Published on June 8th, 2016 | by Jim Lee0
VLM’s difficulties lead to Waterford exit
In a brief statement on 4th June, Waterford Airport has expressed disappointment at the decision of VLM Airlines, to cease their Waterford-London Luton service. The airport had been advised that VLM flights on the route will be discontinued from 16th June. However, a previously-arranged and already announced break in service was scheduled to run from Wednesday 8th June until 15th June, meaning in effect, that the last flights was on Tuesday 7th June.
Desmond O’Flynn, CEO, Waterford Airport said: “We are obviously very disappointed at this decision and appreciate that it will have an impact on the travel plans of many people who had intended flying on the route during the busy summer period. Indeed, more than 45,000 people flew on the Birmingham and London Luton routes operated by VLM Airlines since they commenced in April 2015.
“Air access to the UK and, especially, the greater London area remains the number one priority for Waterford Airport given the importance of this connectivity to the southeast region’s economy. With this in mind, we will spare no effort to attract an alternative carrier to service the Waterford-London route which has a strong and proven track record spanning more than 30 years. There is an added challenge in doing this mid-year but we will continue to work hard. We recognise the loyal support we have had from business and leisure passengers as well as other stakeholders for many years now.”
Those with existing VLM Airlines bookings on flights after 16th June are being contacted directly by the airline. VLM can also be contacted on lo-call 076 6805592 or firstname.lastname@example.org
Waterford’s Airport was granted a licence by the then Department of Transport & Power in 1982 The news coincided with an announcement by Avair Ltd., that a twice-weekly mid-day scheduled service, between Dublin and Waterford, was to commence on 29th March 1982. This was followed by the airport’s first international scheduled air service to Gatwick, operated by the newly established Ryanair, on 8th July 1985.
The Avair service was short lived, but for a period between 1985 and 1992, the airport managed to have services from both Aer Lingus and Ryanair. However, other airlines including Manx Airlines, Euroceltic Airways and more recently Flybe have come and gone. VLM is now the latest causality.
The airline announced details in March 2015 of their plans for a Waterford-London Luton and Waterford to Birmingham route, to commence on 27th April, using a Fokker 50 aircraft. It decided to discontinue flights between Waterford and Birmingham earlier, with effect from 2nd May, after just over one year of service. Their decision to discontinue the Luton service means that once again, Waterford airport has no scheduled service. Indeed the prospect of getting one seems remote, particularly when the various options are considered (Aer Lingus Regional, or Flybe again, through perhaps Loganair, or Citywings, as an outside bet). We have previously argued that the only sustainable hope for Waterford would be a Public Service Obligation Route (PSO) to the UK, and indeed this is essential, even without the runway upgrade, that Waterford Airport has pinned so much of its hopes on. Having the ability to operate jet traffic may help to develop charter traffic, but in the long run, sustaining scheduled jet services could be difficult, even with a PSO. Just look at Derry, which in spite of its larger catchment and more remote location, has struggled to attract significant scheduled services.
‘Halligan deal’ secured extra funding to extend runway at Waterford
They say that all politics is local and Waterford Independent TD, John Halligan, who has just been appointed Minister of State for Training and Skills, is certainly conscious of this. Apart from securing his own position in the new Government, he has apparently secured a commitment in the ‘Programme for Partnership Government 2016’ for extra funding for Regional Airports, which could be used to extend the runway at his local airport. The programme for government has a commitment for “€10 million in additional funding for regional airports”. However, it does not specifically mention Waterford Airport. The actual text states:-
“Building on engagement between Government and regional airport management, we will seek to invest an additional €10 million to intensify efforts to properly prepare our regional airports for a future where they can operate on a standalone commercial basis,” it adds, “This new investment will be in addition to the €28 million already committed.”
Mr Halligan noted that Waterford Airport had already secured some capital funding and “would get a share of the €10 million promised in the programme for government”. Confirming that he brought the issue up in talks with Fine Gael, he added there was a large enough catchment area to justify the investment in the airport. His Independent Alliance colleague, Transport, Tourism and Sport, Minister, Shane Ross, is due to inspect the airport in the coming weeks.
Mr Halligan went on to say that the runway was agreed “in principle way back in the capital funding. The problem you had with the runway was they had to put a compulsory purchase order on a piece of land, which had taken a bit of time.”
His colleague, Minister Ross, was a little more reticent when he answered questions in the Dáil on 31st May, when he said; “The extra €10 million in capital funding that is provided in the Programme for Government, which is additional to the €28 million already provided for in the Capital Plan 2016 to 2022, will enhance my Department’s ability to further support the four airports, including Waterford Airport in these important areas. The allocation of that funding has yet to be decided”.
He went on; “Development projects which are designed to expand capacity are a commercial matter for the airports themselves. In the case of the proposed runway extension at Waterford, I understand the airport authorities are pursuing local interests for funding in relation, to that project.”
The Regional Airports Programme supports the four regional airports in Donegal, Ireland West Airport Knock (IWAK), Kerry and Waterford with implementing necessary safety and security related projects, including measures in these two areas that are requisite to comply with regulatory requirements. Over the past five years, Waterford Airport has received €9.6 million in operational and investment support from the Department and in April of this year, a further €157,500 in grant aid was approved for a number of security projects, including new X-Ray equipment, at the airport.
