COLLAPSE
THOMAS COOK
Continued from page 80
£150 million, which they and bondholders would provide. Te deal appeared on course
until last week when two issues arose. First, a group of US hedge funds that had bought Tomas Cook bonds hoping to make a killing from the group’s collapse threatened to oppose the deal. It was to address this that Cook postponed a planned meeting with bondholders last week and filed for Chapter 15 bankruptcy protection in the US. It was the second issue that
proved fatal. Early last week, two of the
group’s 10 banks – Royal Bank of Scotland and Lloyds – told Cook it needed an additional £200 million in credit as a standby facility for next winter. Tis proved impossible to raise. Te current Cook
management inherited the debt that ultimately brought down the group. Debts of more than £1 billion almost sent Cook crashing in 2011 and the group survived under chief executive Peter Fankhauser’s predecessor Harriet Green only by increasing its debt pile to £1.6 billion. Yet the repeated raising of
the amount Cook needed to continue trading sapped belief it could recover. When Cook first indicated it
was in trouble by announcing its airline was for sale in February, Fankhauser insisted: “We have a healthy liquidity. Tis is a strong business.” Yet the group went from needing £300 million in May to £750 million in July, £900 million in August and £1.1 billion last week. Its collapse marks the end
of an era.
Cook failure will wipe out ATTF and costs set to rise
Tomas Cook folded because two of the banks got cold feet and the government was not prepared to act as guarantor for an additional credit facility. None of those involved will pay
the price – this will be picked up by 21,000 unemployed staff, hundreds
78 26 SEPTEMBER 2019
of thousands of disappointed and out-of-pocket holidaymakers, hundreds of Tomas Cook’s trade partners and thousands of hotels and their employees. Te industry will pay thrice
over – first in the losses and costs incurred as a result of the collapse, second in the additional costs card acquirers will likely impose for handling card transactions and, third, the added costs that will inevitably fall on consumer financial protection arrangements. Te repatriation of passengers
and customer refunds will wipe out the Air Travel Trust Fund and require a claim on the insurance that backs this up, leading to a rise in insurance premiums paid by the sector and by holidaymakers through the Atol Protection Charge on holidays.
travelweekly.co.uk
Writing was on the wall for Thomas Cook in May
Travel Weekly consistently warned that Tomas Cook could fail come October. In May, we reported: “Tomas
Cook’s disastrous half-year results put the group’s continued trading in jeopardy. Cook has until the end of September to get its ducks in a row.” In July, Travel Weekly warned
Tomas Cook is “poised to go out of business in October without… agreement on the recapitalisation.” In August, we wrote: “Cook requires £2.5 billion to survive, and sign off
before the end of September.” Travel Weekly also noted: “News that Cook requires still more capital
does not boost confidence.” Yet up to a week ago the odds
seemed to be on completion of the rescue deal, for two reasons. First, because the banks had, up to last week, appeared supportive and likely to see the return of more of their money from a rescue than from sending Cook into administration. Te most the banks are likely to
receive from the group’s collapse is about £115 million, according to documents filed last month. Te deal would have seen them take ownership of 75% of Tomas Cook’s airlines and up to 25% of the rest of the group. Tey would have expected to
sell the airline in two to three years and analysts estimated the carrier, even broken up, would make at least £600 million. Te banks and bondholders would also expect to make something from their stake in the rest of the group – by Fosun buying them out, bringing in new investors or listing the group partially. Cook’s shares were worthless by
last week, but 18 months ago were trading at £1.20. Second, the deal looked a very
good one for Fosun. Te Chinese group was to pay just £450 million for a Tomas Cook group free of debt. When Fosun first acquired a stake four years ago, it paid 145 pence a share, valuing Cook at about £2.75 billion. Fosun could expect Tomas
Cook to complement the Club Med business it acquired in 2015 and look to use its name around the world. And without that £1.6 billion debt, Cook’s new owners could expect the company finally to return a profit. Yet compelling as these reasons were, they proved insufficient.
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