrastructure characteristics and a compelling environmental benefit by recycling waste wood to produce energy rather than it going to landfill.”
Esken said that in the aviation business its prime asset is London Southend Airport (LSA).
“Over the last nine months Esken has been in discussions with a strategic financial partner in relation to the development of LSA as aviation recovers from the pandemic,” said Esken.
“This partner has significant investment experience in the airport sector globally and will deploy its resources alongside the operational management team at LSA through the COVID-19 recovery phase and future development of the Airport.
“Esken is now in the final stages of agreeing the documentation for a strategic funding transaction into LSA which would release significant liquidity into the group while underpinning the funding requirement of the Airport in the medium term.
“The transaction would be conditional on obtaining shareholder approval.
“Further details are expected to be announced at the time of the issue of the full year results anticipated by the end of June.
“Esken nevertheless cautions that no guarantees can be given at this stage that the transaction will be forthcoming.”
Later on Monday, Esken said: “The group confirms that it is in the final stages of agreeing the documentation with Carlyle Global Infrastructure Opportunity Fund with regards to a long term strategic funding transaction relating to the development of LSA.
“Under the proposed terms of the partnership, Carlyle would provide £120 million 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 group.
“This announcement should be read in conjunction with Esken’s trading update released earlier today …
“The transaction would be subject to a number of conditions, including Esken obtaining shareholder approval. Esken cautions that no guarantees can be given at this stage that the transaction will be concluded.”
Esken also gave a funding and liquidity update.
It said: “The group raised £100 million by way of a capital raise in June 2020 together with additional bank facilities of £40 million (Facility B) to enable Esken to navigate the impact of the pandemic expected at that time whilst maintaining the operational integrity of its core businesses.
“The group’s bank facilities totalling £120 million expire at the end of January 2022 and Esken has been in continuing dialogue with its banks in relation to the repayment of these facilities as well as its medium term funding requirements to meet its ongoing working capital needs.
“It was a term of Facility B that in order to continue to draw on that facility Esken must satisfy the banks as to its ability to repay the facilities by the due date.
“The group has drawn £10 million of its £40 million additional facility but the drawing of any amounts under this facility in excess of £15 million beyond 30 June 2021 is subject to certain conditions.
“Esken is currently in discussions with its banks in relation to the satisfaction and/or waiver of such conditions in order to ensure continued access to the facilities.
“The strategic funding proposal in relation to LSA would, if completed, enable Esken to repay the outstanding bank facilities and would significantly reduce the funding requirement of the business to underpin its business plan and meet its legacy obligations and working capital needs.
“Esken is, and will be, in discussions with its banks and other stakeholders in relation to this requirement, including potentially a modest equity issue on an accelerated basis and expects to conclude these discussions prior to the issue of its financial results for the year to 28 February 2021.
“Esken cautions that no guarantees can be given at this stage that the discussions with its banks or in respect of an equity raise will result in agreement or a transaction being concluded.”
On current trading, Esken said: “Esken is also providing a further update on its current operating performance following its trading statement on 11 March 2021.
“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 Division has continued to see the business operate at the expected levels now that the availability of waste wood from the construction industry has returned to pre-COVID-19 levels.
“The business has continued to see gate fees move in line with the expected increases as we move into the summer seasonality and increased wood supply from the construction sector.
“The business is trading in line with management’s expectations for FY22 and continues to develop the business to post covid-19 levels as all plants are fully operational compared to FY20 and FY21.
“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 whilst Green routes are limited.
“The management team remain focused on maintaining the tight cost control demonstrated throughout this period and remain prepared for the increased level of activity once routes open up and travel returns.
“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.
“Stobart Aviation Services is also seeing the slower return to flying through this summer but as with LSA it has taken steps to ensure the cost base is reflective of this reduced level of activity and is ready in anticipation of the return of travel at the bases it serves.”
Esken 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.”
“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.”