Thomas Cook ceases trading

December 2019 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

December 2019 Issue

Despite frantic 11th hour negotiations, British travel firm Thomas Cook filed for voluntary liquidation in late September, after 178 years of trading.

The firm, which employed over 21,000 staff worldwide, collapsed as it was unable to service its £1.6bn debt pile. Several factors contributed to Thomas Cook’s financial difficulties in recent years, including a consumer shift away from the high street and onto the internet, Brexit uncertainty and high jet fuel prices.

Large loans taken on by the company in 2011 to stave off collapse may have also dragged it down. The company’s 2007 merger with the UK-listed owner of Airtours, MyTravel Group, required Thomas Cook to be bailed out by its banks but left a debt pile of £1.7bn. In 2013, the company raised £425m from shareholders to improve its balance sheet and pay for a reorganisation plan.

In August, the company announced that it was receiving a £900m capital injection from Fosun, its largest shareholder, however the company also required an additional £200m to get it through the winter season. This additional funding did not materialise.

Following the company’s collapse, lenders including RBS and Lloyds Banking Group released a statement saying they had been “extremely supportive” of Thomas Cook. “Unfortunately, and notwithstanding the efforts of all stakeholders, the £1.1bn funding requirement to adequately recapitalise Thomas Cook has ultimately proved too significant,” they said. “The lenders providing finance facilities to the Group have been extremely supportive stakeholders, including through two periods of financial distress and have stood behind Thomas Cook over the past 12 months, a period where the Group saw cash outflows of about £1bn, maintaining that position over the crucial and busy summer holiday period. Obviously, the lenders are deeply disappointed that it has not proved possible to rescue Thomas Cook. In partnership with other stakeholders, the lenders worked tirelessly to examine all options within the timeframe required.”

“We have worked exhaustively in the past few days to resolve the outstanding issues on an agreement to secure Thomas Cook’s future for its employees, customers and suppliers,” said Peter Fankhauser, chief executive of Thomas Cook. “Although a deal had been largely agreed, an additional facility requested in the last few days of negotiations presented a challenge that ultimately proved insurmountable. It is a matter of profound regret to me and the rest of the board that we were not successful. I would like to apologise to our millions of customers, and thousands of employees, suppliers and partners who have supported us for many years. Despite huge uncertainty over recent weeks, our teams continued to put customers first, showing why Thomas Cook is one of the best-loved brands in travel. Generations of customers entrusted their family holiday to Thomas Cook because our people kept our customers at the heart of the business and maintained our founder’s spirit of innovation. This marks a deeply sad day for the company which pioneered package holidays and made travel possible for millions of people around the world.”

The company’s liquidation has required the Civil Aviation Authority (CAA) to undertake a significant repatriation effort, as around 150,000 UK holidaymakers were overseas at the time of the announcement.

“The government and CAA are working round the clock to help people,” said transport secretary Grant Shapps. “Our contingency planning has helped acquire planes from across the world – some from as far away as Malaysia – and we have put hundreds of people in call centres and at airports. But the task is enormous, the biggest peacetime repatriation in UK history. So, there are bound to be problems and delays.”

Thomas Cook noted that customers’ package holidays were protected under the Atol scheme, which guarantees the bookings of package holidaymakers. Atol covers holiday accommodation as well as return flights for customers who are abroad at the time of a collapse. Future bookings are also protected. The total cost of holidaymakers’ guarantees to be paid by the Atol scheme – underwritten by the CAA watchdog – is around £600m.

Richard Summerfield