Should the HM Government have bailed out Thomas Cook?
Updates: The repatriation is expected to incur costs of more than £100m, borne by the Department for Transport.
According to The Guardian, a source familiar with the rescue talks said Thomas Cook had reached an agreement to secure £200m, with help from the Turkish government and a group of Spanish hoteliers backed by ministers in Madrid. The deal melted away without UK Gov. support.
Boris Johnson confirmed on Monday that Thomas Cook has requested for a £150m bailout from the taxpayer and the request was rejected because of the “moral hazard” it would create for other businesses to fail.
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He also questioned whether action is needed to be taken to stop the directors of travel companies escaping responsibility for rescuing their customers.
The Government decision not to bail out Thomas Cook is contested by the Labour Party.
“The British government should have stepped in with a temporary rescue package for Thomas Cook”, stated on Monday the Labour Party’s finance spokesman John McDonnell.
“I’m disappointed ... I just think the government should have been willing to just do more: intervene, stabilize the situation and then allow a longer term plan to develop,” McDonnell told the BBC.
A huge repatriation effort has begun after company ceased trading with immediate effect, causing flights to be cancelled.
Some 600,000 passengers were affected, with 150,000 UK citizens stranded abroad. The Civil Aviation Authority has organised a squadron of planes from other operators to bring people home -- but transport secretary Grant Shapps has warned the operation may not go smoothly.
How Thomas Cook group went bankrupt?
Thomas Cook & Son, originally simply Thomas Cook, was a company founded by Thomas Cook, a cabinet-maker, in 1841 to carry temperance supporters by railway between the cities of Leicester, Nottingham, Derby and Birmingham. In 1851, Cook arranged transport to the Great Exhibition of 1851. He organised his first tours to Europe in 1855 and to the United States in 1866.
In the next one century and a half, the company changed owners and corporate structure several times eventually becoming a a huge global travel corporation. In the last decade the business went from bad to worse for TC.
Among the factors to be considered are weather issues, stiff competition from online travel agents, low-cost airlines and the unrest around the world leading to a lower request for exotic holiday packages.
In addition, many holidaymakers had become used to putting together their own holidays and not using travel agents.
In November 2018 business analysts suggested that Thomas Cook should split the business to help recover its financial health. The Financial Times newspaper said in February 2019 that the Thomas Cook Group had received bids for its airline business, which includes Condor, and also the company as a whole. In March 2019, Thomas Cook UK announced 21 travel office closures and the redundancy of 300 staff, justifying the decision with the fact that 64% of bookings had been made online in 2018.
In April 2019 the company hired the restructuring specialist Alix Partners to work on the company's balance sheet and implement cost restructuring plans to help reduce its £1.6 billion debt. In May 2019 the company reported that it had secured £300 million of emergency funding from its banks. Then in May 2019, the company announced a loss of £1.5 billion for the first half of its financial year, with £1.1 billion of the loss being attributable to goodwill write-downs. In June 2019, Thomas Cook said that it was in talks with the Chinese company Fosun International with regard to the possible sale of its tour operator business. On 28 August 2019, Thomas Cook announced that Fosun would pay £450 million for 75% of the firm's tour business and 25% of its airline. It was reported in mid-September that the company was "in last minute negotiations" with bondholders to get them to approve the Fosun takeover. Less than a week later, Thomas Cook asked HM Government to fund a £200 million gap in the company's finances to prevent the firm falling into administration.
On the evening of 22 September 2019, a last ditch attempt to save the Thomas Cook Group failed, because Fosun refused to add another £200 million to a £900 million loan, and the UK government could not bail out Thomas Cook without risking significant losses to the Treasury. The Thomas Cook Group entered into administration at 2:00 a.m. on 23 September 2019, and ceased operations immediately, leaving around 600,000 tourists stranded at their holiday destinations
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