News | Published September 20 2019

Thomas Cook needs £200 million contingency fund to avoid administration

Troubled airline Thomas Cook must find £200 million in extra funds by the weekend if it is to stave off administration.

The operator, which has been in existence since 1841 and since grown into one of the world’s largest travel companies, was in talks to agree a £900 million rescue deal with Chinese conglomerate Fosun and a group of creditors earlier this week.

However, creditor banks such as Lloyds and RBS have now said that the firm must have an extra £200 million in place as a safety net during the winter months when there will be a fall in revenue.

Should the airline, which serves around 19 million customers annually, fail to provide the funds, it risks administration which may leave thousands of holidaymakers stranded abroad and cost around 22,000 jobs worldwide, 9,000 of which are UK based.

There has been much reaction on social media from concerned customers despite reassurances from the operator.

The Civil Aviation Authority is also on standby with a repatriation contingency plan to intervene in the event of a collapse.

These plans, dubbed Operation Matterhorn, are estimated to come at a potential cost of £600 million should they be triggered.

In May, Thomas Cook declared £1.5 billion losses for the first half of the year having issued three profit warnings over the past year amid rising debt.

Its July business plan estimated that £900 million of funds would be needed to refinance the airline, a substantial increase on the £150 million that had been forecast previously.

The refinancing deal with Fosun, the airline’s largest shareholder, and the other creditors was agreed in August.

However, the group of creditors then called for an independent investigation, which concluded that the airline provide the contingency £200 million for financial security. This will run up the total refinancing costs to £1.1 billion.

The creditors are known to be hesitant to provide a line of credit without these reassurances as a means of ensuring the company does not collapse and its loans have to be written off.

The airline had found another backer to provide the extra £200 million but this is no longer viable according to the BBC.

A final vote on the rescue deal has now been postponed until next Friday, with the creditors likely to abandon it unless the additional funding can be provided.

The airline said this week that it was “focused on completing” the deal and is in talks with its creditor banks, bondholders and Fosun.

Creditor bank RBS said: "As one of a number of lenders, RBS has provided considerable support to Thomas Cook over many years and continues to work with all parties in order to try and find a resolution to the funding and liquidity shortfall at Thomas Cook.”

The finger of blame for the substantial losses and rising debts that have thrown the operator into trouble has been pointed at competition from low-cost airlines and online travel agents, as well as political unrest in popular holiday destinations abroad.

Brexit uncertainty is also thought to have made holidaymakers hesitant to travel abroad due to the weak pound, with many encouraged further to stay at home by to the summer heatwave of last year.

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Authored by

Scott Challinor
Business Editor
September 20 2019

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