Who’ll Rescue Thomas Cook, the Collapsing Vacation-Travel-Airline Giant with 21,000 Employees?

Shareholders are already toast. Would China’s Fosun conglomerate follow the time-honored principle of throwing good money after bad?

By Nick Corbishley, for WOLF STREET:

Following yet another bleak week of trading, the shares of 178-year-old British global travel & vacation-giant and airline Thomas Cook, with 21,000 employees globally — 9,000 of them in the UK — are down to 5 pence, down 96% from 130 pence in May last year. At that time, Thomas Cook Group was worth £2.5 billion. Today, its worth a paltry £75 million.

The company now has just one lifeline left: a proposed £900 million rescue deal that would see its biggest shareholder, Chinese conglomerate and investment giant, Fosun, inject £450 million in return for a 75% stake in the group tour operator and a 25% stake in the group airline. Banks and bondholders would match that amount with a debt for equity swap in return for control of 75% of the equity of the Group Airline and up to 25% of new equity in the group tour operator.

Current shareholders would be virtually wiped out by the restructuring despite the company’s reassurances that they would “continue to retain an investment in the Company.”

Thomas Cook says it needs at least an additional £750 million to pay its suppliers and tide it over this winter. That’s on top of a £300 million credit line it already took out in May. Now, the company’s creditors are asking for more.

But there are still no guarantees that the refinancing and debt restructuring deal will work. In a court filing dated August 30, Thomas Cook warned that it was running out of time to secure its future. “The serious liquidity issues within the group have led to an urgent need to complete any restructuring within September.” According to a Sky News report published on Thursday, the deal needed to secure the restructuring looked “harder and more complicated than it did a few days ago.”

There appear to be three main obstacles:

One, a clutch of hedge funds that hold credit default swaps (CDS) on Thomas Cook’s debt are considering derailing the rescue plan in order to ensure they receive payouts on their CDS. According to Bloomberg, the proposed debt-for-equity swap, if successful, could wipe out compensation on their default insurance.

Two, Thomas Cook’s pension fund is also clamoring for improved terms in exchange for backing the recapitalization. Sources cited by Sky News said trustees of the pension fund are “seeking equity in the restructured company, funding guarantees and a commitment from the new owners to continue existing annual contributions of more than £25 million.”

Three, lenders are now demanding that Thomas Cook seek additional funding beyond the £900 million outlined last month to cover its £1.6 billion debt overhang. According to Sky, the company will need to raise an extra £100 million to close the deal.

Whether it comes up with that money will depend on how committed Fosun is to the restructuring deal. The Chinese group already owns Club Med as well as a fifth of the shares in Thomas Cook. It says its ambition is “to grow Thomas Cook China into a major brand in the China travel market” where Chinese tourists account for around 20% of tourism spending worldwide.

But the deal could be subject to tight scrutiny in Beijing where authorities have become increasingly leery of big overseas acquisitions by private Chinese companies following the recent debt-fueled crisis of big global spender HNA. Guo Guangchang, Fosun chairman, “will be left needing significant [foreign currency] debt support for a deal which won’t do much to excite regulators”, Brock Silvers, managing director of Shanghai-based investment firm Kaiyuan Capital, told Financial Times.

This is not the first time Thomas Cook has had to resort to a rescue deal. In 2011, it tapped lenders for £200 million to avert bankruptcy. This left the company with substantial long-term debt that, to this day, eats away at the group’s profits.

In May, Thomas Cook, near collapse, posted a £1.46 billion loss for its fiscal first half, ended March 31, and issued its third profit warning in less than a year. It also unveiled a 12% slump in tour operator bookings, and a 37% rise in net debt.

Thomas Cook blames its woes on a host of factors, first and foremost a £1.1 billion write-down of the value of My Travel, a competitor it acquired in 2007. It’s also struggling in the face of fierce — and growing — competition from online operators, not to mention slumping demand for package holidays as more and more people arrange their trips themselves, cutting middlemen like Thomas Cook out of the equation.

Then there’s the continued uncertainty over Brexit, which, coupled with another unseasonably sunny British summer, was enough to convince many Brits to vacation at home this year. “There is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer,” Peter Fankhauser, Thomas Cook’s chief executive, complained in May. “There are a lot of holidays left to sell and there are high levels of discounting.”

Conditions for the UK’s travel industry are unlikely to get any better in the months to come. Brexit may be postponed (again!) before the next scheduled deadline, on Oct.31, further prolonging political and economic uncertainty. There’s still a possibility that the country will crash out without a deal, which could send the pound spiraling, meaning even less money for UK consumers to spend on overseas package holidays.

