Coyle, 43, remains on garden leave as the Lancashire rivals attempt to agree a settlement figure. Burnley are insisting on a £3 million compensation package, with Bolton believing that a clause in Coyle's contract enables them to acquire him for £1 million.
Having guided Burnley to promotion to the Premier League last season, Coyle rejected advances from Celtic to sign a new contract and remain at Turf Moor.
But with the former Bolton forward opting to leave Burnley for the Reebok just six months later, Kilby admits he has been shocked.
'I fully expected that when Owen did move from here he was an ambitious manager and we accepted that might happen that he would go upwards from Burnley and not to someone who is sideways, a club who we are fighting a relegation scrap with,' Kilby said.
'It was a surprise and obviously it has been a trauma for the football club. None of us wanted Owen to go.
"We had talks and we managed to get Owen to delay his decision by 24 hours. We put our case strongly and were hopeful that he would stay with us, but he decided to carry on and go to Bolton.
'He had a fabulous two years here and it was with regret that he went. He said to me that there was only Celtic or Bolton he would leave Burnley for, so I don't think he took the decision lightly.'
With Gartside initially recommending Coyle to Burnley two years ago, Kilby admits that the events of the last week had strained relations between the clubs.
He said: 'I don't think we are the best of pals at the moment. It was an unwelcome approach, but football is football and these things happen.'
Burnley have drawn up a wish-list of candidates to replace Coyle, with Swansea's Paulo Sousa, Blackpool's Ian Holloway and Leeds United manager Simon Grayson under consideration.
While Grayson is unlikely to be persuaded to leave Elland Road, Flood insists that replacing Coyle will be a challenge that many managers will be determined to take on.
Flood said: 'As much as we are disappointed, there are always young, hungry, winning managers who want a challenge and who want to make their name.
'I think we would like to have the same recipe again and I think there are choices that we can consider.
"We just have to meet them and make sure they have the chemistry and the right feeling for Burnley. We will hopefully make a decision within the next two weeks.'
Burnley's hopes of luring Sousa from Swansea will be contested by the Welsh club, however, with chairman Huw Jenkins warning that he will not allow the Portuguese to speak to them.
Jenkins said: 'If a manager is successful with a club in the Championship, he is always going to be mentioned when a vacancy comes up in the Premier League.
"But I would say two things. One, I don't think Burnley will be getting in touch with me.
'And two, even if they do, I think you can state that I won't be letting any club talk to our manager.'
WHO ARE LANCASHIRE'S BIGGEST CLUB? (outside of Manchester and Liverpool, of course)
County's oldest top-flight club (founded1875).Three league titles, six FA Cups and a League Cup.
Average attendance: 2009-10 25,977
Budget: Smaller than in the Jack Walker era, but the Walker Family Trust still provides funds.
Founded in 1877, Bolton have won four FA Cups.
Average att: 21,439
Budget: Backed by the Isle of Man-based tycoon Eddie Davies, Bolton broke club transfer record by spending £10 million on Johan Elmander in 2008.
Burnley, founded in 1882, have won two league titles and the 1914 FA Cup. Reached the European Cup quarter-finals in 1960-61.
Average att: 20,345
Budget: Debt free but have a £15,000-a-week wage limit.
Formed in 1932, Wigan did not become members of the Football League until 1978.
Average att: 18,464
Budget Backed by the sportswear tycoon Dave Whelan, Wigan are on a sound financial footing.