UK regional carrier Stobart Air is to be sold to an Isle of Man-based investor, Ettyl, which is also acquiring the northern UK’s Carlisle Lake District airport.

Stobart Air, which operates regional services under a franchise arrangement with Irish carrier Aer Lingus, and the airport are being divested by aviation and energy company Esken – formerly known as Stobart Group before a name change in February.

Ettyl says it intends to retain all staff currently employed by the airline and the airport, and aims to detail development plans over the next few months.

“[We see] significant opportunities for increased regional connectivity as economies recover from the impacts caused by the pandemic and return to stability across the UK and Ireland,” says Ettyl chief executive Jason Scales.

Ettyl is picking up Esken’s shares in Stobart Air for £2 and the value of cash on the balance sheet at completion, plus a £7.5 million sum if certain trigger events occur before 1 July 2024.

The details of the transaction which interlinks the airline, the airport and the aircraft leasing company Propius, are complex.

Aer Lingus Regional-c-Aer Lingus

Source: Aer Lingus

Aer Lingus has a franchise agreement with Stobart Air but this is set to expire in 2022

Esken expects the deal to close by early May, subject to bank consent. The company has long intended to divest Stobart Air having bought back shareholdings in the carrier and Propius from administrators of Connect Airways.

Connect Airways had acquired Stobart Air in early 2019, part of a plan to combine its operations with regional operator Flybe.

But Flybe collapsed in March 2020 and Esken – then Stobart Group – decided to re-acquire its Stobart Air in order to take control of legacy guarantees and obligations which predated the sale to Connect.

“The buy-back was a necessary action at the time in order to mitigate the potential impact of these guarantees being called,” says Esken, adding that it enabled a refinancing of the business to reduce the effects of the pandemic.

Aer Lingus opted last year not to renew the Stobart Air franchise from 2023, instead selecting another preferred bidder, potentially setting back Esken’s plans to find a new owner for the regional carrier.

Esken acknowledges that this – along with the pandemic – led to a “protracted process” to sell the airline.

As part of the sale process, Esken will take back full ownership of Propius for the token sum of £1 and retain responsibility for continuing lease obligations until April 2023. Propius’s liabilities under its aircraft lease agreements will be “mitigated and subsidised” by Stobart Air, says Esken, with Propius entering a sublease agreement with the carrier until this date.

Ettyl will acquire Esken’s entire shareholding in Carlisle airport’s owner for £15 million in cash plus the value of any cash on the balance sheet.

Esken says the sale of the airline and the airport are “inter-conditional”, with the net effect of the two transactions being that the proceeds of the airport sale will be offset against obligations relating to liabilities and payments due to Ettyl with respect to the sale of Stobart Air.

While the sale of Stobart Air will result in a loss of about £8 million, the disposal of the airport will generate a profit of more than £10 million.

Esken executive chairman David Shearer says the sale process has been “difficult”, particularly given the impact of the pandemic.

“Stobart Air remains a critical part of connectivity between Ireland and the UK and I am pleased that we have managed to secure the future of that business and its 480 staff under a new owner with ambitions to grow its network of routes,” he says. “Sale of the airline presents a significantly better financial outcome than that resulting from a closure.”