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Government missed 'opportunity' to save part of Thomas Cook, MPs told

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Thomas Cook workers speak to the media outside 10 Downing Street as they handed in a petition with over 50,000 signatures which calls for a full inquiry into Thomas Cooks collapse. Photo: WIktor Szymanowicz/NurPhoto via Getty Images

The government failed to follow the advice of its own official report in dealing with the collapse of Thomas Cook, MPs have been told.

Diana Holland, assistant general secretary at Unite, said the government ignored recommendations from the Airline Insolvency Review, published in May, which would have allowed Thomas Cook to take part in the repatriation efforts, prevented such an abrupt end for staff, and may have allowed for a sale of the profitable airline division.

“The airline insolvency review, which reported this year, laid down how an airline can operate in administration… we believe that should have happened in this instance,” Holland told the Business, Energy, and Industrial Strategy (BEIS) select committee on Tuesday.

The Airline Insolvency Report was commissioned by the government in the wake of the collapse of Monarch Airlines in 2017, which left 110,000 people stranded overseas. One of its key recommendations was legislation to “ensure an insolvent airline can continue flight operations for a short period after entering administration so that passengers can be repatriated using the airline’s own aircraft, people and systems.”

READ MORE: MP blasts 'deluded' Thomas Cook management over company's collapse

The government did not pass this legislation and, as a result, the Department of Transport was forced to launch an emergency repatriation effort, Operation Matterhorn, to bring home 150,000 holidaymakers stranded by Thomas Cook’s collapse.

A Thomas Cook Scandinavia Airbus A330 plane takes off from Las Palmas in the Canary Islands, Spain, September 25, 2019. Photo: REUTERS/Borja Suarez

Holland said the Airline Insolvency Report also “describes how it’s possible to arrange a wind-down of an airline” without legislative changes.

“The key thing I think in terms of insolvencies, when you’re actually at that crisis point is to ensure there is that period of moratorium when we can take stock so that the business does not collapse in the way that this did.”

Holland claims the government ignored the recommendations. Following them could have resulted in saving Thomas Cook’s profitable airline, she said.

READ MORE: Thomas Cook CEO 'sorry' for collapse but avoids questions on handing back pay

“There was still a final chance for government to work with all the players concerned to at least save a profitable part of this company,” she told MPs. “That opportunity was not taken.”

“The weekend before the final collapse, we were trying to get every message to government to say: please do not let the airline be forced into insolvency because once it’s grounded, unlike other parts of the business, it cannot be resurrected.”

Governments in Sweden and Germany have taken steps to help Thomas Cook’s local airlines, including a €380m loan to Thomas Cook’s German airline Condor.

‘The company should have been saved’

Holland also questioned why the government did not do more to save the wider Thomas Cook business.

“We’ve got to look also at the way in which the government reacted when the senior people in the company approached them to say what the problems were,” Diana Holland told MPs. “It seems as if the concentration was put on arranging repatriation rather than arranging steps to prevent the situation we are in.”

Former Thomas Cook chief executive Peter Fankhauser told MPs last week he had just one meeting with a UK government minister in the run up to the company’s collapse. By contrast, he was in regular contact with ministers from Germany, Spain, Bulgaria, Turkey, and Greece. Fankhauser was also told not to contact the Business Department and deal only with the Department for Transport.

READ MORE: Leadsom: Thomas Cook bailout would be 'throwing good money after bad'

Manuel Cortes, general secretary of the Transport Salaried Staffs Association (TSSA), told MPs: “It’s our view that the company should have been saved and that the government should have intervened. It’s now become increasingly clear that there was no contact between Thomas Cook and the business secretary.”

Business Secretary Andrea Leadsom last week defended the government's handling of the Thomas Cook collapse. Photo: REUTERS/Hannah McKay

Cortes said Thomas Cook could have been saved by the government “at a fraction of the cost” of what the collapse will cost taxpayers.

“The last estimate I have seen for the bill of the collapse of Thomas Cook is over €1bn,” Cortes told MPs. “Our taxpayers will be footing a lot of that.”

Thomas Cook was close to sealing a restructure that would have reduced annual debt payments from £150m a year to around £40m but lenders asked for an additional £200m backstop guarantee from the government. When Downing Street refused to support the deal, Thomas Cook collapsed.

READ MORE: Auditors had concerns about Thomas Cook going bust for years

Business Secretary Andrea Leadsom last week defended the decision not to support Thomas Cook, saying it would have been “throwing good money after bad” and claiming Treasury analysis found the likely cost of a bailout would have been higher than £200m.

However, Holland told MPs: “We are deeply concerned that due diligence has not been done on the various cost options.”

As well as repatriation costs, the government must pay redundancy costs for staff, protective awards, and pension costs. Around 7,500 UK Thomas Cook staff lost their jobs, Holland and Cortes told MPs.

Holland added: “The knock-on down the supply chain is growing,” with Unite aware of redundancies at airport support services companies Menzies and Swissport linked to Thomas Cook’s collapse.