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Euromanx – Chief Minister’s Keys answer 13 May 2008

In Keys - 13th May 2008

Approved by Mr Speaker under Standing Order 3.5.1(4) as relating to an urgent matter of public importance

FOR ORAL ANSWER

The Hon Member for Douglas (Mr Henderson) to ask the Chief Minister –

Will you make a full and frank statement with regards to the apparent collapse of EuroManx Airlines, the current situation, effects on the Island for public and business alike and what is put in place to alleviate the dire situation in the short term?

Mr Speaker

I am grateful to the Hon Member for asking this question as it gives me the opportunity to record the considerable efforts, which have been made by Government in an endeavour to keep EuroManx trading without offering them any unfair advantage over any other airline.

To explain the situation I need to go back several months, when on 8th October 2007 there was a management team buyout of EuroManx led by Mr Robin Southwell (Chairman), Mr Dave Jackson (Group Chief Executive) and Mr Tony Shakesby (Group Financial Director) of the aviation operating businesses of Corporate Jet Services Limited, which includes the companies Club 328, JETS, Euromanx and 328SSG. The new parent company name of the group was Quest Aviation.

Hon Members may recall that the Department of Transport put out a press release at that time stating “The Department is arranging to meet the group which owns EuroManx to discuss the implications to the airline of a management buyout”.

At that initial meeting, on 23rd October 2007, the new Group Chief Executive Mr Jackson indicated that the company, Club 328, had been sold on within a matter of days, and that with regards to EuroManx, the company was losing money each month so Quest was looking to reduce costs with immediate effect and, was looking to the Isle of Man Government for assistance to reduce EuroManx’ costs. It was implied by Mr Jackson that if there was no help forthcoming, then Quest would have to consider closing down EuroManx.

Quest came to the Government with several suggestions, namely:-

  1. In August EuroManx had started the paperwork in order to join the Airport Yield Driven Charging Scheme (YDS) on 1 September 2007, and Quest asked if the Government could consider backdating the YDS scheme to it’s inception on 1 April 2006. Government were not in a position to backdate but EuroManx have benefited from YDS on some routes since September 2007.
  2. Eliminate the Air Passenger Duty (APD) on either EuroManx flights or routes
  3. To support financially EuroManx on a new destination, this being Amsterdam, with such financial support helping to offset several of the overheads of the Company, this proposed financial support would have amounted to in excess of one million pounds.
  4. for the Government to pay EuroManx £150,000 per month for the foreseeable future.

In addition, EuroManx asked for extra time in order to pay their current Airport invoices.

During October and November there were several meetings involving Department of Transport and Treasury Officials and the Group Chief Executive of Quest to explore possible ideas for Government to consider in order to help to reduce EuroManx costs and reverse the downward passenger and revenue trend.

Throughout all the discussions it was stressed to Quest that:

  1. Any assistance provided must be fair and legal in terms of the provision of equal benefits to all competing airlines
  2. Whilst any benefit may provide short term cost reduction benefit to EuroManx, it must ultimately be the objective that the airline is viable and self sustaining
  3. Any measures introduced by the Government to assist the airline must be designed overall to stimulate air traffic to and from the Island

In order for Government to consider future assistance, it was required that Quest/EuroManx allow Government to have sight of data such as bank statements and monthly profit and loss papers, and a copy of the business case for moving forward was also asked for. Although EuroManx did provide financial details including bank statements, their last audited accounts were for 3 years previous, and their monthly statements were several months behind.

Government Senior Officials kept my office up to date with the various meetings and findings, and after consultation between all relevant Government departments, in early November EuroManx was advised that the Government would extend its credit facilities until the end of November 2007 to provide time for EuroManx to pay off its debts to the Government. These debts included airport fees, Air Passenger Duty (APD), Income Tax Instalments and National Insurance payments. This amounted at that point in time to in the region of £850,000. In addition EuroManx were given a commitment that Government would seek legal opinion on the options available to Government for a modification of Air Passenger Duty.

At this time, several other actions points in addition to investigation of the legal position on APD rebates were also being pursued including; advising DoT/DHSS/Income Tax/Customs & Excise of debt deferment to 30 November 2007 and asking the DOT/Treasury to discuss with London City’s Airport Chief Executive the position with regard to the runway slots at London City used by EuroManx to ascertain securing them for the Island.

The DoT was advised on 26th November 2007 that the owners of EuroManx, Quest, were going to have a Board meeting on 29th November regarding the future of EuroManx.

In addition, on 26th November 2007 Flybe announced their intentions to fly on the Liverpool route with effect from Sunday 30th March 2008, with a starting price of £19.99 one way, including taxes.

