Thomas Cook has been facing some severe turbulence recently. Almost all efforts to get back up have been thwarted even before they left the dock. Now, the company has turned to the UK government to save the day and salvage the holiday plans of some 150,000 UK travellers. But, commentators think that it will be disappointed.
The mood coming from the government departments so far has not appeared positive. Reportedly, the government has rejected the option presented currently estimated at £200m on a cash injection to save the company. Also, the government has rejected a bill of £600m to repatriate UK holidaymakers.
According to the government, the majority of Thomas Cook customers will find help from ATOL protection or travel insurance. ATOL protection is the fund paid for via industry levies. The doubts clouding the repatriation costs appear as a clear signal that the government does not believe the choice is as straightforward as £200m this weekend or £600m next week.
Furthermore, reliable government sources suggest that the UK was the country that pushed the greatest in the entire EU. The UK pushed for the imposition of state aid rules to get enforced after several years of EU governments rescuing sensitive industries including carmakers and airlines.
The government’s earlier refusal to provide any help to companies like Carillion would make a severe U-turn on this approach very challenging in practice and in principle.
Brexit Effect
Even though the UK is planned to leave the EU on October 31, any type of new relationship is still not determined. Moreover, issues like respective rules on state aid will feature in the Brexit deal discussions. On its part, the European Union is keen to preserve a ‘level playing field’ with regards to European competition.
That matter currently rests with the Department of Transport instead of Department for Business, Energy and Industrial Strategy. This was the department that organized the repatriation of clients of the failed Monarch airline.
The government has supported businesses in the past through loan guarantees. However, it is not thought that will be adequate to convince lenders to support the company’s restructuring. More equity capital is necessary which translates to money that does not have a repayment schedule.
A private sector deal may be available but the noises from the government currently suggest that the UK taxpayer is highly unlikely to come to Thomas Cook’s rescue.
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