For Thomas Cook’s Chinese suitor and largest shareholder, Fosun, the acquisition may seem like a gamble worth taking. After all, it’s already heavily invested in the company and acquiring one of Europe’s biggest travel agents could help it to pry open one of the world’s biggest tourist markets for China’s growing ranks of big spending holidaymakers. Alternatively, of course, it could just lose a lot more money — on the time-honored principle of throwing good money after bad. By Nick Corbishley, for WOLF STREET.

The cost of dodging negative interest rates. Read…  Contagion from Liquidity Crunch at Junk-Bond Funds to Trigger “Material Second Round Effects”: EU Securities Regulator

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  43 comments for “Who’ll Rescue Thomas Cook, the Collapsing Vacation-Travel-Airline Giant with 21,000 Employees?

  1. Nicko2 says:

    China is definitely the future of international tourists, their growth will only go up.

    • Wisdom Seeker says:

      Disagree. The same was said about Japan 30 years ago and it didn’t happen.

      Like Japan before it, China’s economy is now creaking under enough bad debt to bring down the global economy. The inevitable Chinese recession will crimp their tourist class for years, maybe decades. Fixing the bad debt issues will require currency devaluation and then the Chinese won’t be able to afford as much travel either.

      Now toss in the dictator-for-life communist government and the trade wars… Chinese tourists, like the rest of its trade, could be leashed on a moment’s whim.

      There is no “definite” about anything China with a communist dictatorship in charge.

      • Harrold says:

        China has is 20% of the population of the world and 11 times that of Japan.

        • daniel weise says:

          Yes and 40 % of that population are still living in rural (poor and backward) areas of the country. if China would experience a manufacturing recession tens of millions of workers would be forced to return to those villages. this is what keeps the communist party elite up at night. Trump knows this as he plays his admittedly high stake poker game.

        • Shawn says:

          So what, and a third of them are in abject poverty. China has a lot of problems, Chinaphiles notwithstanding.

        • Trinacria says:

          Too damn crowded…why would you want to go there on vacation…certainly not my idea of relaxation – which I believe is the purpose of a vacation.

      • David Hall says:

        In 1989 the Japanese Imperial Palace was incorrectly valued at a higher price than California. Their 1989 stock market was similar to the US stock market in 1929. Their population was aging.

        The China one child policy was unevenly enforced, but is expected to have an influence into the future. There are rumors about a Chinese real estate bubble. There are online photos of ghost cities; part of a blind leap forward. Sometimes the empty cities filled up, sometimes they did not.

        • alex in San Jose AKA Digital Detroit says:

          I think 1989 really was their 1929. They’re super-savers, strong families, and have a ton of itty bitty businesses, so they were able to weather it better than the US weathered 1929, but it had a huge effect.

          In the late 1980s, getting a spot as an artist at the “Zoo Fence” by the Honolulu Zoo was like trying to get a NYC taxi medallion in the same era. There was TONS of money to be made from the Japanese tourists. Last time I was back in Honolulu, the Zoo Fence was pretty much “come on down” no rent at all.

          Tokyo was famously expensive to live in, and now it’s cheaper than a lot of places in the US. Small-town Japan is probably one of the best retirement deals on the planet, if you can hack the language and culture.

      • char says:

        China is Japan 40 years ago, not 30. And the trade war is a brilliant excuse in the restructure of the economy from a low wage to a high way economy. This will mainly hurt the people who can’t afford foreign trips

      • Rat Fink says:

        Dead on the money. Prosperity built on epic amounts of debt.

        How do you say Potemkin in Chinese?

        All eyes on Hong Kong. Hotels are bleeding out. Sun Hung Kai just released a project at 25% off recent prices in the district.

        If this continues we will hit a tipping point and that just might top China (and the world) over.

        China’s like a castrated school yard bully. If they send in the PLA they immediately collapse a key global financial centre.

        If they stand on the sidelines, it will still collapse.

        ‘We Burn – You Burn’

        The CCP must be feeling the heat.

    • illumined says:

      @Nicko2 – Their growth is already quite negative as can be evidenced in SE Asia, which is a lot closer and cheaper than Western Europe.


      • Nicko2 says:

        Not going to dispute individual countries, however as stated on many sites out there; “China is the world’s largest and highest-spending outbound tourism market, growing six-fold from 32 million trips in 2005 to 180 million projected for 2019”. It’s huge.

  2. Joe says:

    Fools money if they invest…
    The economy has not changed and only gotten worse.
    Making it sound like a great deal does not stop the decline…

  3. Petunia says:

    It’s obvious, Uber needs to buy Thomas Cook and incorporate private car service into their vacation packages. Think of the synergies, they can even pay off the pensioners in Uber coupons for free rides.

  4. Em says:

    And get in bed with air b-n-b instead of hotel chains

    • Brant Lee says:

      You’ve got that right!! I wish I would have known about air b-n-b sooner.

  5. Anon1970 says:

    It sounds like your computer has been victimized by a virus and that your problem has nothing to do with Wolfstreet. Perhaps Wolf should remove your comment and its spam links, just to be on the safe side.

