Thomas Cook Collapses

[Ianno87]

Terrible news for all involved, particularly the staff who've lost jobs.

If there's one small (tiny) mercy in all of this, at least the former Thomas Cook European Rail Timetable lives on in its independent new guise.

 

[158756]

@StaffsWCML makes a valid point about banks profiting more from liquidation than keeping a business running and paying off debt. Noel Edmonds (for it is he) has gained a LOT of compensation from Lloyds because they did it to him. The back pages of Private Eye are full of it. It's so dodgy.

Business loans don't work in the same way as domestic loans. And a mate of mine, at RBS in the height of the insanity, has told me a tale or two.

I'm no banking expert, but surely they can't recover more than they were owed, probably much less, in which case liquidation is only more profitable if you don't believe the business would ever pay it back? It doesn't sound like Thomas Cook is awash with assets to sell either. The fraud Noel Edmonds was a victim of wasn't for the benefit of HBOS other than a few employees now in prison.

 

[StaffsWCML]

I'm no banking expert, but surely they can't recover more than they were owed, probably much less, in which case liquidation is only more profitable if you don't believe the business would ever pay it back? It doesn't sound like Thomas Cook is awash with assets to sell either. The fraud Noel Edmonds was a victim of wasn't for the benefit of HBOS other than a few employees now in prison.

What payments have they already received in interest, fees and charges? Hazard a guess at quite significant amount over the years. I think Thomas Cook has a £600 million overdraft, imagine the charges on that! Most Business bank has high annual fees anyway. Insolvency is strangely hugely favourable for banks at present as they are preferential creditors. Whatever assets there are will be sold and the banks will be preferential creditors. In most cases they will get back at least what they lent or a high percentage of.

They will probably get back in total more than they lent. Banks very rarely except in extreme cases of personal insolvency ever get back less than they lend. The rates they offer have a lot of contingency and profiteering built in now. Lets remember the Interest rate is 0.75%, you will struggle to find any loans for less than 4%. Banks are profiteering.

The system need to change to make this less attractive to banks to take this route. Staff and customers should always be preferential creditors.

 

[cjmillsnun]

Indeed, but we had most of those issues anyway. RBS should have been left to go bust.

And how many people would’ve lost their homes? People who were paying their mortgages.

 

[duncanp]

It is also a little bit suspicious that the consular staff (the ones in yellow hi viz vests with British Government Official and a Union Jack on the back) were at Palma airport (as well as other airports) from early this morning.

Either the government are exceptionally good at organising things (unlikely) or they knew in advance this was going to happen and had the staff in place.

 

[Tetchytyke]

And how many people would’ve lost their homes? People who were paying their mortgages.

None, just as no Northern Rock or Bradford and Bingley customers lost their homes.

 

[Tetchytyke]

I'm no banking expert, but surely they can't recover more than they were owed, probably much less, in which case liquidation is only more profitable if you don't believe the business would ever pay it back?

Define "how much they were owed". Capital advance? Capital plus interest plus default fees? Also remember Thomas Cook have been servicing these debts for *years*.

Liquidation might well give a better return for them than forebearance.

 

[cactustwirly]

It is also a little bit suspicious that the consular staff (the ones in yellow hi viz vests with British Government Official and a Union Jack on the back) were at Palma airport (as well as other airports) from early this morning.

Either the government are exceptionally good at organising things (unlikely) or they knew in advance this was going to happen and had the staff in place.

The CAA has been planning this for a while, since Thomas Cook were in very big financial trouble since June.

 

[DavidGrain]

As an accountant, my first reaction was to look at the company's last published Annual Report and Accounts This report ran to about 190 pages and the Auditors Report on the accounts was the longest report that I have ever seen.
The Accounts were as at September last year and in my opinion the company was a basket case then. The net worth of the group as shown in the accounts was £291m but in reaching this figure. Intangible Assets of £3,104m are shown. So what are these Intangible Assets? Goodwill, computer software, a valuation of brands and customer relationships, in other words nothing of a saleable value. The biggest items on the liabilities side were Trade Creditors £2,314m (money due to hotels and other supplies, aviation fuel etc) and Revenue received in advance £1,390m (money paid by customers in advance of their holidays)

Did it really take until they were preparing the accounts to 30th September 2019 to realise what a mess they were in? They should have closed down in January in my opinion.

 

[Darandio]

It is also a little bit suspicious that the consular staff (the ones in yellow hi viz vests with British Government Official and a Union Jack on the back) were at Palma airport (as well as other airports) from early this morning.

