Monarch Airlines collapses

December 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

December 2017 Issue

The ultra competitive European aviation market has seen several airlines declared bankrupt in recent months, with insolvencies affecting thousands of consumers and businesses globally. In October, the latest company to suffer was low-cost British carrier Monarch Airlines, which collapsed into bankruptcy, stranding thousands of passengers abroad.

Monarch’s collapse forced the UK’s Civil Aviation Authority (CAA) to charter aircraft to help around 110,000 travellers stranded abroad return to Britain. Chris Grayling, the UK’s transport secretary, called the government’s hiring of 30 planes to bring holidaymakers back to the country the UK’s “biggest ever peacetime repatriation”. It is estimated that Monarch’s collapse saw around 860,000 passengers lose future bookings.

The CAA called the collapse of Monarch the “biggest ever UK airline failure”. Given the company’s financial difficulties over the last few years, Monarch’s collapse has not been a surprise. The future of the company, Britain’s fifth largest airline, had been unclear for some time, before the firm finally collapsed at the end of a protracted, and ultimately unsuccessful, series of negotiations designed to secure the airline’s future.

Monarch, which was founded in 1968 and operated flights to 40 destinations from Britain, as well as providing tour packages, employed around 2750 people. Joint administrator Blair Nimmo, a partner at KPMG, said: “Since our appointment, one of our key priorities has been to speak to all of the companies’ employees across all locations and provide them with the support and assistance they need at this distressing time.” He added, “Importantly, we have retained the company’s 17-strong HR team to provide assistance to the rest of the workforce, including help in making claims to the Redundancy Payments Office. Their support, at what is also a very difficult time for them, has been crucial and we are very grateful to them.”

According to Monarch chief executive Andrew Swaffield, the carrier was a victim of “outside influences”, most notably, a raft of terrorist attacks which prompted holiday companies to reduce their exposure to Egypt, Tunisia and Turkey.

In 2014, Greybull Capital bailed Monarch out when it took a controlling stake in the company as part of a £125m recapitalisation. Under the deal, Monarch’s pension scheme was transferred to the Pension Protection Fund (PPF). As a result, the PPF took a 10 percent stake in Monarch’s business and a £7.5m secured loan note. In late 2016, Greybull was required to inject $202m into Monarch in order to keep the company afloat, just hours before the CAA grounded the airline. PPF and Greybull are among Monarch’s largest creditors.

The company reportedly recorded multi-million dollar losses in five out of the last 10 years, including a pre-tax loss of $395m in the financial year ending 31 October 2016. “We are very sorry that we have not been able to turn around the Monarch Group, and for all the inconvenience and distress that this administration will cause customers, employees and the many people who are associated with Monarch,” said a Greybull spokesman following Monarch’s collapse.

Unlike its European contemporaries Air Berlin and Alitalia, both of which collapsed into administration in the summer but were able to continue to offer services, all of Monarch’s scheduled flights were immediately cancelled. The UK’s insolvency framework does not allow airlines to continue flying when they are in administration. Monarch’s parent company had hoped to rescue the company in the weeks preceding the bankruptcy by selling its short haul business, allowing the company to switch to long haul routes using aircraft with greater fuel efficiency, giving Monarch a cost advantage over its rivals. However, a buyer for the short haul business was not forthcoming and the CAA would not grant Monarch a new licence because of its projected losses.

The European aviation business endured a difficult summer, with three major European operators failing in a five-month spell and with pilot scheduling issues at Ryanair Holdings Plc prompting a further 20,000 flight cancellations, disrupting travel for around 700,000 customers.

Richard Summerfield