On 5th December 2007, EuroManx announced a new price of £19 one way on the Liverpool route, including taxes, on sale with immediate effect.

On 5th December 2007 the Government informed EuroManx of their position:-

  1. The deferment of payments was overdue, and whilst collectively the Government would be prepared to consider a further extension to this arrangement and stay any Departmental proceedings for collection, this would depend upon mutual agreement of a repayment schedule to recover the outstanding debt.
  2. The DoT was still waiting for finalised paperwork from EuroManx for joining the YDS scheme on Liverpool and Manchester. (New paperwork had to be created given the news regarding Flybe operating on Liverpool)
  3. Regarding the Air Passenger Duty, this matter has been carefully scrutinised by officers within the Customs and Excise Division of Treasury and the UK Revenue and Customs
  4. Further, having considered legal advice from the Attorney General’s Chambers it was clear that it was not possible for the Isle of Man Government to amend the Air Passenger Duty for selected carriers, or on selected routes.

A meeting was arranged for the Chairman of Quest – the owners of EuroManx - to meet with Treasury and DOT officials for the evening of 6th December 2007. The various points above were discussed, however Mr Southwell, the Chairman, said that his team were working on the issues but if no further financial assistance was forthcoming from the IOM Government, then it was likely that EuroManx could be closed down very shortly.

At the subsequent Government Senior Officials meeting held in December 2007, it was recognised that given the time of the year and especially with the forthcoming holiday period, the closing down of EuroManx at that time would create great difficulties for Island residents to make alternative arrangements, so after Ministerial discussions a further extension of credit facilities until the 6th January 2008 was offered in order to allow EuroManx to pay its debts to the Government. I would point out that during this time EuroManx had paid some of the outstanding invoices and that the debt at this stage had not vastly increased from the position in late October 2007.

EuroManx were written to on 19th December 2007 about the further moratorium regarding EuroManx’s outstanding debts, and it was suggested to meet early in the New Year which would also give Quest time to consider their revised business plan as a blueprint towards financial recovery and the successful operation of EuroManx into the future.

On 11th January 2008, following a meeting with the Chief Executive of Quest – the owners of EuroManx - with DoT and Treasury officials, a letter was written to EuroManx stating that having been given two extensions of credit facilities, the situation could no longer continue, and EuroManx must bring its National Insurance and Income Tax instalments up to date, and to pay subsequent amounts as they fall due. In addition the amounts of Air Passenger Duty outstanding to Customs & Excise should also be brought up to date. At the same time Government was prepared to defer the remaining debt to the DoT for airport charges until the week commencing 21 January, when the Chief Executive of Quest - the owners of EuroManx - would be returning to the Island. He would then be required to set out and discuss their business plan, ongoing operations, negotiations and a realistic repayment programme for the outstanding debt.

On 16th January 2008, in an internal meeting it was agreed that the Government must now prepare for managing the situation in case EuroManx ceased trading. Planning for co-ordinated press releases and briefings were to start immediately, including press releases and briefings to cover different aspects of potential issues, and as far as possible, to focus on providing public confidence.

At the end of January 2008, Quest stated that they would be making an internal assessment of EuroManx, which would be completed by 8th February 2008, and they would report back to Government in the week commencing 11th March.

Whilst this assessment was undertaken Quest and Government officials agreed outstanding debt totals and possible repayment plans and timescales.

On 15th February 2008 another round of meetings was held with Quest, who said that they now saw only two options:-

  1. To reduce operations, cutting routes and increasing fares which didn’t produce a viable business. - This had already been discounted back in November at the first meeting – or,
  2. Develop a financial or operational partnership. In essence Quest were looking for a partner to join the group or for another operator to purchase EuroManx.

On 4th March 2008 Quest indicated that they had found a purchaser of the airline, and would be bringing news of that company and the ‘deal’ to a meeting on 13th March. The meeting was subsequently held at 8.00 am on the 14th March and Quest advised that Aer Arann would be buying EuroManx and would be operating it as a separate company from themselves, in exactly the same format – i.e. same EuroManx name/brand/product. Mr Paul Schuz, Finance Director of Aer Arran and the Chief Executives of Quest and EuroManx met me in my office on the 14th March, and informed me that the sale would be concluded within about 2 to 4 weeks. I can confirm that they were all very confident that the buy out would be concluded and were optimistic for the future.

Following meetings on 14th March, letters were written to EuroManx to establish wording regarding the official levels of debt and repayment. It was necessary for Government to confirm the level of debt in order that EuroManx could provide this information to Aer Arran as part of Aer Arran’s due diligence procedures.