Either the government are exceptionally good at organising things (unlikely) or they knew in advance this was going to happen and had the staff in place.

You didn't have to work for the government or be some sort of high ranking insider to see this was pretty much inevitable and could therefore plan accordingly.

 

[DavidGrain]

It is also a little bit suspicious that the consular staff (the ones in yellow hi viz vests with British Government Official and a Union Jack on the back) were at Palma airport (as well as other airports) from early this morning.

Either the government are exceptionally good at organising things (unlikely) or they knew in advance this was going to happen and had the staff in place.

It was known since yesterday that the announcement would be made at 2.00am this morning as this was the time that most of the aircraft would be on the ground and hopefully not at foreign airports where the airport authorities would detain the planes in payment of landing fees and refueling costs. That is why Thomas Cook planes and crews cannot be used to repatriate holidaymakers

 

[Wolfie]

They need to change the law so that the banks are the last people to get the money left over when a business is liquidated.

All to often the banks play hard ball over the funds, they often cause many a business to fail with their obscene demands charges/fees/interest rates, as a result the employees and customers should be refunded first. If a bank wants its money back it should do everything it can to help a ailing business stay afloat.

Banks are absolute scum, I understand the scummy RBS (not for the first time) are the ones refusing to refinance their debts. Its a shame we didn't let those absolute scumbags fail in 2008/09. The only duty to the government had in 2009 was to ensure savers didn't lose their money, they should have let those banks fail.

The problem is that Thomas Cook was burning money. Had the additional £200M been put up it is likely that they would have been back with the begging bowl again next year and if yet more money wasn't found repatriation would still have to be paid for.....
The Thomas Cook Chief Exec was trousering in excess of £1M/year and that represented a cut - well worth it for the great job he did.... NOT!

 

[158756]

What payments have they already received in interest, fees and charges? Hazard a guess at quite significant amount over the years. I think Thomas Cook has a £600 million overdraft, imagine the charges on that! Most Business bank has high annual fees anyway. Insolvency is strangely hugely favourable for banks at present as they are preferential creditors. Whatever assets there are will be sold and the banks will be preferential creditors. In most cases they will get back at least what they lent or a high percentage of.

(Cut)

The system need to change to make this less attractive to banks to take this route. Staff and customers should always be preferential creditors.

Thomas Cook were a huge company with access to the best financial advice money can buy, it's hard to have much sympathy for the management over the years. No one forced them to load the business with debt or persist with an outdated business model.

It was hardly an attractive route for the banks to go down - Thomas Cook was already rescued in 2011, partly to protect RBS' existing exposure. That obviously failed, Thomas Cook has limped on for another eight years, and now reached this point where they needed over a billion pounds to stay afloat. If you did keep it going it would only need more money to cover future losses and the aircraft fleet is in dire need of renewal. It is fundamentally not a sustainable business. If you could get into £1bn + of debt and then get it all written off and carry on as if nothing happened no one would ever lend anything.

They will probably get back in total more than they lent. Banks very rarely except in extreme cases of personal insolvency ever get back less than they lend. The rates they offer have a lot of contingency and profiteering built in now. Lets remember the Interest rate is 0.75%, you will struggle to find any loans for less than 4%. Banks are profiteering.

Last time credit was cheap and banks were losing money on bad loans with no contingency we ended up bailing them out and all hate them for it.

 

[Spamcan81]

I understand Easyjet, Virgin Atlantic & British Airways will also be involved with the repatriation of holidays makers who are currently stranded abroad.

I've always found Thomas Cook to be most helpful when I've dealt with them in a professional capacity (@ Gatwick). I feel for the thousands of staff who now find themselves unemployed. Hopefully they will find alternative employment in due course.

Ben

Why doesn't the CAA use the TC aircraft and crew and use them for repatriation? That would put some money into the receiver's kitty when TC is liquidated.

 

[WesternLancer]

Terrible news for all involved, particularly the staff who've lost jobs.

If there's one small (tiny) mercy in all of this, at least the former Thomas Cook European Rail Timetable lives on in its independent new guise.

Very good point - esp as I have just ordered one of the timetable books!

 

[Wolfie]

Why doesn't the CAA use the TC aircraft and crew and use them for repatriation? That would put some money into the receiver's kitty when TC is liquidated.

