Is sale of Stobart Air about to enter endgame?

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  • Stobart CEO Sean Brogan resignation confirmed
  • Cityjet takeover now more likely

sean brogan h&s cockpit copySean Brogan has ended his second stint as CEO in the soap-opera that is the Stobart Air takeover. Most intriguing phrase in the departure statement was the reference that he will stay on as Chief Executive as the board identifies a new CEO for the airline, to ensure that necessary regulatory requirements are in place for a smooth transition, working in partnership with the Irish Aviation Authority.

This has been in structural tumult since Invesco Perpetual decided they wanted to offload their shareholding in the former Aer Arann, triggering a similar response by Stobart itself.

Stobart recently confirmed it is retaining its presence in Carlisle, as well as Southend and Isle of Man but the Santry based airline may be looking elsewhere in Europe after the referendum result.

Sean Brogan’s officially resignation ends his efforts to acquire the carrier through a €65m management buyout plan and clearing the way for a takeover. Previous CEO Andrew Tinkler was appointed chairman following the sudden departure of former Ryanair executive Tim Jeans from the role he’d held for just six months. The Santry-based airline is 45pc-owned by English transport group Stobart. Invesco Perpetual owns 40pc, whole broker Cenkos owns 10pc. Former Aer Arann chairman Padraig O’Ceidigh owns 5pc.

Cityjet proposal

Media commentators have pushed the idea of a Cityjet takeover (one recalls Pat Byrne talking about one big airline at an ITAA conference some years ago) but there are other bidders including Dublin-based Aviation Finance Company.  The Swords-based airline CityJet‘s proposal is to become majority owner in the merged business with existing shareholders in Stobart Air retaining a small minority. CityJet plans that Stobart’s wet leasing operations will account for about 60pc of its business and half its profits.

The airline has been the subject of conflicting reports over recent months, with suggestions that Stobart Group may want out because Stobart Air has done very little for Southend and Carlisle airports which they own.

The merger deal envisages Aer Lingus cutting its stake in Propius Holdings, which was used to acquire and lease-back aircraft used by Stobart. Another investor would then take an up-to-66pc majority stake in Propius.

READ  Ryanair April figures up 10pc to record 13.5, rolling annual now 142.3m

It was believed that Aer Lingus were favourably disposed towards Brogan’s MBO of Stobart Air. Analysts suggest that the Aer Lingus franchise agreement is likely to have a clause that allows it to be cancelled if there is a change of control in Stobart. Passenger numbers on that franchise are up 20pc year to the end of April and Dublin passenger numbers up 50pc in April.

Willie Walsh has supported IAG franchise operations in Denmark, South Africa, France and BA CityFlyer at London City, although those with loner memories recall that he closed down Aer lIngus commuter.

Formerly Aer Arann

Stobart Air changed its name from Aer Arann in March 2014. It operates a fleet of 19 aircraft, 14 of them under the Aer Lingus Regional brand (2 ATR 42-300 and 12 ATR 72-600),  three on flights on behalf of English regional carrier FlyBe out of the Isle of Man and Southend, (1 ATR 72-200 and 2 ATR 72-500, Isle of Man to Birmingham 6w, Liverpool 11w and Manchester 6w Southend to Caen 5w, Groningen 6w and Rennes 13w) and 2 ATR 72-200 leased from Danish Air Transport, It flies around 1.4m passengers a year.

It is not clear whether Invesco Perpetual, whose desire to exit its investment in Stobart Air started the sale, would remain a shareholder as part of a merger. Invesco is likely focused on return for their investment and would sell at the right price (or hold out for a higher one).

Turnover and profits

For the year to end Feb 2016 (see report here) Stobart Group reported revenue from continuing operations up 8.6pc to £126.7m and underlying profit after finance charges but before tax up 98pc to £18.4m.

They include £8.4m on disposal of investment properties. Non-underlying items of minus £8.3m were mainly amortisation of brands and of contracts through associates and joint ventures and £1.2m “of direct support costs in connection with obtaining long-term airline contracts at London Southend Airport”.

Book value of net assets at year-end was £413.7m (including about £100m of intangibles, largely Stobart brands) and market capitalisation was £384m. The main profit (EBITDA ~ operating cash before depreciation and rentals) divisions were energy (biomass location and transport), infrastructure (largely property development for sale (houses), rental (warehouse for Eddie Stobart Logistics), biomass processing sites and equipment) and investments – 49pc of Greenwhitestar which holds the Eddie Stobart Logistics business and 33pc of Propius which leases aircraft to Stobart Air).

READ  Ryanair April figures up 10pc to record 13.5, rolling annual now 142.3m

The largest investment is in the Aviation division – Southend Airport and the 45pc stake in Stobart Air/Everdeal Holdings Ltd – with non-current assets book value £169m and £22m debt. Revenue for this division was £22.86m (not including Everdeal since that is accounted for on an equity basis) with underlying EBITDA of £2.3m and an underlying loss before tax of £1.8m before any allowance for central charges (which appear to include incl the £1.2m customer support at Southend Airport). So its current performance could be considered a drag on the group rather than an enhancement.

Revenue per pax at Southend was £23.9, up from £20.8 in the previous year. Passenger throughput was 900,000, down 17.3pc.

Stobart Air flew over 1.4m passengers during FY2016 and continues to grow. The airline returned to profitability in 2015 and continues to work with Southend Airport and Carlisle Lake District Airport as well as other airports to create further route development opportunities.

Grant funding has been secured for development of infrastructure works that will help support airlines to operate from Carlisle to Southend, Dublin and Belfast in conjunction with Stobart Air. Stobart’s civil engineering team is working with the CAA on a proposal for refurbishment of the runway required to enable these services to operate.

The value of 45pc investment in the airline, Stobart Air, is seen as continuing to grow with improved passenger volumes and profitability in the year ending December 2015.

READ  Ryanair April figures up 10pc to record 13.5, rolling annual now 142.3m

Propius, the aircraft leasing investment, is also performing well and has this year sold two older aircraft producing a good return on investment and return of cash of £4.3m to the Group. Propius is also accounted for on an equity basis as board decisions have to be unanimous per Stobart’s FY2015 annual report i.e. Aer Lingus has to agree.

The Group had loans, not part of the net investment, outstanding from companies within the Group, headed by its joint venture interest Everdeal Holdings Ltd, with a book value of £6,538,000 (2015: £6,538,000) at the year end. The loans are unsecured, will be settled in cash and are due for repayment at the Group’s discretion. During the year, the Group made sales of £nil (2015: £1,828,000) to a 100pc subsidiary of Everdeal Holdings Ltd. A balance of £nil (2015: £140,000) was owed to the Group at the year end. The balances are disclosed as part of trade and other receivables.

Southend plans

The Stobart’s aviation boss Glyn Jones told the London Evening Standard: “This summer will mark our most significant push to attract more London-based holidaymakers and City workers.

Stobart estimated a £30m investment would be needed, split across the airport and biomass, to fund the required growth. The group forecast it would generate it back within a year.

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