VLM already in trouble as it secures bankruptcy protection
On 25th May, the Commercial Court of Antwerp, agreed to a request of VLM Airlines, to gain bankruptcy protection from its creditors. The company had applied to the courts on 12th May. The court protection applies provisionally for six months, which will allow the Belgian carrier to restructure its operations, and save the present 174 jobs. Over the six-month period, extendable to eighteen months if need be, VLM would focus on maintaining solvency, as well as reviewing and adapting its fleet and network operations, according to CEO Hamish Davidson. He added that VLM welcomed the decision, “because it is in the best interests of not only our company, but also our valued customers, employees, business partners and other stakeholders.”
VLM Airlines did not have much choice, but to petition the courts, following KBC Bank’s decision to freeze VLM’s accounts on 11th May. It triggered the court petition, which is broadly equivalent to Chapter 11 in the United States. The airline’s debts reportedly include €3 million owed to the bank, as well as an additional €3 million, owed to various suppliers, which include Antwerp Airport. In addition, the company had in recent weeks, received several visits from those acting on behalf of creditors, whose bills were not being paid. Repeatedly in recent months VLM also had to cancel flights due to a shortage of pilots.
Things also came to a head when Antwerp Airport was forced to send the airline, an unpaid and overdue invoice, for €112,000, for the month of March. “On Thursday (12th May), I got a written promise by Arthur White, the president and shareholder of the company, that the amount would be on our account today (13th May)”, said Marcel Buelens, CEO of Antwerp and Ostend Airport. “That is not the case. Soon I will consult with my board of directors, but I’m tired and now we’ll play hard.”
That was taken to mean that Egis, an international group offering engineering, project structuring and operations services, which has the concession at the airports, could seize one or more aircraft, thereby curtailing the flight operations of VLM. At the end of last year, when VLM was already late with a bill that was nearly ten times higher, Antwerp Airport decided that invoices for VLM, would issue every fortnight, instead of every month. The issue was only resolved when VLM sold and leased back four Fokker 50s, in order to pay the bill to the airport.
So what went wrong?
VLM was founded in late 1992 and started a scheduled Antwerp-London service in May 1993. Until early last year, there were about 250 people employed at the airline, including an operation in Rotterdam. That base was closed, as well as scheduled services from Birmingham (Waterford and Antwerp), Antwerp – Geneva and four other destinations from Liege that lasted only two months.
According to Mr. Davidson, the airline’s losses were exacerbated by a “significant change in fortunes during the course of 2015” when, having completed a management buyout from Germany’s Intro Aviation in 2014, it was announced that “all ACMI (Aircraft, Crew, Maintenance &. Insurance) operations were not going to be continued by CityJet” which was still owned by Intro Aviation, at the time. “At that time VLM relied on ACMI operations” for some 95% of its revenue streams, he added and this forced the carrier to rebalance the business and increase scheduled flying. Following the buyout from Intro Aviation, VLM’s chairman Arthur White owns 80% of the shares. Mr. Davidson notes that there are no “immediate” plans to bring in new investors, but does not rule this out in the long-term.
There were also what were described as, “several unfortunate commercial initiatives made last year provided for a heavy loss”, which had already caused liquidity problems, by the end of 2015. At that stage, after an estimated loss of €13 million during 2015, the equity of the company was close to zero.
However, Mr. Davidson has said that the restructuring programme is intended to return the airline “closer to break even” in 2016 and he predicts that by the middle of 2017, it will be “back in the black”. Having sold four of its 10 Fokker 50s to lessors, he is now in talks with “half a dozen” lessors to sell and lease back the remaining six, to bring “liquidity” and “some working capital” into the business. Their sale could generate up to €4 million.
This and the “consolidation” of the existing route network will be at the heart of the strategy, to reviving the airlines fortunes. This consolidation obviously included Waterford. The airlines remaining routes are from Antwerp to Hamburg and Southampton and from Friedrichshafen to Düsseldorf, Hamburg and Berlin. An Antwerp-London route also exists, but is operated on behalf of CityJet.
He went on “great progress was made since January 2016 towards operational efficiency and three new routes were opened, which already contribute positively to the operating result. Far-reaching austerity measures were also introduced.” Nevertheless, the historic debt that was built up in 2015 “is still haunting the company” he added. “We expect that the judicial reorganization will give us the necessary breathing space primarily to repay historical debts and suppliers and to ensure the smooth running of daily operations,” Mr. Davidson told Belgium’s VRT.
Not all were so optimistic or uncritical. Olivier Coenen of the liberal trade union told VRT radio, that “in the past year many commercial decisions turned out the wrong way. Now a deficit has been created, a gap that can’t be bridged.” He added that many decisions were unfortunate, and should have been thought over much better, blaming the management for making “the wrong choices”.
At present, VLM operates its ten Fokker 50s on passenger charter flights as well as scheduled passenger flights, both for itself, and other airlines. One aircraft is leased to CityJet, (specific aircraft rotates), another OO-VLF (ex EI-FKE of Aer Lingus Commuter) is leased to VizionAir and two are leased to Flybe, OO-VLM and another non-specific aircraft, which is also rotated. Both are leased until 31st August and based in Manchester. However, OO-VLM has been noted operating the Luton – Waterford service in recent days. The other eight aircraft are OO-VLI, OO-VLJ, OO-VLL, OO-VLN, OO-VLO, OO-VLQ, OO-VLS and OO-VLZ.
Against the backdrop of its €13 million loss in its last financial year, VLM abandoned plans to lease four Sukhoi SSJ 100-95 LRs SuperJets from Russian lessor, the Ilyushin Finance Co., in March. It had signed a Letter of Interest for four of the aircraft with Ilyushin in 2014, but then could not take delivery of the first aircraft last year, because of an EASA certification delay. At the time of the cancellation, VLM said it was considering other aircraft types to replace or add to its fleet of Fokker 50s, although this now looks highly unlikely.