Thomas Cook could collapse as early as Sunday if it cannot find another £200m to seal a rescue deal.
The historic British company said it is in talks to find the extra cash with stakeholders like top shareholder Fosun and lenders.
But even if it does raise the money, this will dilute existing investors’ stakes in the business, the firm warned.
Sky News reported last night that the 178-year-old travel firm could fall into administration as early as Sunday if it cannot find the cash, citing company insiders.
So exactly how did Thomas Cook end up in this mess in the first place?
Here’s everything you need to know.
What’s gone wrong at Thomas Cook?
Bosses at Thomas Cook have pointed the finger at multiple factors for the British firm’s downfall.
Brexit uncertainty, rising fuel prices, higher hotel costs and the 2018 heatwave have all hit the travel giant amid accusations of mismanagement.
It is left staring at a £1.6bn pile of debt that it has no way on its own to tackle, having fallen to a huge £1.5bn half-year loss in May.
Lead shareholder Chinese firm Fosun has made a £900m rescue offer for the company, but that is put at risk by stakeholders’ demand today for an extra £200m.
Lenders including RBS and Lloyds have demanded more money for the approaching winter season, when holiday companies traditionally perform poorly.
They have pressed Thomas Cook to stump up £200m, on top of the previous £900m recapitalisation deal reached with Fosun last month.
Thomas Cook is considering selling off assets to provide the money, such as its Nordic airline and tour operating business units, Sky News reported.
But traders sent Thomas Cook’s share price down 20 per cent in early trading as it expects to secure funds from Fosun to bridge the funding gap.
Investors expect the fundraiser to dilute existing shareholders’ stakes in the business.
What happens if Thomas Cook does not secure the £200m deal?
Joanna Ford, partner at Cripps Pemberton Greenish, explained:
“The proposed rescue deal for Thomas Cook would result in a solvent solution for the group, albeit at a cost,” Cripps Pemberton Greenish partner Joanna Ford said.
“Existing shareholders would lose much of the value of their investment and control would shift to its Chinese investor (currently an 18 per cent shareholder).”
If the rescue deal falls through, then Thomas Cook faces administration.
“In this scenario they would try to sell the whole, or parts of the business, leaving behind the company in administration, its shareholders and all the liabilities, which would then be paid (usually not in full) from the cash received from the sale,” Ford said.
“Other options to businesses with cash flow difficulties include emergency borrowing, either from their own banks or specialist distressed lenders, but this is usually only a sticking plaster if the root cause of the difficulties are not addressed.
“If the problems continue, then the cash deficit simply increases and the lenders stand to shoulder greater losses should the business ultimately collapse.”
What if I booked a holiday with Thomas Cook?
People who have booked a holiday with Thomas Cook from the UK will be protected through the Civil Aviation Authority’s (CAA) Air Travel Organiser’s Licence (Atol) scheme. That means they can get refunds on the cost of their holiday.
However, those who have only booked flights with the firm’s airline must contact their debit or credit card provider to try and recover their money.
What happens to holidaymakers stranded abroad?
There are 180,000 Thomas Cook customers stranded abroad, according to the Daily Mail. The Department for Transport (DfT) is preparing the largest British peacetime repatriation ever, the publication said.
While the CAA’s Atol scheme covers most air package holidays sold in the UK, it only has around £600m in funding.
That would force the DfT to put its hand in its pocket to hire aircraft for thousands of repatriation flights, costing the taxpayer around £600m, according to the Mail.
Nicknamed Operation Matterhorn, the CAA and DfT’s plan to bring holidaymakers home could take up to two weeks if Thomas Cook collapses.
Meanwhile, Thomas Cook’s 22,000 employees’ futures would be thrown into doubt, including the 9,000 based in the UK.
“At a time where the economy is less than secure this could have a lasting impact in the years to come with this number of people out of work,” Money Saving Heroes’ George Charles said.
“The government and Atol have a huge bill facing them if Thomas Cook is to close as of next week. Atol will have to find a way to bring Britons home from their holidays who are covered by them, however there are going to be thousands British holidaymakers, if not more, abroad that don’t have Atol protection and will be left stranded if they don’t fork out for a new flight home,” he added.