Is Thomas Cook Airline On the Verge Of Collapse?

As TPG has reported, many international airlines have succumbed to extreme financial pressures in the not too distant past. Now, European travel conglomerate Thomas Cook appears to be on the verge of collapse after its stock nosedived 44% on Friday to end the week trading at only 16 cents per share.

While Thomas Cook's airline businesses, including Thomas Cook Airline and Condor, have performed well recently, the 178-year-old company reported a 1.5 billion GBP pretax loss for the trailing six-month period.

Thomas Cook has been in talks to sell some of its airline operations and appeared to have secured a 300 million euro loan contingent on that sale, but on Friday external auditors for the airline raised serious concerns about that sale.

With the company's stock rendered essentially worthless and major hedge funds positioning themselves to benefit from a debt restructuring, it's likely we'll see a sale of Thomas Cook and/or Condor sooner rather than later. Lufthansa confirmed it had submitted a bid for Condor, with the option to extend that to all of Thomas Cook Airlines. Virgin Atlantic is also reportedly involved in the bidding process.

So what would a takeover of Condor by Lufthansa or Virgin Atlantic look like? While it's possible that they would continue to operate the airline separately, it seems much more likely that this is simply a distressed asset sale and we'd see Condor and/or Thomas Cook's fleet, and more importantly landing slots, absorbed by the successful bidder. Lufthansa would certainly like to prevent any other airline from gaining a foothold in its Frankfurt hub where Condor is headquartered.

Thomas Cook operates a fleet of about 100 Airbus A321s and A330s while Condor operates a more diverse mix including 767s, 757s, A320s/A321s and A330s. While the short-haul jets would fit naturally into either Lufthansa or Virgin Atlantic's operations, it would be interesting to see what they do with the 767s and 757s. Neither of the rumored bidders currently operates those airframes, and there is a real incentive against introducing a new type of plane and complicating scheduling and maintenance operations.

Bottom Line

If you have any upcoming travel booked on Condor or Thomas Cook Airlines, make sure to keep an eye on the news. This situation is deteriorating rapidly and Thomas Cook could likely be forced to sell one or both of its airlines in the near future in order to keep the rest of its operations running.

In the meantime, check out our guide on what to expect from your credit card issuer if an airline goes bankrupt.

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