Originally Posted by
LTNman
Eggs and basket comes to mind. Stobart will not be in control of the situation at SEN. It’s the airlines that will dictate expansion or contraction. Seeing that the airport is a minor base for Easyjet and Ryanair and with Wizz just dipping their toes into the water at Southend the airport will be very vulnerable in the short term so could Stobart run out of money?
Stobart’s plans for Southend was based on the fact that there was very little capacity left at other London Airports so Southend’s geography could be ignored. That won’t be the case in the short to medium term. Will it be the case that another company will ultimately benefit from Stobart’s vision and cash?
Sadly, the eggs will end up in just the SEN basket just as soon as the intention to dispose of the energy business is accomplished. The owner of the airport has been squeezed by circumstances that many will see as having been outside of its control.
The first of these was the eye-wateringly high costs of attracting airlines to the airport. The owners obviously subscribed to the "build it and they will come" business model based upon the London credentials of SEN. Whilst many saw the freebie thrown at EZY as justifiable, as this proved the potential of the proposition to other carriers, the route development costs kept on mounting, year on year. The whole idea underpinning SEN was that it was to provide runway capacity in a squeezed geographical marketplace with huge demand. To keep on paying huge premiums to airlines to operate flights from the airport has seriously dented the cashflow of the group.
The second was the Connect fiasco. I thought at the time it was a clever move as owning an airport and then running your own flights from your airport to push up pax numbers doesn't bode well. Dumping Stobart Air and all of the liabilities that came with it into Connect was a great move. But then having to take back all of those liabilities and pay for the pleasure could not have been part of the business forecasting at SEN HQ.
Whereas the airport needed time to grow pax numbers to a level where EBITDA per pax got somewhere near £10, the cash drain accelerated throughout 2018/19. Last year it was clear that the money tap was about to run dry. PAX numbers grew throughout the year but critically the profit on each passenger failed to get anywhere near the magic £10. The final straw was having to take Stobart Air back in house. The credit facility was maxed out and the bank was most probably pointing out to the owner's that they had the airport as full security to cover the overdraft. Without the owners putting more money in, the bank was sure to foreclose. It that had happened I am sure that the bank and the council would have been looking at housing on a site with excellent rail links into London.
All of the above happened before COVID-19. The latest accounts run to the end of February 2020. Connect was already a busted flush by that time, with COVID-19 the excellent face-saving excuse that Virgin needed to walk away.
The owners now have to make a go of the airport with reduced cash to spend. It is unlikely they can throw more route development funds at the problem so they will have to consolidate what they have and grow organically. There are hints in the latest communiques that they are going to target the very low cost sector and I'm guessing this will be Whizz and Eastern Europe. Whatever they do it will have to make an immediate impact. They have renegotiated a smaller credit facility but this will only provide funding for one more year at a push. If any more of the deferred liabilities get called in (interestingly the Group stood as guarantor to Eddie Stobart on a very large property lease) they will fail as a company in the coming year.
SEN is not unique in that no airport needs a problem like COVID-19 right now, but with shareholders having just rescued the company from the claws of the bank, getting pax numbers back and above previous levels within 12 months is crucial to the company's survival. How they do this with social distancing and travel quarantines in place is hard to fathom.
Whereas LTNman believes that if Stobart fail, another airport operator will jump in and reap the benefits of Stobart's investment over the years, I am not so sure. If Stobart fail, the bank owns the airport. It will be up to them to decide upon the fate of the site.