Nice idea but.... Probably because the operators licence is with a bankrupt company, the aircraft have been or are in the process of being reclaimed by the leasors, the crew won't do it without being paid, no one (airports, fuel, insurance etc) would let those planes operate without payment up front for their services, etc etc etc

 

[Spamcan81]

Nice idea but.... Probably because the operators licence is with a bankrupt company, the aircraft have been or are in the process of being reclaimed by the leasors, the crew won't do it without being paid, no one (airports, fuel, insurance etc) would let those planes operate without payment up front for their services, etc etc etc

Fair points. The idea had been floated on an aviation forum I inhabit.

 

[Ianno87]

The Thomas Cook Chief Exec was trousering in excess of £1M/year and that represented a cut - well worth it for the great job he did.... NOT!

Even the best Execs in the world can't work miracles....

 

[WestCoast]

Really sad news for the employees and those with future plans reliant on the firm. Personally it was a much loved brand for me too. When I was growing up, my mother worked in a Thomas Cook travel agency and used to secure us a (discounted) family holiday each year, even twice a year when I was a little older. This was before the internet took over travel and before low cost airlines, so a real privilege.

It was no secret that they were in financial trouble but it really makes quite an impression when a brand like Thomas Cook is set to disappear.

 

[WestCoast]

Why doesn't the CAA use the TC aircraft and crew and use them for repatriation? That would put some money into the receiver's kitty when TC is liquidated.

I do know that Manchester Airport impounded TC aircraft as soon as they landed this morning over unpaid bills so I'd imagine it could be more complicated to sort than first appears. However.....I believe this is actually happening to some degree, Thomas Cook have for some years now leased quite a few aircraft with pilots each summer from an Estonian/Latvian company called Smartlynx. It actually looks like the CAA have taken leases and these are now being flown as Titan Airways flights, very interesting set-up. Unsure if the cabin crew are still TC employed temporarily or if Titan Airways has put in their employees.

 

[cactustwirly]

I do know that Manchester Airport impounded TC aircraft as soon as they landed this morning over unpaid bills so I'd imagine it could be more complicated to sort than first appears. However.....I believe this is actually happening to some degree, Thomas Cook have for some years now leased quite a few aircraft with pilots each summer from an Estonian/Latvian company called Smartlynx. It actually looks like the CAA have taken leases and these are now being flown as Titan Airways flights, very interesting set-up. Unsure if the cabin crew are still TC employed temporarily or if Titan Airways has put in their employees.

They will be Titan crews, TC doesn't exist anymore so can't employ any crew.

 

[DavidGrain]

Titan Airways is a charter airline based at Stansted Airport. It does quite a bit of government work as well as flights on behalf of tour operators.

This evening on the One Show, BBC TV, Giles Brandreth was talking about the history of Thomas Cook. He said that during WWII it was nationalised as a great British institution. Actually it was taken over by the Receiver of Enemy Property as it was owned in those day by Wagon-Lit in German occupied Belgium. The Receiver of Enemy Property sold it to the four main railway companies and that is how it came into state ownership on the nationalisation of the railways.

 

[johntea]

I always thought it was the case they couldn’t technically go into administration until all the aircraft were on the ground so was quite surprised they announced it basically in the middle of the night (the latest flights to touch down would have been incoming from Orlando around 8am / 9am GMT)

Although it was obvious to everyone once they started seizing all the planes as they did land!

 

[MarkyT]

As an accountant, my first reaction was to look at the company's last published Annual Report and Accounts This report ran to about 190 pages and the Auditors Report on the accounts was the longest report that I have ever seen.
The Accounts were as at September last year and in my opinion the company was a basket case then. The net worth of the group as shown in the accounts was £291m but in reaching this figure. Intangible Assets of £3,104m are shown. So what are these Intangible Assets? Goodwill, computer software, a valuation of brands and customer relationships, in other words nothing of a saleable value. The biggest items on the liabilities side were Trade Creditors £2,314m (money due to hotels and other supplies, aviation fuel etc) and Revenue received in advance £1,390m (money paid by customers in advance of their holidays)
Did it really take until they were preparing the accounts to 30th September 2019 to realise what a mess they were in? They should have closed down in January in my opinion.

I guess the directors and management wanted another summer of 'revenue received in advance' to get their cut of before declaring the inevitable. If this is a proper insolvency then presumably the directors will be debarred for a period, although that measure may not be particularly successful at stopping such individuals influencing the running of companies they are involved with and profiting from it.

