The States of Guernsey is considering recapitalizing Aurigny Air Services (GR, Guernsey) and its holding company Aurigny Group to the tune of GBP25.2 million (USD38.9 million) to cover existing losses of GBP19.9 million (USD30.7 million) which date back to 2003 and to cover future anticipated losses of GBP5.3 million (USD8.2 million) for the years 2015, 2016 and 2017. The recapitalisation is a legacy of previous States’ decisions made as long ago as 2005 about the debt funding model for the airline, which has seen it borrowing to fund its operating and capital expenditure costs.

“Aurigny remains mandated to break even and our policy letter indicates that this should be possible by 2018, subject to new funding arrangements being put in place for its loss making, but socially and economically essential, Alderney services," Treasury and Resources Minister Gavin St Pier said. "Recapitalisation of its historic debts will help to stem its losses and work more effectively towards break even, whilst continuing to provide Guernsey and Alderney with a high degree of air connectivity that could never be delivered year round by a commercial operator.”

The airline says it has made losses in all but two years since its acquisition by the States in 2003. Among the various long term factors blamed for the string of financial losses are the dramatic rise in the price of fuel since 2003; increases in airport landing and passenger charges, most notably at London Gatwick airport; the highly competitive environment until 2014 on the airline’s routes to Gatwick and Jersey; and, the maintenance of its essential, albeit loss-making, route to nearby Alderney.

Brief factors that have impacted operations include the closure of UK airspace during the eruption of Eyjafjallajökull in Iceland in 2010; the restructuring of sister firm Anglo Normandy Aero Engineering; and, the write-down in the value of the Britten-Norman Trislander fleet ahead of its replacement with the incoming Do228s.

As such, the airline and the Group intend to use the recapitalisation to pay off some existing loans and overdraft facilities used to fund operating expenses. The airline will also benefit from no longer having to service interest payments on these debts. As well as repaying existing debts, the recapitalisation will set aside funds for predicted future losses to the end of 2017.

“Recapitalisation will restore Aurigny’s balance sheet to a neutral position," Peter O’Donovan, Aurigny’s Finance Director, said. "This will help our financial position immensely because we will no longer have to repay borrowing at relatively high rates.”

A neutral Group balance sheet will also allow it to return its company registrations from Jersey to Guernsey. This will then allow for the streamlining of the organization from three registrations to one thus reducing administrative overheads involved with the existing registrations and annual accounts/reports.

Aurigny currently operates one ATR42-500, three ATR72s (one -200 and two -500s), one E195, two Do228s, and three Trislanders on flights to Alderney, Jersey, Dinard/St. Malo in France, as well as Bristol International, Nottingham East Midlands, London Gatwick, London Stansted, and Manchester on the UK mainland. The carrier says the introduction of business-oriented flights to London City a year ago has helped stimulate demand across its other London destinations.

"Our London City route is an example of the role we play in supporting Guernsey’s economy which we introduced a year ago, at the request of Guernsey’s business community," Mark Darby, Aurigny’s CEO, said. "Aurigny is an important contributor to the economy in Guernsey."

The Guernsey Treasury and Resources Department is to put forward the proposal later next month for local parliamentary consideration.