The world's oldest travel company will not be rescued by an infusion of Chinese yuan after all.
Thomas Cook (TCKGY) collapsed on Monday, as last-minute talks to secure a rescue by the Chinese conglomerate Fosun and then the British government collapsed.
The company's shares were frozen in London on Monday at £3.45, having fallen from £320 per share when its current corporate iteration was created in 2007.
Thomas Cook and its subsidiaries have now entered compulsory liquidation, and the company says on its Web site that it has "ceased trading with immediate effect," cancelling all future flights and holidays that its clients had booked.
The Conservative-led British government refused to extend a £150 million (US$187 million) lifeline to the tour operator.
Fosun had in July entered "advanced discussion" to pay half of a £900 million (US$1.1 billion) bailout of the company with its lenders. That would have been one of the largest-ever investments into a British business by a Chinese company.
Fosun, which counts the hotel chain Club Med among its holdings, was to put up £450 million (US$562 million) as part of the rescue, for which it was due to get 75% of Thomas Cook's tour operator and 25% of its airline.
Banks and bondholders in the company were due to contribute another £450 million to convert their debt holdings to equity. That would have given them 25% of the tour business and 75% of the airline.
Even US$1.1 billion turned out not to be enough. Thomas Cook's management met with its lenders and creditors in London on Sunday to try to agree an additional £200 million (US$250 million) in funding, to keep the company going over the winter, when it gets fewer customers.
When negotiations with the lenders broke down, the company requested £150 million in bailout money from the British government. Although labor unions and the left-leaning opposition party Labour were in favor, the pro-business Conservative administration refused, saying it was not in the national interest.
Thomas Cook, which was founded in 1841, has struggled under a US$2.1 billion debt load since a previous restructuring. That left it needing to sell around 3 million packages every year just to service the debt. It serves around 19 million customers each year.
The bailout was not much of a rescue for long-suffering shareholders in the company, which used to be a member of Britain's blue-chip FTSE 100 index. Their holdings would have been "significantly diluted" as part of the recapitalization, Thomas Cook admitted.
The British government is now covering the cost of repatriating 150,000 Thomas Cook travelers who are already on vacation. That's the largest peacetime evacuation of Brits in history. Even by wartime standards, it's massive, around half the number pulled out from the French coast at Dunkirk at the start of World War II.
But the company, which is synonymous with package tours for most Brits, has a total of around 600,000 customers overseas at the moment. Non-Brits will have to seek help from their own governments. The majority of those nationals are from Germany or Scandinavia.
Britain's Civil Aviation Authority is now charged with cleaning up the mess for the Brits. It has set up a special Web site for affected travelers. The CAA says it will complete the repatriations by Oct. 6. It states that passengers should not go to the airport until their alternative flight is confirmed. It is also attempting to cover the cost of remaining accommodation for those already on vacation.
All flights and holidays from Sept. 23 onward with Thomas Cook are cancelled. Those customers should try to claim their costs back from travel insurance, their credit card or their bank, the CAA says. Holidaymakers who booked a Thomas Cook package deal are covered by insurance under Britain's Air Travel Organiser's License, which protects their accommodation costs and return flights.
It cost the British taxpayers £50 million (US$62 million) to repatriate 80,000 travelers when the budget airline Monarch went under in 2017. So, the bid to bring the Brits back home this time around will not be that much smaller than the sum the company requested to stay afloat. Prime Minister Boris Johnson is no doubt keen to toe a tough line on corporate failures as he prepares to withdraw Britain from the European Union, itself a supremely costly and destructive enterprise.
Fosun, which is already the largest shareholder of Thomas Cook at 18%, now faces a total loss on its holding, like its other shareholders. Debt and bond holders will do little better.
Hong Kong-listed Fosun Tourism (HK:1992), the subsidiary due to make the investment, closed down 4.7% on Monday, on a day the benchmark Hang Seng index lost 0.8%.
Fosun Tourism's shares have lost 19.3% since word of the Thomas Cook rescue surfaced. But this summer of discontent in Hong Kong has explained most of those woes with the Chinese company, with mainland visitors to the city sharply down.
The collapse of a major rival should be a boost to the German travel agency and tour operator TUI AG (TUIFY) . Its shares rose 9% in early Monday trade although they have tempered those gains as the day goes on.
