The Civil Aviation Authority (CAA) has hired US turnaround and restructuring firm Alvarez & Marsal to advise it over Thomas Cook.
By Jonathan Russell and Alistair Osborne
7:00AM GMT 04 Dec 2011
The presence of the advisory group at CAA’s London headquarters highlights the continuing concerns about Thomas Cook’s financial strength following its emergency cash call last month.
Although A&M leads the Lehman Brothers administration in the US, it is not seen as an expert in liquidations or administration in Europe. Its work with the CAA is thought to be focused on protecting the regulator’s interests should Thomas Cook’s financial problems worsen.
As an effectively unsecured creditor, the aviation regulator is concerned over the holiday company’s “financial fitness” in two key areas: its ability to fulfil its obligations under the Air Travel Organisers’ Licensing (ATOL) agreement; and whether there are any potential grounds for revoking its Air Operator’s Certificate (AOC).
The ATOL bond protects customers in the event that a tour operator goes bust, reimbursing monies paid for future holidays and repatriating tourists stranded abroad. All ATOL licensed operators pay £2.50 per passenger into a scheme managed by the Air Travel Trust fund.
The CAA is particularly concerned because the fund is already about £40m in the red after the collapse of other operators, including XL Airways and Goldtrail. The failure of a major operator like Thomas Cook could put a big hole in the fund, potentially forcing the Government to intervene.
As for the AOC, the CAA is obliged to ensure that Thomas Cook’s financial problems could not in any way imperil aircraft safety.
In such a context, the aviation regulator is also anxious to ensure that any break up of Thomas Cook, via the sales of businesses or assets, does not weaken its ability to meet its CAA obligations.
A&M, which is effectively shadowing the role Ernst & Young is carrying out for Thomas Cook’s 17-strong banking syndicate, is also expected to review whether the holiday company could give certain creditors – such as aircraft lessors – a security over businesses or assets, so disadvantaging the CAA.
Senior lenders generally seek protection on this issue in any banking agreement with tour operators via so-called “negative pledge” clauses. They ensure that lenders’ rights cannot be subordinated to any other creditor.
A&M declined to comment. A spokesperson for the CAA said: “We never comment on the financial position of any ATOL holder. Anybody who books an ATOL-protected holiday in the UK can be confident their money is fully protected by the CAA.”
Shares in Thomas Cook, which has issued three profit warnings this year, crashed 75pc in a single day a fortnight ago when the 170-year-old tour operator admitted that it was close to breaching banking covenants.
But Thomas Cook was last weekend thrown a lifeline by its banks, with the cash-strapped holiday group negotiating a new £200m revolving credit facility with the 17 lenders.
It replaced a £100m short-term loan agreed in October, but came at the price of handing its lenders 4.9pc of the company and agreeing to carry out a strategic review.