  6. Ismar Didic says:

    80 procent company in Europe and USA are DEAD

    • roger lagerfeldt says:

      You are right,,, The whole economy are holding up from centralbanks creates money faster and faster…

  7. Old Engineer says:

    Like Anon1970 I have no problem with Wolfestreet and I access the site with three different devices. I agree with him you probably have malware. Try free Malaware bytes or avast and see what they turn up.

    And for god’s sake don’t anyone click on those links.

  8. qt says:

    “Thomas Cook blames its woes on a host of factors, first and foremost a £1.1 billion write-down of the value of My Travel, a competitor it acquired in 2007. It’s also struggling in the face of fierce — and growing — competition from online operators, not to mention slumping demand for package holidays as more and more people arrange their trips themselves, cutting middlemen like Thomas Cook out of the equation.”

    People still using travel agents? They should have gone bankrupt in 2011.

    • 2banana says:

      There still exists a market for a travel agency to arrange all details of a packaged trip.

      Especially for upper middle class+ customers.

  9. Javert Chip says:

    We are looking at this all wrong. The Thomas Cook thing is a spectacular opportunity developing right before our eyes:

    1) Thomas Cook has obviously learned its lesson, and is rapidly moving away from the profit-making model.

    2) This transmogrification is called “reverse unicorning” (starting out profitable BEFORE becoming a huge money-loser).

    3) Cook needs to successfully demonstrate the ability to lose gargantuan amounts of dollars (preferably, billions per year), so hoards of silly “new era” people with money to give Cook even billions more dollars to lose.

    4) Unicorns (Uber, Lyft, Theranos, NetFlix, WeWork, et al) are never expected to even dream up scheme for making money

    5) Thomas Cook’s unicorn business strategy should be to raise enough money to lease EVERY AIRPLANE ON THE PLANET, so it would completely own the travel space (notice nothing’s been said about making a profit).


    • Jessy S says:

      About #5. Softbank should help Thomas Cook buy up every single airline company. That way they can go deeply in debt and ensure a glorious future for Amtrak in the United States.

    • Briny says:

      Congratulations. You win the Internet today!

      Read quite a bit of outstanding humor today, this is an absolute gem.

    • Narz says:

      Let it go bankrupt for the 9th time to much debt let the other airlines that are bailout babies of there nations eat it up and let there psychophant foolish citizens pay for it who cares let the Chinese buy it ….they are as we all know the worst investors in the world …after all they own the us toilet paper treasuries .

    • roger lagerfeldt says:

      Cannot centralbanks go in and buy Thomas Cook?

  10. MC01 says:

    Fosun has two problems.
    First is their handling of Club Med has not been exactly a success. Since 2015 they have displayed spectacular timing in shutting down resorts in Turkey and Morocco just as both countries were becoming hot with tourists and in Egypt as it’s becoming hot once again. Local enterpreneurs and their competitors are laughing all the way to the bank.
    Second is all these supposedly money-laden Chinese tourists aren’t exactly money-laden and there’s a genuine grassroot movement in Europe, from Florence to Munich and from Venice to Barcelona, against mass tourism. For the moment this movement has been somewhat contained by the usual strategy of stabbing voters in the back once elections are over but this is just managing in making people angrier, meaning sooner or later somebody who doesn’t care about Air BnB and the rest of the accursed mass tourism industry will be voted into office, and the fireworks will start.

    • char says:

      Problem with tourism is that it delivers a lot of jobs but they are all, except airline pilots, low paying. So if you kick out the people to rent out the apartments on air-b-n-b you end up with a poor city. Tourism should not be the main industry of a city

      • Javert Chip says:

        Nations fall into different groups based upon % of the economy generated by tourism:

        1) Some countries don’t produce much that the rest of the world wants to buy and are attractive to tourists: Botswana (tourism @ 13.4% of GDP, think Safari), Italy (14.3%), Spain (16%), Greece (19.7%)

        2) Some countries export lots of products & services and are also attractive to tourists: China (2.1%), USA (2.8%), Germany (4.2%), Japan (7.4%), France (9.7%), UK (10%),

        Massive tourism reductions in group #1 (above) probably results in lots of unemployment (not more well-paid jobs for high-value exports)

        • char says:

          I don’t think Italy belongs in that list. Italy is one of the industrial powers in Europe. Their only problem is they are strong in the same markets as Germany, except cheaper, and for that we have China. Nor do i think that Catalunya belongs on that list

      • MC01 says:

        There’s a documentary on the matter called Bye Bye Barcelona: the producers put it for free on YouTube so it may be worth watching at least a few minutes of it.
        Let’s just say that Bye Bye Barcelona is very tastefully made: the reality on the ground is far worse than that; Attila’s hordes behaved with more civility and decorum as they plundered their way through the Western Roman Empire than the average tourist behaves on the ground.

