Thomas Cook, the 178 year old UK based tour operator and holiday company that runs a loyalty programme using epoints has filed for US Chapter 11 bankruptcy protection while it struggles to secure debt restructuring.
Consumer confidence is extremely low, which will in itself impact the airline, with online chatrooms full of queries over whether holidays and flights will be protected.
Thomas Cook is trying to get bonds of more than $1.1B restructured because of an inability to pay per original terms. If the process fails and the company is unable to secure more funds, the group is likely facing a full bankruptcy and liquidation.
The group currently operates more than 100 aircraft.
Whatever happens, it seems inevitable that shareholders will lose their money, and this is likely to include the stakes held by management and staff.
The company previously said that it expected shareholders to be “significantly diluted” and that Thomas Cook could be taken off the stock market.
Several factors have come together to cause the problems. These include high debt, intense competition and one-off factors including last summer’s heatwave and Brexit uncertainty.
The company, which employs 20,000 staff, including 9,000 in the UK, succeeded on Monday with a courtroom application to put off a creditors’ vote over the terms of a £900m rescue funding injection – which could yet rise to £1.1bn – until next week.
Shares in the company slumped 10%, taking the decline in the last 12 months to 94% and leaving the entire business valued at just £69m. But they recovered slightly on news of the delay.
Thomas Cook is one of the few integrated travel companies left that own airlines, resorts and also the distribution channel.
The company is basically trying to swap at least part of the outstanding debt to equity (current equity holders would lose most if not all of their investment). If the company survives, it will almost certainly be Chinese owned. Earlier this year, the company agreed the terms of a debt-for-equity swap that would hand 75% of its holiday businessto the Chinese conglomerate Fosun, which also owns Club Med. Banks and bondholders would take the remaining 25% of the tours arm and gain control of 75% of the airline, with Fosun owning the rest. Shareholders are being wiped out in the deal.
The injection of £900m, split 50/50 between Fosun and the lenders, would tide Thomas Cook through the traditionally slow winter period when cashflow dries up due to the lower volume of holiday bookings.