Boeing flies to Monarch's rescue with restructured fleet deal

The low-cost airline Monarch is close to finalising a multimillion pound financing package with Boeing (NYSE: BA - news) , paving the way for its operating licence to be extended by aviation regulators ahead of a crunch deadline next week.

Sky News has learnt that Monarch, which has been the subject of intense speculation about its financial health, is putting the finishing touches to a revised fleet purchasing deal with the giant aircraft manufacturer which should safeguard its medium-term future.

City sources said this weekend that Monarch's deal with Boeing was focused on an order for 45 new planes announced in 2014, and which the US-based group had agreed in principle to restructure.

Under the restructured purchase agreement, Monarch will be able to enter into sale-and-leaseback arrangements for the aircraft, which sources said would free up "significant" cashflow for the carrier.

The terms with Boeing, which are not expected to be publicly disclosed, will form part of an overall £165m investment package that will see Greybull Capital, Monarch's controlling shareholder, inject new funds into the company alongside the renewal of its Air Travel Organiser's Licence (ATOL).

Firm orders have been placed for 30 of the new aircraft for delivery from 2018, with the remaining 15 subject to a future option to proceed.

An insider said this weekend that the revised deal with Boeing could generate hundreds of millions of pounds for Monarch given the scale of demand in the market for aircraft financing.

That, in turn, would allow Greybull to provide more equity to Monarch, enabling it to cope more easily with a downturn in trade similar to that seen in recent months.

Boeing is not expected to become a shareholder in, or lender to, Monarch under the revised deal - which is not without risk given general economic uncertainty and political instability in some of the markets served by the airline.

The bulk of the £160m is in the form of new equity, according to one source, and would comprise what the airline has previously said would be the biggest investment in its 48-year history.

Like competitors, Monarch has struggled with declining demand for package holidays to Egypt and Turkey in the wake of terrorist attacks, as well as protracted air traffic disruption in France.

It employs about 2,800 people and is based at Luton Airport.

One insider described the relationship between Boeing and Monarch as "strong and constructive".

In an email to Monarch staff sent on Friday and seen by Sky News, the airline's chief executive, Andrew Swaffield, said he had met with officials at the Civil Aviation Authority (CAA) this week to discuss the renewal of its licence.

Monarch's previous licence, which expired on 30 September, was extended for 12 days to give the company sufficient time to finalise its new funding arrangements.

"I was at the CAA on Monday and have been spending a lot of time over the last two days with our legal and finance teams, as we dot the i's and cross the t's on the largest investment in our history - on the back of which we expect the CAA to renew our licences and which will help us move into the next stage of our growth and development," Mr Swaffield wrote.

"It's been another busy week for all of us following the events of last Friday and the extension to our ATOL licences.

"All parts of the business are working hard, both to keep things 'business as usual' and maintain consumer and customer confidence, in the face of continued media and social media commentary and speculation.

"As soon as we are able to give details of our investment and confirm the renewal I will.

"But to manage your expectations, this will be on the 12th (Wednesday).

"As said before, there is a process the business must follow and this takes time."

In a statement issued on 30 September, the CAA said it had granted the licence extension on the basis that "the shareholder (would) provide additional funding and because customers' money will be protected".

The regulator added: "Monarch now has 12 days to satisfy the CAA that the group is able to meet the requirements for a full ATOL licence.

"Monarch will remain ATOL-licensed until this extension expires.

"The CAA always advises consumers to ensure they book ATOL-protected air holidays and consumers who choose to book an ATOL-protected flight or holiday with the company during this time will continue to be protected by the ATOL scheme.

"During this period of extension, the CAA will continue to monitor the company."

Greybull, which bought Tata Steel (BSE: TATASTEEL.BO - news) 's Scunthorpe steelworks earlier this year and renamed the business British Steel, rescued Monarch in 2014, refocusing its network on short-haul destinations in Europe and the Mediterranean.

Monarch, Boeing and Greybull all declined to comment on Saturday.