Thomas Cook’s final adventure ends in liquidation

Bloomberg

When Thomas Cook Group Plc began dangerously hurtling toward collapse early last week, Transport Secretary Grant Shapps ordered up a contingency plan: Operation Matterhorn.
The effort aimed to safeguard the return of UK tourists should the company indeed go under. But the massive undertaking also betrayed the thinking that had taken root in the Brexit-hardened cabinet: that the company was already doomed, and that the state shouldn’t step in.
If senior management felt the same way about Thomas Cook’s prospects, at least they put on a brave face. Chief Executive Officer Peter Fankhauser had been due to address a major tourism congress in Cologne on September 17, but the situation back in London was looking so dire that he dispatched the head of the tour operator’s German business to stand in for him.
“It’s a bumpy road that we have traveled in the past months,” Stefanie Berk told the audience.
For Fankhauser, Thomas Cook and the thousands of vacationers who had booked their travel through the storied tourism company, the ride was about to get more than just bumpy. By Sunday, talks to rescue the business had run into a dead end. As a result, Thomas Cook filed for compulsory liquidation in the early hours of Monday after a last-minute effort to raise additional funds failed, immediately canceling bookings, flights and package tours for U. customers.
This story is based on accounts of people familiar with the final negotiations, who asked not to be identified discussing confidential deliberations. Thomas Cook declined to comment.
Death Spiral
While the company’s demise was years in the making, the final death spiral came in the space of just a few days. By the end of last week, Thomas Cook was confronted with a request for additional financing from a consortium of its lenders including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc that it couldn’t meet.
The banks wanted additional 200 million pounds on top of the 900 million pounds already agreed in August to kick off a debt-for-equity swap that would have wiped out shareholders. China’s Fosun Tourism Group, Thomas Cook’s largest shareholder, had pledged half of the money to bail out the company and take over the majority of the tour operator arm, but was unwilling to do more.
Faced with the demands, management appealed to the UK government, asking for a financial lifeline. The request was turned down almost immediately out of concern that Thomas Cook would come back again and again, asking for more. At no point was a full bailout of the company seriously contemplated, with the government instead viewing Thomas Cook’s business model as outdated.
UK Foreign Secretary Dominic Raab, speaking in an interview on the BBC, said “we don’t systematically step in with the taxpayers’ money when businesses are going under unless there’s a good strategic national interest for doing so.”
Fankhauser had been forced to walk the delicate line between crisis and revival for years. With a balance sheet weighed down by a string of deals a decade ago, Thomas Cook had trouble keeping up with industry rivals to invest in hotels and other tourism assets, thereby remaining exposed to the thin margins of its tour operating business that was under attack from online travel agencies and low-cost airlines. The company had already required emergency financing in 2011, and its situation only worsened when hot summers across Europe kept many would-be vacationers at home in the UK and Scandinavia.
“Thomas Cook has faced a lot of competition, there are new low-cost entrants, they have a mountain of debt,” Deirdre Hutton the head of the UK Civil Aviation Authority, said on Bloomberg Television hours after the insolvency filing. “They’ve been operating on a brochure basis, whereas the world’s moved on to bar codes.”