Aer Lingus and Stobart Air yet to renew critical deal

Aer Lingus and Stobart Air have yet to renew a deal seen as critical to the smaller airline's future.

Stobart Group, one of the shareholders in Stobart Air's parent, Connect Airways, confirmed on Thursday that it was weighing a rescue bid for the Irish airline, which was considering seeking court protection from creditors.

It is understood that Aer Lingus has yet to renew a contract under which Stobart Air flies routes between regional British airports and the Republic for the larger carrier.

Stobart Air’s Aer Lingus Regional contract must be renewed by 2022. It began operating the service in 2010.

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While the pair have yet to renew the deal, Stobart Group indicated that its agreement with Aer Lingus would help secure Stobart Air’s business once the Covid-19 crisis had passed.

Stobart Group's board said it believed that Stobart Air and Connect's aircraft leasing firm, Propius, had a viable future after the pandemic "and that by working with Aer Lingus as franchise partner" it could put both on a secure footing.

Propius is also part of Connect Airways. It sold several craft used by Stobart Air on the Aer Lingus routes to German company Goal in 2017, and then leased them back. Earlier reports put the cost of the leases at €14 million a year.

Discussions

Earlier on Thursday, UK-based transport and aviation business Stobart Group said it was considering all options for Stobart Air, including buying the business. “A range of discussions are ongoing and there is no certainty that any transaction will take place,” a statement said.

Connect Airways is in administration in the UK, a court-supervised system used there to rescue troubled companies, but neither Stobart Air nor Propius is part of this process.

Stobart Group has 30 per cent of Connect Airways, as does Virgin Travel, while private-equity firm Cyrus Capital Partners holds 40 per cent.

Under the terms of the deal with Aer Lingus, Stobart Air provides the craft and crew to fly between airports in the Republic and cities such as Edinburgh, Manchester and Leeds. Aer Lingus sells the seats on the flights and pays its partner a fee.

Stobart Air was widely expected to seek High Court protection from creditors and apply to have an examiner appointed to help steer the business through the Covid-19 crisis.

Examinership allows companies in difficulty, but which can show they have a reasonable prospect of survival, up to 100 days to come up with a rescue plan.