The owner of London Southend Airport (LSA) is locked in a legal row over demands to repay a near £200m loan, four years before its maturity date. US private equity group Carlyle is seeking to force an early repayment of a loan of just under £200m provided to the owner of London Southend Airport, alleging multiple breaches of contract.
Aviation group Esken, which owns LSA, and Carlyle Global Infrastructure Fund have been embroiled in a legal row in London’s High Court for the last few months over a £193.75m convertible loan extended by the US private equity investor in mid-2021.
According to press reports, Carlyle has argued that several breaches of financial covenants on the loan agreement by Esken since November 2022 meant the sum should be repaid by the middle of February, more than four years ahead of schedule.
Esken said in a stock exchange announcement that it had submitted a defence in relation to Carlyle’s claim, stating that any acceleration of the repayment of its obligations would be “value destructive for all stakeholders”, including Carlyle (CGI). Esken’s shares have meantime fallen by nearly 50 percent.
“Esken is disappointed that CGI has chosen to take this action based on purported technical defaults,” the company said, adding that it was making “good progress in addressing the maturity and terms of” the convertible loan in question.
The loan disagreement has thrown into doubt the future of LSA, which Carlyle claims has struggled more than nearby rival airports to bounce back from a drop in passenger numbers brought about by the Covid-19 pandemic.
Airline activity at the airport has dropped in recent years following the withdrawal of services by low-cost carriers Wizz Air and Ryanair, though it retains an important customer in easyJet. LSA has been up for sale for about a year and Carlyle could yet become the outright owner of LSA if Esken were unable to repay
the almost £200m loan.
According to a report in the Financial Times, sources have said that Esken has accused Carlyle of aggressive tactics designed to secure the airport for a knockdown price. Carlyle — which has about $380bn of assets under management and stakes in airports globally — said in a statement that it had made “numerous proposals” to Esken and LSA to secure the airport’s future.
Carlyle’s latest proposal included £32m of new funding. However, “repeated and continuing” breaches of contract meant Carlyle could “no longer wait patiently” for the loan’s repayment, the private equity group said.
The loan agreement was made in 2021 to help fund the development of LSA and has a maturity date of August 2028. Esken has hit back at the Carlyle Group, saying it is “disappointed” and is confident it has a robust defence to Caryle’s claims, adding that there have been no payment defaults by Southend Airport.
A spokesman for Carlyle said: “Esken is financially distressed and is not in a position to support the airport’s full recovery and growth nor execute an orderly sale of the airport. “As an experienced investor in and operator of airports around the world Carlyle believes in, and is committed to, the future of Southend Airport and understands its importance to airlines, passengers, employees and the local community. We have made numerous proposals to Esken and the airport to secure the airport’s long-term future, and look forward to stable ownership of the airport by an experienced and financially strong entity.”
The loan is classed as ‘convertible’, which is a form of debt that can be transformed into company shares under certain conditions, which in this instance would represent a 30% equity stake in the airport.
A spokesman for Esken said: “Esken believes that any such acceleration would have significant adverse implications for LSA…as it would be value destructive for all stakeholders, including CGI itself. Esken is disappointed that CGI has chosen to take this action based on purported technical defaults, as Esken had viewed CGI as a long-term partner in the continued development of the airport.”
Esken and LSA will be engaging with CGI to resolve the present issues. “LSA is an attractive strategic airport asset in the medium term as aviation markets and the airport continues to recover from the unprecedented effects of the COVID-19 pandemic. The board of Esken believes that there is considerable value in the LSA business and continues to support its liquidity needs in line with the recovery plan. As a result, LSA continues to meet its obligations as they fall due.
“As previously announced, Esken is making good progress in addressing the maturity and terms of the Exchangeable Bond and towards the sale of its non-core assets. In addition, Esken continues to focus on seeking a new owner for LSA, with a view to crystallising shareholder value through securing the right long term partner, which recognises the inherent strategic opportunity and is best placed to support future growth. A successful outcome to the sale process would in any event repay the convertible loan instrument ahead of its maturity date.”
Airline activity at the airport meantime remains relatively quiet with easyJet being the only airline offering scheduled services on LSA’s winter programme. The airline is operating limited routes from LSA to Amsterdam, Alicante, Geneva, Grenoble and Paris.
From 25 March 2024, LSA has announced that AeroItalia will also start using the airport, operating six flights per week to Milan, but this new route, coupled with easyJet’s services, still represents just a fraction of LSA’s potential operational capacity.
While the airport continues to struggle to attract much interest from airlines, GA activity at the airport meantime remains busy.
The airport is home to two flight schools – Southend Flying Club and Seawing Flying Club. The airport has also periodically offered discounted instrument approach and landing rates to other schools wishing to use the airport for training.
