The sudden announcement led to the cancellation of several flights on Saturday from Dublin and Belfast City airports to UK cities.
Aer Lingus said Stobart Air informed them on Friday night it was terminating its franchise agreement and was in the process of appointing a liquidator.
The airline said it had progressed alternative flying operations for regional customers which would take effect from Sunday.
An Aer Lingus spokesperson said: “Of the 12 routes immediately impacted by Stobart Air’s decision to cease trading, Aer Lingus will operate five routes and for at least the next week, BA City Flyer will operate two.
“Alternative operations for the outstanding routes are still being determined.
“All impacted customers are being contacted directly and offered details of an alternative flight where feasible. All impacted customers also have the option of a full refund.”
Aer Lingus will directly operate the Dublin to Edinburgh and Manchester routes, and the Belfast City flights to Manchester, Birmingham and Edinburgh.
BA City Flyer will operate the routes from Belfast City to Exeter and Leeds Bradford.
Alternative operations for flights from Dublin to Kerry and Donegal are still to be decided.
Customers scheduled to travel from Belfast City to East Midlands, and Dublin to Glasgow or Newquay routes are being offered alternative flights.
A spokesperson for Belfast City Airport said: “We were informed by Aer Lingus this morning that Stobart Air, who operated the Aer Lingus regional franchise, has ceased operations.
“The Aer Lingus Heathrow service is not affected and is still operating.”
A spokesperson for Stobart Air said: “It is with great regret and sadness that Stobart Air can confirm that the board is in the process of appointing a liquidator to the business and the airline is to cease operations with immediate effect.
“Stobart Air apologises to all its customers for the inconvenience caused at short notice. All 480 staff at the airline have been informed.
“Last April, Stobart Air announced that a new owner had been identified. However, it has emerged that the funding to support this transaction is no longer in place and the new owner is now unable to conclude the transaction.
“Given the continued impact of the pandemic which has virtually halted air travel… and in the absence of any alternative purchasers or sources of funding, the board of Stobart Air must take the necessary, unavoidable and difficult decision to seek to appoint a liquidator.”
Irish Transport Minister Eamon Ryan said: “The announcement is concerning news for the affected workers and for regional connectivity.
“We will be engaging with all stakeholders today and over the comings days to restore connectivity to the regional airports affected.”
Rory Boland, Which? travel editor, said passengers will want to know that their money and bookings are safe.
He added: “It is right that the carrier is contacting passengers to discuss their refund or rebooking options.
“It must also ensure that any passengers left stranded as a result are rebooked on to an alternative flight at their earliest convenience.
“Stobart Air ceasing trading will be sobering news for the industry as the pandemic’s impact continues to wreak havoc on the travel sector. With most foreign travel still grounded, it’s vital the Government steps in with tailored support for the travel industry.”