For the next 3 weeks, through the Easter period and into mid April, we were advised by EuroManx that due diligence was being carried out and finalised for the purchase by Aer Arann.

Towards mid-April, the DoT chased EuroManx for further news of the sale, to be informed that Quest had now engaged with Flybe for the purchase of EuroManx as Aer Arann were now out of the sale procedures. The DoT put on record to Quest – the owners of EuroManx - the dismay and unhappiness of the Government at being kept in the dark regarding the ongoing develpments and the lack of courtesy in keeping the Government advised of what was happening especially as Government had provided considerable assistance and support in trying to safeguard the future of EuroManx; further the Department expressed concern that the debts were continuing to increase and that this was unacceptable. [Quest advised that they were assisting with the due diligence for Flybe.]

As we understand it now, Flybe informed Quest – the owners of EuroManx - that they would not be buying EuroManx at 3.00 pm last Thursday 8th May. At 1.00 am the following day, EuroManx was put into liquidation.

I would confirm, for the record, that at no time were any fees and charges waived to EuroManx.

At 6.23 am on Friday the 9th May EuroManx flew their last Dash8 aircraft off the Island to the maintenance base located off Island, but did not inform the Airport until 2 minutes after the take-off, that being at 6.25 am on Friday 9th May, that EuroManx had ceased operations.

There is no doubt that this was a deliberate act by the owners of EuroManx so as to ensure that the Airport Authority could not arrest the EuroManx aircraft as security against any outstanding debt.

Immediately on being notified of the situation on Friday the Airport Director spoke with the senior management of Flybe, VLM and Manx2, in order to get assistance to assist former EuroManx passengers who had booked flights.

As most Hon Members are aware, Flybe and Manx2 have offered free re-bookings to EuroManx passengers who have proof of their booking. The Government is not paying either airline to fly these passengers and we will not charge either of these airlines APD for carrying these passengers. We are extremely appreciative of the considerable assistance given by the airlines to the Airport, but most importantly to the passengers, and I would thank them for their assistance which is much appreciated.

Unfortunately, around 70 EuroManx staff lost their jobs on Friday 9th May however, it looks likely that most of the flying staff will be offered jobs by other airlines over the next few days. Indeed, I am pleased to advise that, around 15 members of the EuroManx team have been given new jobs with other Air Carriers and that opportunities for others are already being considered. There will unfortunately inevitably be further knock-on effects by other companies based at the Airport, which is of course most regrettable.

However, notwithstanding the situation, officers from Government attended the offices of the company on Friday afternoon the 9th May to explain how Government could provide help and support. Talks took place with the Managing Director, the acting liquidator and a large number of EuroManx staff. Contact details of the Job Centres Employment Advisers and website address have also been provided to the former staff and, a member of staff from the Manx Industrial Relations Office was also present.

A letter has been prepared by the Job Centre for distribution directly to all EuroManx staff and as soon as all the names and addresses of those affected have been made available those staff will be afforded the highest priority by the Job Centre in assisting them to find alternative employment.

Another major concern was to prevent delay and inconvenience to patients referred to the UK, with the absolute priority placed on those due for admission to hospital on or shortly after 9th May. Given the lack of notice of the suspension of the EuroManx flights, in some cases being less than 40 minutes before patients were due to leave at 7.30 am, airport staff transferring patients to alternative carriers at short notice was of great help, in fact some patients actually left earlier than their original flight would have done. Again I would thank the Airport staff for their assistance.

A senior officer from the Health Services was at the airport before 8.00 am to provide assistance if required. By 8.00 am Patient Transfers staff at Crookall House had started to provide advice, make alternative arrangements as required, and to contact patients due to travel later in the day or in the following days. Work also started to ensure that patients due to return to the Island were able to do so with the minimum delay. I am advised that it is anticipated that by today all EuroManx bookings will have been successfully transferred to other carriers and all patients notified.

It is indeed to say the least, most unfortunate that Quest - the owners of EuroManx - did not even have the courtesy to advise the Government of their intention to cease trading other than in the way they did, especially considering the considerable amount of support and effort put in by Government and its officers in an endeavour to assist Quest in securing the future of EuroManx an airline which we had become fond of and which had served the Island well. I am satisfied that Government has done all that it could and in fact has done more than could have been expected of it in its endeavours to try to secure the future of EuroManx.

Mr Speaker, I would wish to express my thanks to all who have assisted through the very demanding and difficult period and, especially through the last few days. I would also express my sadness to those whom have been so loyal to EuroManx and who have now had to cease their employment with them. I wish them success for the future and hope it is not too long before they once again find themselves in employment, and I can assure them all that Government will do what it can to provide support.

Finally, a copy of this answer will be posted on the Governments website from this morning.

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