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Skyservice shuts down and plans to wind up its business

Some travel agents scrambled to ease vacationers’ fears Wednesday after Skyservice Airlines cancelled flights and later said it was winding up operations, grounding its 17 planes for good and laying off 860 workers.

TORONTO — Some travel agents scrambled to ease vacationers’ fears Wednesday after Skyservice Airlines cancelled flights and later said it was winding up operations, grounding its 17 planes for good and laying off 860 workers.

“Recent changes in the Canadian vacation tour market combined with Skyservice Airlines’ debt level have rendered the company unable to maintain profitable operations,” the airline said in a statement.

“As a result, one of the company’s secured lenders applied for the appointment of the receiver.”

The announcement left some Canadians’ immediate vacation plans up in the air but will likely be something of a boon to its competitors — it gave lift to the stock of rival Air Transat (TSX:ARZ.A), sending it up 14 per cent to$13.99.

“Canadians who have future travel plans booked with an operator that was using Skyservice, they’re going to be biding their time, waiting to see if that tour operator is able to secure lift on other carriers, (with) this short notice prior to departure,” said airline analyst Robert Kokonis of travel consultancy Air Trav Inc.

Skyservice said it will work with the company’s tour operator customers and others to ensure that passenger issues are resolved promptly.

Skyservice is a third-party lift provider, which means it doesn’t sell seats to individual customers. It has been an important part of Canada’s travel industry, although not one of the better-known players since it’s primary role is to supply planes and seating capacity to other companies.

The airline, which once employed 1,200 people at its peak, filed for receivership in Ontario Superior Court after missing a debt repayment deadline and cancelling most of its scheduled flights out of Toronto’s Pearson International Airport. FTI Consulting, will oversee the liquidation of assets so creditors can be repaid.

Only one flight out of Canada to the Dominican Republic scheduled Wednesday was affected, while main customer Sunquest Vacations said it had no planes in the air.

Sunquest, owned by global travel giant Thomas Cook PLC, said it has organized replacement flights with Air Transat and Enerjet for customers affected by the shutdown of Skyservice flights to the Caribbean and Mexico. It said it has made plans to have 95 per cent of its customers flying within 24 hours of their scheduled flights with Skyservice.

Most of Skyservice’s customers have made arrangements for replacement flights for travellers, said a company spokesman, and those who had planned to fly with Skyservice should call their tour operators for information.

But Elsa Nunez, a travel agent with Toronto-based Amigo Travel Ltd. said she hasn’t been able to reach the company since she first found out the airline had shut down — after receiving a barrage of calls from clients concerned about their travel plans.

“(It) is really sad... we found out this morning because a client called, not because we heard it on the news or we were forewarned or anyone sent us an email,” she said.

“Obviously it didn’t happen overnight, but I think that they should have made some announcement this morning so it would give people a chance. It was a shock to us because nobody had told us anything, so we’re scrambling to find out what’s going to happen with these clients.”

She said she is concerned about six clients who are scheduled to fly with Skyservice in the coming weeks.

“We have time to find out what’s happening but (Skyservice’s) lines are all busy and so we’re scrambling to find out. Because people panic, you know: ‘Oh, what’s going to happen to me, am I going to lose all my money?”’

The shutdown of Skyservice was caused in part by ownership changes in the travel industry. Concerns were raised earlier this year about whether Skyservice could maintain its business with key customer Signature Tours, after it merged with Skyservice competitor Sunwing earlier this year — giving Signature its own flying capability.

Skyservice had been in talks with rival tour operator Sunquest Vacations to make a similar deal, but on Wednesday morning Sunquest, a Skyservice creditor, petitioned the courts to put the company into receivership.

Sunquest Vacations, the company’s major customer as well as its main creditor, took on $8.8 million of Skyservice’s debt earlier this year, said spokesman John Lute.

Skyservice had struggled with debt after being purchased three years ago in a leveraged buyout by private equity firm Gibralt Capital Corp. of Vancouver. The company faced an excess capacity — essentially empty seats on its aircraft — as consumers cut back on vacations during the recession. It had been attempting to negotiate cost-cutting measure with its employees but was not able to reach a deal.