Thomas Cook has gone into administration after knife-edge talks over the weekend with lenders, shareholders and the UK government failed to piece together a rescue package for the 178-year-old travel company.
Following a drawn-out day of negotiations at Latham & Watkins, the law firm, on Sunday, Thomas Cook’s board said early on Monday morning that despite “considerable efforts” the failure of the talks meant “it had no choice but to take steps to enter into compulsory liquidation with immediate effect”.
The collapse of the travel company leaves 21,000 jobs at risk and 150,000 UK holidaymakers stranded abroad, reliant on an effort by the government’s Civil Aviation Authority to put together the biggest emergency repatriation in peacetime.
A further 350,000 foreign nationals are also abroad on the tour operator’s holidays.
The restructuring specialist AlixPartners was appointed to manage the administration, subject to the approval of the court. Thomas Cook said that it expected AlixPartners to work with CAA to arrange the repatriation of its customers.
The UK government, which was dragged into discussions after Thomas Cook approached Downing Street for a bailout last Friday, had been under pressure to keep talks moving. “Having a granny stranded in Tunisia is not a good look,” said one person familiar with the discussions. However, others with knowledge of the talks said this would have set a difficult precedent for the government.
Fosun, the Chinese conglomerate and Thomas Cook’s biggest shareholder, had proposed to contribute £450m to a rescue package. Fosun said in a statement that it was “disappointed” at the collapse of the travel company and its inability to “find a viable solution for its proposed recapitalisation”. The Chinese company added: “Fosun confirms that its position remained unchanged throughout the process, but unfortunately other factors have changed. We extend our deepest sympathy to all those affected by this outcome.”
The fallout from Thomas Cook’s collapse will cause wider chaos throughout the travel industry due to the company’s complex supply chain. A person familiar with the discussions pointed to a long list of parties involved: “The banks, the insurers, the credit card providers, the government, the bondholders, the landlords, the shareholders. And then the 6,000 or so hoteliers that need Thomas Cook for their livelihood.”
Thomas Cook said that a number of other Thomas Cook companies would also be liquidated with either AlixPartners or KPMG, the professional services firm, set to oversee the process.
The CAA said that customers yet to travel with Thomas Cook from the UK “must not go to the airport”, adding that all of the company’s bookings had been cancelled.
Peter Fankhauser, Thomas Cook’s chief executive, said in a statement that the company had worked “exhaustively” to salvage a £1.1bn rescue deal.
“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,” he said.
Other airlines, including Virgin Atlantic and EasyJet, have been called in to transport home far-flung customers in an operation that the CAA said should take two weeks.
Richard Moriarty, chief executive of the CAA, said that it had launched “what is effectively one of the UK’s largest airlines, involving a fleet of aircraft secured from around the world. The nature and scale of the operation means that unfortunately some disruption will be inevitable.”
Thomas Cook’s collapse comes eight months after it announced it intended to sell its profitable airline as a means of shoring up its tour operator business. However, in May it revealed a £1.2bn net debt pile following a £1.1bn writedown on the value of its 2007 merger with MyTravel, the UK holiday company.
In July, the company said it was in “advanced discussions” for a £750m recapitalisation funded by Fosun. The sum was subsequently increased to £900m after demands for equity in the business by a group of Thomas Cook’s bondholders.
“There’s been a continuous knock-on effect,” said Richard Clarke, an analyst at Bernstein. “Their suppliers get wary, hotels ask them for more money up front, consumers become less willing to book with them . . . I’m sure that’s why we’ve seen continuous increases in the size of their rescue package.”
The company has also engaged a number of advisory services, including Latham & Watkins, Slaughter and May and Clifford Chance, the law firms, FTI Consulting, and AlixPartners.
“Everyone’s fees are enormous,” said one person familiar with the talks. “Ironically, Thomas Cook has to pay multiple fees to all the advisers at a point when it is most in distress.”
The rescue operation required for customers of Thomas Cook is far larger than that of Monarch, which collapsed in October 2017 when it was the UK’s fifth-biggest airline. That incident saw the CAA charter around 30 aircraft to bring back about 85,000 Monarch customers back to the UK at a cost of £60m.
Customers who have booked package holidays will be eligible for compensation under the UK’s Atol protection scheme. The CAA said it would aim to compensate customers within 60 days.
Those who have booked flights with Thomas Cook Airlines are unlikely to be protected by Atol, and must instead claim via their travel insurance or credit card company.