South Africa could lose jobs and route after Thomas Cook collapse

The UK Government has decided not to throw Thomas Cook a lifeline, despite the fact that it would have to foot the bill to fly an estimated 150,000 Brits home who are stranded as the travel company collapsed. It has been described as the largest repatriation of Brits in peacetime history and is called Operation Matterhorn. The rescue will cost about £75bn according to Bloomberg. The company’s liquidation will also have a direct impact on South Africans. Thomas Cook has seasonal flights to Cape Town, which will stop overnight and there are several Thomas Cook call centres in South Africa where people are at risk of losing jobs. The South African has also listed Thomas Cook training programmes conducted from our shores which could vanish overnight. It is not clear yet how many South Africans are affected by the Thomas Cook collapse and whether some are stranded overseas. If they took out travel insurance, they could be protected by the Atol scheme which includes packages such as flights, accommodation and car-hire. If a business like Thomas Cook collapses, the scheme will ensure that holidaymakers can complete their holiday and return home and those who have not left yet, will be given a refund or replacement holiday. Many South Africans took to Twitter to comment on Thomas Cook’s demise recalling happy holidays, although some jokingly wondered if it will influence the visit of Prince Harry and Meghan Markle to South Africa. – Linda van Tilburg

Thomas Cook’s liquidation step by step and what happens next

By Luca Casiraghi and Irene García Pérez

(Bloomberg) -Thomas Cook Group Plc filed for compulsory liquidation in the early hours of Monday after last-ditch rescue talks failed. The company that invented the package holiday ceased to operate overnight, with all of its flights and bookings canceled.

What happens in liquidation?

Thomas Cook will now be handed over to administrators who will seek to sell what they can to pay off creditors who owed about £1.9bn ($2.4bn).

Alix Partners, a global consultancy firm, will oversee the liquidation and KPMG will help manage some Thomas Cook subsidiaries. Shareholders will be completely wiped out, while creditors will recover a fraction of their original investment from proceeds of asset sales. This process can be spread across multiple distributions and take years.

Will it survive in some form?

Unlikely. A compulsory liquidation usually means the company ceases trading, according to Emma Shipp, partner at law firm Hewitsons. Rivals may snap up parts of the business, thereby ensuring their survival, but there’s little sign of any potential buyers.

“It may be that certain parts of the business will be bought out in which case the employment contracts of staff working in that area will be transferred with the business but that depends on buyers coming forward very quickly and there seems no indication of that,” she said.

Other high profile liquidations?

Thomas Cook is the latest European travel company to file for administration or go through liquidation in the past decade. In the airline sector, Air Berlin Plc, Germany’s second-largest carrier, filed for administration in 2017. Iceland’s Wow Air closed down in November after a failed merger with Icelandair, and French airline Aigle Azur will cease business at the end of the month.

Other high profile cases involved Monarch Airlines in October 2017 and more recently, construction company Carillion, which collapsed in 2018.

Recent large UK liquidations

Company Debt
Thomas Cook (Sept. 2019) £1.9bn
Carillion (Jan. 2018) £1.6bn
BHS (June 2016) £1.3bn
British Steel (May 2019) £880m
Monarch Airlines (Oct. 2017) £373m

How did we get here?

Thomas Cook liquidation ends months of talks that had led to an agreed $1.1bn rescue led by Fosun Tourism Group. The plan involved injecting new capital and swapping debt for shares in the company which would have handed majority control of the tourism arm to Fosun. Creditors would have taken over the airline unit. Negotiations collapsed after Thomas Cook was unable to find backers for an additional £200m credit line requested last week by its largest banks. The UK government turned down a request for financial help but will have to foot the bill for bringing home more than 150,000 Thomas Cook customers stranded overseas.

Prime Minister Boris Johnson defended the decision to refuse the bailout that he said had been requested, to the tune of £150m. ”That’s a lot of taxpayers’ money,” he told reporters. ”It sets a moral hazard.”

That repatriation is twice the size of that arranged for customers of Monarch Airlines, a carrier which went insolvent two years ago, which cost about £50m, the government said.

Stocks, bonds and default swaps

Thomas Cook’s collapse wipes out shareholders. Its shares were suspended after it entered into liquidation. Through to the close of trading on Friday, the shares had fallen 89% in 2019, the worst-performing stock in the FTSE All-Share in the year-to-date. The company’s euro bonds lost more than two-thirds of their value on Monday to trade and now they will be part of the claims creditor will try to recoup during liquidation.

For hedge funds and other investors who bought credit default swaps insuring exposure to the company’s debt against default, the situation is different. The liquidation is likely to trigger the payout on their holdings, which may amount to as much as $250m.