        This is a very serious matter: it outlines how the rule of law is always thrown under the (Flix)bus in the name of goosing nominal GDP figures. Municipalities don’t need special laws or special powers to solve the problem: they only need to apply existing rules in that fashion the Ancient Chinese called “Hit one to educate a hundred”. Some well-advertised big fines and perhaps even a few arrests (selling alcohol to minors is a criminal offense almost everywhere) would go a very long way to re-establish the rule of law, as would stop listening to the whiny crowd who endlessly complains about “the economy” while they have never had it so good.

        The world won’t end if nominal GDP figures stop growing at breakneck speed but openly flaunting the rule of law and stabbing voters in the back ensues something very bad will happen down the road. People don’t vote fringe movements because they are extremist wackos stockpiling ammunition and canned food: people vote fringe movements when they have exhausted all other options and have been stabbed in the back one time too many. Outlawing and marginalizing harmless relief valves such as some political parties only results in les moissons de la rage being sown.

      • economicminor says:

        In many areas of the world, tourism is the main industry and without it, those regions and cities would have little income.

        Belittling tourism is a NIMBY thing to do. Give people a little time off and a little extra money and lots of them just want to see the world.. All of it.. and revisit its history, see the museums and artifacts and in the process support the locals.

        When a local economy has good outside incomes, prices go up and tourism will slow down as the hotels and restaurants all become more expensive. In some places just to expensive for the masses.

        I think what most NIMBYs would really like is for nothing to change. For their world to go back to when they first fell in love with where they are. Which is not a possibility. The only thing that is constant is change. Ride the waves or drown under them.

        • char says:

          Tourism is not a well paying industry.A region should strife to have a well balanced economy in which tourism has its place, but it should not be the main industry. Florence & Barcelona are in danger to become a pure tourism play which is bad for the economy because it kills good paying jobs for bad paying jobs.

  11. CreditGB says:

    Thomas Cook should borrow heavily using their China connections, and buy Tesla, Uber, and WeWork. Then immediately take out all existing outside shareholders at pennies on the dollar.

    Then, once they firmly establish at least a 60% net loss on every revenue stream, they should announce an IPO. By delaying the IPO for more than 90 days, no investor will remember how bad these individual firms were, or how TC acquired them. Elon Musk can hawk the new IPO as “the future of everything”.

    In other words, after a short lapse in time, a whole new “greater fool” investor universe exists. You KNOW you fear missing out, right?

  12. Narz says:

    Let it go bankrupt for the 9th time to much debt let the other airlines that are bailout babies of there nations eat it up and let there psychophant foolish citizens pay for it who cares let the Chinese buy it ….they are as we all know the worst investors in the world …after all they own the us toilet paper treasuries .

  13. Frederick says:

    Why are you censoring my comments Mr Wolf Scared I might write some real truth are ya You belong in San Fransicko obviously

    • Wolf Richter says:


      The comment got caught by an automatic tripwire and was released when I got back from my swim in the SF Bay.

      BUT this is not a free-for-all here. While there was nothing in that comment that was objectionable for posting here, there ARE many things that you CANNOT post here. Those comments will be blocked or deleted without a second thought. If the comment gets into really nasty stuff, the login persona will be banned forever, and no one, not even I, will see their comments.

      in case you have not read them, here are the commenting guidelines. And I stick to them:


  14. Atalanta69 says:

    I’m used to seeing ignorant phrases like ‘crash out without a deal’ in the MSM, but do we really have to put up with that nonsense on Wolf Street?

    Sigh. Once again children: there have been numerous side-deals done over the months, so ‘no deal’ is a complete misnomer. Leaving the EU does not mean ‘crashing’ out of anything, unless you count the sound of the EU Commission furiously smashing up their offices at the thought of the hole in their budget.

    • Wolf Richter says:

      “Crash out without a deal” has become an idiomatic expression that everyone uses and understands, just like “googling” something even when you use Bing.

      It’s a metaphor. Literally, of course, there is no “crash out” because there is no wall or fence or other material enclosure to “crash out” of. Metaphors work that way.

  15. ML says:

    I advise a landlord of a shop let to TC. The gist of my ‘pleasure’ in having ‘fallen out’ with TC’s previous lawyers is my claim that TC should have provided director guarantor when TC was wanting to assign its lease to another TC company. The claim was strenuously resisted on the ground that TC was too big to fail. It has taken a while for my assertion to be proved correct but nearly there. The shop I am confident will be relet at a higher rent than TC are paying. Like a lot of UK retailers that have been reinvented, the dream of profitability and sustainability has eluded them. Businesses that cannot cope with too much competition from different angles should in my view do the decent thing and quit while they are ahead instead of lurching from one financial crisis to another, in the hope of being bailed out by yet another dreamer.

Comments are closed.