Skyservice airline shuts down

Skyservice charter airlines will shut down it operations and be forced into receivership Wednesday as a result of a near $9-million debt owed to its long-term partner, Sunquest Vacations.

The Toronto-based charter service, whose primary partners are Sunquest, and the merged operations of Sunwing and Signature Vacations, is expected to appear in court Wednesday. Roughly 860 jobs are expected to be lost as a result of the charter airline’s shutdown, a source close the matter said.

Sunquest said it had organized replacement flights for all of its customers who might otherwise have been affected by the suspension of operations by Skyservice Wednesday.

"We are focused on minimizing disruption to our customers, not only those currently at their destination but also those scheduled to travel over the coming days and weeks," said Michael Friisdahl, Thomas Cook North America chief executive, in a statement. "Since it is late in the winter season, a relatively small number of our passengers were booked on Skyservice flights and we have the capability to respond effectively to this situation. Travel agents and Sunquest representatives at the destinations are moving quickly to contact everyone to provide updated flight details. We expect to have reached all those customers by the end of the day."

The only Sunquest flights affected by the Skyservice shut-down originate in Toronto or Winnipeg, and represent less than a third of the remaining flights for Sunquest’s winter program which ends April 30, the company said.

No Sunquest flights were scheduled for Wednesday and replacement flights through the end of April have been arranged with other carriers, principally Air Transat and Enerjet, Sunquest said.

Flights booked during its summer season after May 1 will be provided by WestJet Airlines Ltd., as previously announced, the company noted.

"Thomas Cook and Sunquest did everything possible to assist Skyservice and limit the effect of its financial difficulties on travellers," said Mr. Friisdahl. "Unfortunately, faced with unprecedented difficulties in the airline business, Skyservice could not return to viability. We sympathize with the management, employees and suppliers affected by this unfortunate situation."

Skyservice blamed its debt level and a hyper-competitive environment in the packaged tour market in recent years for its inability to service its debt to Sunquest, which has been its partner for 15 years.

"Skyservice Airlines and the receiver are committed to winding up the business in an orderly and responsible manner. The company and the receiver will continue to treat employees and other stakeholders fairly and in a transparent manner throughout this process," the company said in a statement.

As a result, however, Skyservice will shutdown its operations immediately, including one flight that was scheduled to depart from Toronto Wednesday for the Dominican Republic, and its return legs.

One Skyservice flight from Mexico did return Wednesday morning to Toronto, according to a spokesman for the Greater Toronto Airport Authority, however.

Skyservice was founded in 1986, and employs 1,200 employees during peak season. It operates 25 flights a day from Pearson, as well as other destinations in the Canada and the U.S.

The company has 20 aircraft in its fleet and serves destinations in Canada, the U.S., the Caribbean, Mexico and Europe.

Skyservice is just the latest to fall victim to a super competitive market in the Canadian packaged tour business that has been suffering from an excess of capacity for years that have driven down prices and the profitability of the players. Last year, Conquest Vacations, another industry player, also declared bankruptcy.

Transat A.T., the largest player in the Canadian travel tour business, said last month that it didn’t expect to earn a profit in the second quarter for the first time in its history earlier this month, while announcing a larger-than-expect $18.2-million loss during the first quarter.

Shares in Transat did, however, jump more than 6% on the news Wednesday to $13.40 each on the Toronto Stock Exchange as 11:46 a.m.

Skyservice was in a particularly difficult position due to a leveraged buyout in 2007 of a majority stake in the airline by Vancouver’s Gibralt Capital Corp. that forced the charter airline to assume more debt than it could handle once the market conditions deteriorated, and Signature and Sunwing merged last fall, the source who spoke to Financial Post said.

At the same time, Sunwing and Signature had been seeking to get buy out its contract with Skyservice, which was set to expire in 2013.

Skyservice’s third-party lender, Roynat Capital, got nervous about the loss of business and called in its loans, and Skyservice has been scrambling to meet its debt obligations since, the source, who spoke to the Financial Post and wished to remain anonymous, despite wrangling some concession from its unionized workforce last fall.

Skyservice had been looking to integrate its business with Sunquest, whereby Skyservice would become an exclusive lift provider for the packaged tour operator. But the deal fell through, forcing Skyservice into receivership Wednesday.

Perhaps the only silver lining is that Skyservice is heading into its low season before it typically charters its planes to European carriers in the summer months.

FTI Consulting Group has been appointed receiver in the matter.