Virgin Atlantic has flown into the battle for struggling Thomas Cook’s airline operations by lodging a preliminary offer for the tour operator’s UK long-haul business.
Sky News has learnt that the carrier part-owned by Sir Richard Branson’s Virgin Group submitted an initial proposal to bankers acting for Thomas Cook earlier this week.
City sources said on Thursday that Virgin Atlantic was looking to acquire Thomas Cook’s long-haul operations serving destinations such as Cancun in Mexico, Las Vegas and Orlando.
That part of the business, which accounts for roughly 20% of all seats sold by the UK-based travel company, operates out of London Gatwick, Manchester and – in summer months – Glasgow airports.
The disclosure of Virgin Atlantic’s interest in part of Thomas Cook’s airline unit adds its name to a list of suitors that includes Germany’s Lufthansa and Indigo Partners, a private equity backer of airlines such as Wizz.
Insiders said that Thomas Cook had received some proposals involving its entire aviation business, which includes Condor in Germany and operations in Scandinavia, and others relating only to individual parts.
Talks about the sale of its airline are complicated by the need to strike a deal for Thomas Cook’s holiday customers to travel on its planes.
The company is already preoccupied with the turnaround of Flybe, as well as its own fate as it awaits regulatory approval for a three-way deal with Air France-KLM and Delta Air Lines that would reduce Sir Richard’s stake to 20%.
The fate of Thomas Cook’s airlines is intertwined with a series of parallel discussions relating to the future of its wider business, as it races to finalise a £400m extension to its borrowing facilities.
Sky News revealed last week that the company is seeking to announce the new cushion alongside its half-year results next week.
While that appears to be a realistic prospect, a formal update on the progress of talks about offers for its airline is unlikely until after the results.
People close to Thomas Cook have stressed that it does not require additional funding money to see it through the crucial summer holiday season.
The company has seen the price of its shares and bonds whipsaw as investors have become jittery about its ability to repay its debts.
Thomas Cook, one of the oldest names in corporate Britain, now has an equity value of less than £350m and looks increasingly likely to lose its independence.
The move to seek a bigger debt buffer from its lenders underscores the problems facing the business as it contends with an inflated high street cost base even as consumers increasingly turn to digital channels to book holidays.
Brexit-related uncertainty is also being blamed for a soft opening to the summer season.
If an agreement is reached with its lenders, the £400m of additional borrowing firepower should provide insurance against any further sharp downturn in the company’s performance.
Thomas Cook’s auditor, EY, is understood to have been assessing its potential liquidity requirements over the next 18 months.
Sky News revealed last month that the strategic review of Thomas Cook’s airline had triggered interest from prospective bidders for its tour operating business, as well as in the whole company.
Fosun, the Chinese owner of Club Med, has been steadily increasing its stake in Thomas Cook, which now stands at over 18%.
However, EU regulations would prohibit a Chinese owner of Thomas Cook’s airline.
The company has brought in advisers from AlixPartners to work on its balance sheet and cost reduction plans, while its syndicate of more than a dozen lenders has hired FTI Consulting to advise them.
In recent months, rival TUI has been forced to issue two profit warnings, with the grounding of Boeing’s 737 MAX fleet a factor in its financial downturn.
Easyjet has also warned of slow summer sales.
Doubts about the sustainability of Thomas Cook’s borrowings have plagued the company for years.
In 2013, it underwent a £1.6bn capital restructuring under Harriet Green, its former chief executive, which involved a rights issue and share placing.
Peter Fankhauser, its chief executive, has described last year’s performance as “disappointing” but outlined a plan to turn the business around which requires greater investment in its own hotel portfolio.
Virgin Atlantic and Thomas Cook both declined to comment.
Source : Sky News : http://news.sky.com/story/virgin-atlantic-flies-into-dogfight-over-thomas-cook-airline-11715547