178-yr-old company, Thomas Cook files for bankruptcy as bailout talks fail

Thomas Cook Group Plc, the 178-year travel company that became one of the U.K.’s best-known brands, has collapsed under a pile of debt, leaving tens of thousands of British tourists stranded across Europe.

The company filed for administration early Monday at the High Court in London after talks to raise additional funding failed, Thomas Cook said in a statement. AlixPartners LLP was named an adviser and will work with the country’s Civil Aviation Authority to get holidaymakers back home over the next two weeks. The government called it the “largest repatriation in peacetime history.”

“Although a deal had been largely agreed, an additional facility requested in the last few days of negotiations presented a challenge that ultimately proved insurmountable,” Chief Executive Officer Peter Fankhauser said.

The filing caps months of negotiations with investors led by China’s Fosun Tourism Group, which proposed a $1.1 billion bailout in exchange for control of the company’s tour operations and a minority stake in its airline. The plan also involved swapping debt for equity and the issue of new shares.

Formerly a member of Britain’s blue-chip FTSE 100 Index, Thomas Cook is a high-profile victim of the malaise affecting the European holiday market. For decades, tour operators such Thomas Cook and Germany’s TUI AG thrived by offering package holidays to sun-starved Europeans. But the rise of discount airlines and online distribution have squeezed profits in an industry that is highly seasonal and prone to shocks from terrorism to political turmoil.

In the space of little more than a year, Thomas Cook’s business outlook degenerated from concern about the sales impact of a freak north European heatwave to a full-on fight for survival.

No Government Rescue

The company’s prospects unraveled quickly last week, when it filed for Chapter 15 bankruptcy protection in the U.S. On Friday, the tour operator said it needed 200 million pounds ($250 million) on top of the 900 million pounds already agreed in the bailout proposal led by Fosun, its biggest shareholder.

The U.K. government had pushed back Sunday against suggestions it should step in to rescue the company. There was no strategic national interest for doing so, Foreign Secretary Dominic Raab said.

Founded in the 1840s by a Victorian entrepreneur of the same name, Thomas Cook started out by organizing train trips through the English Midlands. The business expanded as Britain’s growing middle class discovered they had more time, and money, to discover the delights of Europe.

The company, which was briefly absorbed into the state rail company soon after World War II, got its biggest boost in the 1970s and 1980s as Britons sought the sun on a cheap budget. The ad slogan “Don’t just book it, Thomas Cook it” entered the national psyche.

But Thomas Cook labored under its large debt burden and the costs associated with maintaining a high-profile presence in Britain’s provincial towns. Nimbler online rivals ate into the company’s core business and a succession of turnaround plans failed to stick, while the sluggish European vacation market and uncertainty over the economic impact of Brexit also crimped demand.

Fast forward to Monday, and the CAA said all Thomas Cook flights and vacations were canceled.

“This marks a deeply sad day for the company which pioneered package holidays and made travel possible for millions of people around the world,” Fankhauser said.

Numbers Fail to Add Up

The company, with more than 500 locations nationwide, generated cash flow-per-employee of just 188 pounds last year.

The latest rescue plan proposed swapping existing debt into shares, leaving Fosun holding the majority of Thomas Cook’s tour-operating business while creditors would have controlled its airlines. The company had debt of almost 2 billion pounds as of March 31, according to data compiled by Bloomberg.

But the challenges eventually proved insurmountable. A group of hedge funds began to organize to block the plan because it would stop them from cashing in on holdings of credit-default swaps that pay out when a company defaults. It also faced the threat that customers would stop buying vacations and flights from Thomas Cook for fear that the company wouldn’t be around to honor their bookings.