The airline group needed an extra £200m, but the Government refused to rescue the failing private company.
Thomas Cook plunges into liquidation after failed funding plea
The inevitable has happened overnight, Thomas Cook has gone into liquidation after the management failed to find an extra £200m to plug a funding gap to see it through the low season period. With the group having already received £900m pledge from both Fosun Group and the banks, its plea to the Government for additional funding was seemingly rejected because it is not in the business of rescuing failed private companies and extra funding will only have delayed the group’s eventual demise. Let’s not forget that in 2013 the group made a cash call only to end up where we are today.
This morning the shares on the stock market have been suspended following Friday’s plunge to 3.5 pence after the news broke of the extra funding needs. Just last summer the shares breached £1.50 a share, highlighting how quickly the group’s fortunes have changed. The group, like its peers, has suffered from a perfect storm of turbulence, from political unrest and terrorism at some of its most popular destinations, to unusual weather patterns seeing travellers taking staycations and the ever present Brexit uncertainty devaluing the pound and putting consumers off from booking holidays. The group has also been too slow to adjust to the online world. While other travel groups have suffered from these factors, Thomas Cook’s pile of debt is the differentiating factor.
These events reflect the damaging effects of too much debt for a company facing a host of geopolitical challenges, compounded by a management lacking forward vision. It highlights how investors need to be very wary of highly leveraged businesses and dangers of trying to catch a falling knife.
Being one of the largest travel groups, its disappearance will mean a large player’s future customer base will now move over to its rivals. As a result TUI shares are up nearly 10%, On the Beach up 1.5%, EasyJet up 6%, Ryanair up 3% and IAG up 1.6%.
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