TIDMESKN
RNS Number : 9619V
Esken Limited
20 April 2021
This announcement contains inside information for the purposes
of article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of domestic law by virtue of the European Union
(Withdrawal) Act 2018.
20 April 2021
ESKEN LIMITED
('Esken' or 'the Company')
Notification of Class 2 transaction - Sale of Stobart Air and
Carlisle Lake District Airport
Esken, the aviation and energy infrastructure group, announces
that it has signed an agreement for the sale of its entire
shareholdings in Stobart Air Unlimited Company ('SA') (which
operates regional flights under a franchise agreement for Aer
Lingus) and Stobart Air (UK) Limited, the owner of Carlisle Lake
District Airport ('CLDA') to Ettyl Limited (Ettyl). The sale is
subject to certain change of control and bank facility consents and
is expected to complete by early May 2021.
Background to the transaction
Esken took the decision in April 2020 to buy back its
shareholding in SA and the aircraft leasing company Propius from
the Administrator of Connect Airways Limited ('Connect') to take
control of various legacy guarantees and obligations which the
Company had and which predated the sale of those operations to
Connect in January 2019. The buy-back was a necessary action at the
time in order to mitigate the potential impact of these guarantees
being called and to allow the Company to conclude a refinancing of
the business in order to mitigate the impact of the COVID-19
pandemic on Esken and its subsidiaries. It was Esken's stated
intention to seek a new owner of these businesses by 28 February
2021 following an anticipated extension of the Aer Lingus Franchise
when it expires in December 2022. A combination of the impact of
the extended lockdowns halting most flight operations for the
period since acquisition and the decision by Aer Lingus in November
2020 to award preferred bidder status for the franchise extension
to another party has led to a protracted process to achieve the
stated objective.
Structure of the transaction
Ettyl, an Isle of Man based company backed by private investors,
has agreed to acquire Esken's economic interests in Everdeal 2021
Limited and Everdeal Employees 2019 Limited, both holders of shares
in Stobart Air Unlimited Company (collectively referred to as
'SA'), for GBP2 plus the value of any cash on the balance sheet
payable at completion together with a contingent consideration of
GBP7.5 million payable upon and to the extent of the occurrence of
certain trigger events at any point up to 1 July 2024. Any
contingent consideration will become payable in three equal
instalments over 18 months from the date of any trigger event. The
sale of the businesses is expected to complete by early May
2021.
Esken will make a payment on completion of up to GBP9.4m and
will be responsible for the settlement of pre-completion
liabilities totaling GBP25.8million of which GBP19.1 million are
the subject of pre-existing parent company guarantees. These sums
represent unpaid creditors of GBP12.4 million, which will be paid
as they fall due in the months ahead and maintenance reserves of
GBP13.4 million, which will be paid towards maintenance obligations
as they arise over the remaining term of the aircraft leases. Ettyl
will take responsibility for operational cash outflows from 1 April
2021 and these will be set-off against sums due by Esken under the
SA sale agreement.
Prior to the completion of the sale of SA, Esken will take back
100% ownership of Propius, an aircraft leasing company, for GBP1.
Esken will retain responsibility for the continuing lease
obligations of Propius under the existing lease arrangements until
April 2023 ('Lease End Date'). Propius' liabilities under its
existing aircraft lease agreements will be mitigated and subsidised
by SA as Propius will enter into a sub-lease of the aircraft with
SA for a period from the date of completion to the Lease End Date
for which it will receive total lease payments of approximately
GBP14 million. Under the sub-leases, SA will become liable for the
ongoing maintenance of the aircraft from the completion date
including return conditions at the Lease End Date. Propius will
therefore be responsible for total lease payments of approximately
GBP9 million after receipt of the sub-lease payments and in
addition will pay a sum of GBP15.5 million in April 2023, being the
break fee under the existing leases. Ancillary costs associated
with the break fee such as hedging and related costs may also be
payable at that time.
The obligations of Propius under the leases will continue to be
supported by a parent company guarantee from Esken until April
2023. Subsequent to that date, any continuing use of the aircraft
will be a matter between Ettyl and the lessor directly and it is
anticipated that Propius will then become a dormant company.
Ettyl will also acquire Esken's entire shareholding in Stobart
Air (UK) Limited, the owner of CLDA, for a cash consideration of
GBP15 million plus the value of any cash on the balance sheet. The
sale of SA and CLDA are inter-conditional and so the net effect of
the two transactions is that the consideration of GBP15 million in
respect of the sale of CLDA will be offset against the obligations
in relation to the pre-completion liabilities and completion
payments due to Ettyl from Esken in respect of the sale of SA at
completion. Satisfaction of the completion conditions is required
such that the sale of both SA and CLDA complete on the same
date.
