Insolvency specialists handling the collapse of Eastern Airways are hopeful the carrier can live on, at least in some form, through a rescue of sister company Air Kilroe, which held the carrier’s fleet and air operator’s certificate (AOC), among other assets.
Both companies ceased trading in late October, blaming the loss of a contract with KLM Cityhopper in July last year for unsustainable losses.
Accordingly, James Miller and Gareth Harris from RSM UK Restructuring Advisory were on 6 November appointed to manage the two firms.
But detailing their plans in a 31 December document, posted to the UK’s Companies House registry on 9 January, the administrators said they are confident of securing a deal for Air Kilroe with an undisclosed preferred bidder.
Under the planned transaction, Air Kilroe will this month propose a company voluntary arrangement (CVA) – an agreement with creditors to pay a portion of its debts over a defined period – allowing it to exit administration and, critically for the retention of its AOC, remain solvent.
While the UK Civil Aviation Authority typically revokes an AOC in the event of an insolvency, in this case it opted only to suspend Air Kilroe’s licence.
“This meant that it would be possible for an interested party to rescue Air Kilroe as a going concern in order to keep operating as an airline,” the administrators state.
In the meantime, the bidder – which has an exclusivity agreement to finalise the transaction – will acquire Air Kilroe’s share capital for a total consideration of £1.
Air Kilroe’s ultimate parent company is Orient Industrial Holdings, which is not affected by the administration.
Additionally, the buyer will pay a consideration for Air Kilroe’s underlying assets. However, the administrators note that this “will not be a sale or realisation” of those assets “but it will be shown as a ‘contribution’ into the CVA by the purchaser”.
No details of the proposed buyer have been disclosed but there is only a very small number of parties interested in the UK regional market that do not already have their own AOC. One candidate could be Scottish start-up Ecojet, which had been seeking its own operating licence.
The administrators point out that “If the proposed transaction and exit via CVA do not proceed, the AOC will be revoked.”
On top of the AOC and operating licence, Air Kilroe owned the non-leased part of the fleet – nine British Aerospace Jetstream 41 turboprops – and a slot portfolio at London Gatwick airport, with Eastern Airways using those assets to trade.
“However, as employees had contracts of employment with [Eastern] and undertook the day-to-day operations of both companies, they were, for all intents and purposes, run as one business and would be marketed for sale as such,” the administrators state.
Eastern, they add, has “effectively been mothballed” with “key employees retained and ongoing routine maintenance being undertaken in order to enable the business to be marketed for sale, with the option of a rescue as a going concern for Air Kilroe”.
Of the nine Jetstream 41s – “the largest remaining Jetstream 41 fleet in the world”, the report notes – four were airworthy when Air Kilroe entered administration “and the remainder are in varying stages of repair”.
However, the status of the Gatwick slots is complex. At the time of the administration, Air Kilroe held 14 winter and 14 summer slots at the London hub but was forced to relinquish the former due to the timing of the insolvency.
Meanwhile, the summer slots had been granted by Canadian carrier WestJet during the Covid-19 pandemic: WestJet has since requested the return of six of those slots, the administrators state. Efforts are ongoing to realise the value of the remainder, they add.
According to figures provided by the administrators, Air Kilroe owes £6.9 million ($9.3 million) to bank Santander, £2 million in lease arrears plus another £19.5 million in lease payments, and £20.6 million to Eastern – that company’s largest single creditor.
“The amount due has arisen as a result of the company [Eastern] making all receipts and payments for both it and Air Kilroe as Air Kilroe did not operate a bank account,” the administrators add.
Previously profitable, Eastern’s demise was triggered by the loss of its March 2024 contract with KLM Cityhopper, the administrators state, for which it was flying four aircraft.
The Dutch carrier gave notice in July that it was terminating the contract, accounting for around 55% of Eastern’s annual revenue, with the final flight in October.
Although the directors attempted to restructure the business or find new revenue streams, these efforts proved unsuccessful, the report adds.
Eastern also operated several UK regional services, two public-service routes, oil and gas support flights, and a charter business.