 

[swj99]

What you use at home or what charities/voluntary organisations use is cash accounting - you either have the money to spend sat there in your account (and not offset from it due to a not yet cashed cheque) or you don't. Business accounting is much woolier than that.

You're right there.
On a business studies course I did many moons ago, on a module called Elements of Banking, the tutor explained some interesting facts, which on the face of it, are fairly straightforward, but then again, maybe not, because they hint towards the origins of and the realities of 'money'.

He explained that banks create money, for example, by lending it to people. One way this happens is when they grant a customer an overdraft facility. Let's say the overdraft limit is £100,000 on a business account, and the customer uses all of it. This means they have borrowed £100,000 from the bank, and because it's an overdraft, it's expressed as a negative balance on the customer's account.

Converseley, if that customer was granted a loan of £100,000, and the bank credited their account with the £100,000, this would show as a credit balance, even though the reality is the same, which is that the customer owes the bank £100,000. It is then paid back with interest, or at least, it's supposed to be. The customer then has to remove money from circulation over and above the original amount in order to service and repay the loan.
In either case, the £100,000 would be expressed on the bank's balance sheet as an asset, because it was repayable, or expected to be repayable.

If that customer was to go bankrupt, and had no assets for the liquidator to sell, this would mean the bank would have no realistic prospect of being repaid, and would have to write the debt off on it's balance sheet, achieved by putting a credit for the same amount on the balance sheet.

The question of where this money came from, or whether it existed when the bank 'lent' it to the customer is probably another discussion for another day, but there are those who say money only exists because enough people believe it exists, and continued faith in the banking system relies on this belief.

 

[RichmondCommu]

Whilst this is all desperately sad I do wonder why people continued to book holidays with Thomas Cook when it was widely known that it was in serious trouble.

The reality is travel agents are dying a slow death and Thomas Cook's ill advised acquisitions made the situation even worse.

 

[swj99]

Whilst this is all desperately sad I do wonder why people continued to book holidays with Thomas Cook when it was widely known that it was in serious trouble.

The reality is travel agents are dying a slow death and Thomas Cook's ill advised acquisitions made the situation even worse.

There's also the question of whether bosses' actions "caused detriment to creditors or to the pension schemes".

https://www.bbc.co.uk/news/business-49805014

Thomas Cook bosses' actions will face scrutiny as part of an investigation into the tour operator's collapse.

Business secretary Andrea Leadsom asked the official receiver, which oversees liquidations, to look at whether bosses' actions "caused detriment to creditors or to the pension schemes".

The request came amid criticism over executive salaries at the firm.

The government has said it will run a "shadow airline" for two weeks to repatriate 155,000 UK tourists.

Transport secretary Grant Shapps said its response to the crisis was "on track so far" and "running smoothly".

 

[superjohn]

As unsecured creditors can airports ‘seize’ aircraft in such a way? In the UK at least, I’m pretty sure they have to take their place in the queue with the other creditors once the company is in administration. Obviously they can charge the administrators for any costs incurred in storing or moving the aircraft but simply taking possession seems like theft.

 

[JamesT]

As unsecured creditors can airports ‘seize’ aircraft in such a way? In the UK at least, I’m pretty sure they have to take their place in the queue with the other creditors once the company is in administration. Obviously they can charge the administrators for any costs incurred in storing or moving the aircraft but simply taking possession seems like theft.

According to https://www.dlapiper.com/en/uk/insi...hings-should-know-detention-seizure-aircraft/ the Civil Aviation Act 1982 gives airports the right to detain aircraft in respect of unpaid debts. They need a further court order to be able to eventually sell the aircraft if the debt continues to be unpaid.

 

[telstarbox]

It is also a little bit suspicious that the consular staff (the ones in yellow hi viz vests with British Government Official and a Union Jack on the back) were at Palma airport (as well as other airports) from early this morning.

Either the government are exceptionally good at organising things (unlikely) or they knew in advance this was going to happen and had the staff in place.

There's some interesting background on that aspect here:

Hope of a rescue deal still officially remained: banks extending credit or even the government stepping in. But despite that hope, Operation Matterhorn was launched.

Discreet feelers had been put out for weeks, discussed under the Matterhorn codename to minimise the risk of leaks, to assess the availability of potential rescue aircraft. The grounding of the 737 Max posed an additional headache: other airlines were already using airline leasing firms to fill their schedules.

https://www.theguardian.com/busines...-customers-of-thomas-cook-from-being-stranded