Should either CLDA or SA be sold subsequently resulting in a
gain to the buyer's equity in those assets, Esken will be entitled
to an additional consideration of up to GBP30 million in the first
12 months and up to GBP20 million in the second 12 months following
completion.
Conditions to completion
The completion of the sale of both SA and CLDA is subject to a
number of conditions including consent from various key
stakeholders and commercial counterparties to Esken, SA and CLDA
including consent from the lenders under Esken's bank facility.
Financial Impact of the transaction
The resulting effect of the SA transaction for the period up to
completion will be shown as discontinued operations in the results
for the year to 28 February 2022. The transaction to dispose of SA
is expected to result in a loss on disposal of approximately GBP8m
after professional fees. The disposal of Stobart Air (UK) Limited,
which owns Carlisle Lake District Airport, for proceeds of GBP15m,
is expected to generate a profit on disposal in excess of GBP10m.
Both results are subject to any year end February 2021 audit
adjustments.
The cash impact of the transactions in the following three
financial years will be as follows
FY22 FY23 FY24
Total cash outflows
- GBP'millions 16 9 24
Esken has pre-existing parent company guarantees under the
aircraft leasing arrangements which at the completion date will be
approximately GBP69 million in gross terms, with these reducing by
c.GBP2 million per month until April 2023. On the basis that SA and
Ettyl fulfils their respective obligations under the transaction
agreements and sub leases through to April 2023, the maximum
potential liability of Propius will be up to GBP49 million. The
settlement of these obligations is contained within the cash flows
set out above. In the event of a failure of SA prior to that date
Esken would seek to agree alternative arrangements for the
continued use of the aircraft with another party which would
mitigate any residual exposure.
David Shearer, Executive Chairman, Esken said
"I am pleased to be able to announce these transactions today
which are in line with our stated strategy at the time of the
successful capital raise in June 2020. This has been a difficult
and protracted process to conclude given the impact of the pandemic
on air travel. Stobart Air remains a critical part of connectivity
between Ireland and the United Kingdom 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. The sale of the airline presents a significantly better
financial outcome than that resulting from a closure.
Our operations at CLDA were peripheral to the main focus of our
Aviation business at London Southend Airport and we have taken this
opportunity to tidy up our portfolio of businesses at a fair value
in current markets allowing us to minimise future cash burn and
avoid management distraction. I wish the new owners of both these
businesses every success in the future.
The completion of these transactions will allow management to
focus on the core operations of Stobart Energy and London Southend
Airport, along with the aviation services business. I will report
further on our strategic objectives for these businesses when we
release our results for the year to 28 February 2021."
The Disposal described above constitutes a Class 2 transaction
for Esken for the purposes of the Financial Conduct Authority's
Listing Rules. Due to Stobart Air being acquired on 27 April 2020,
it did not contribute to the Group's full year results for the year
ended 29 February 2020. Stobart Air's reported gross assets were
GBP28.6m at 31 August 2020. For the full year ended 29 February
2020, Stobart Air (UK) Limited contributed a loss before tax of
GBP24.3m and gross assets as at 31 August 2020 were GBP9.1m. Any
proceeds arising will be used to meet the cost of the legacy
obligations retained under the transactions and thereafter to
reduce the Group's net debt position.
All figures are shown in GBP and have been converted where
applicable at USD1.37 and EUR1.15.
Enquiries:
Esken Limited
Charlie Geller, Communications Director
C/O Tulchan Communications
Tulchan Communications 020 7353 4200
Olivia Peters/David Allchurch esken@tulchangroup.com
This announcement contains a number of "forward-looking
statements". Generally, the words "will", "may", "should",
"continue", "believes", "expects", "intends", "anticipates",
"forecast", "plan" and "project" or in each case, their negative,
or similar expressions identify forward-looking statements. Such
statements reflect the Company's current views with respect to
future events and are subject to risks, assumptions and
uncertainties that could cause the actual results to differ
materially from those expressed or implied in any forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove to have
been correct. Shareholders should not, therefore, place undue
reliance on these forward-looking statements, which speak only as
of the date of this announcement. Except as required by the FCA,
the London Stock Exchange or applicable law, the Company expressly
disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained in
this announcement to reflect any change in the Company's
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based.
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