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U.K. Government Suggests Thomas Cook Won't Be Rescued

James Ludden and Alex Morales

(Bloomberg) -- Thomas Cook Group Plc, the 178-year-old travel company that became one of the U.K.’s best-known brands, is on the brink of collapse, potentially leaving tens of thousands of British tourists stranded across Europe.

Last-ditch talks in London with creditors late Sunday appeared to have failed to result in an agreement. Sky News reported the company is planning a statement Monday morning, with KPMG set to oversee the insolvency. A spokesman for Thomas Cook declined to comment.

The company’s prospects unraveled quickly last week, when it filed for Chapter 15 bankruptcy protection in the U.S.

On Friday, the tour operator said it would require 200 million pounds ($250 million) on top of the 900 million pounds already agreed in the bailout proposal led by China’s Fosun Tourism Group, its biggest shareholder. In little more than a year, Thomas Cook’s business outlook has degenerated from concern about the impact on sales of a freak north European heatwave to a full-on fight for survival.

The British government, which will probably have to work out how to repatriate several planeloads of Britons, pushed back against suggestions it should bail out the company.

“We don’t systematically step in with the taxpayers’ money when businesses are going under unless there is a good strategic national interest for doing so,” Foreign Secretary Dominic Raab said on BBC TV’s “Andrew Marr” Show on Sunday.

Hunt for the Sun

For decades, tour operators such Thomas Cook and Germany’s TUI AG thrived by offering package holidays to sun-starved Europeans. But the rise of discount airlines and online distribution have squeezed profits in an industry that is highly seasonal and prone to shocks from terrorism to political turmoil.

As many as 150,000 Britons could be stranded abroad if the company collapses and grounds airlines it owns, the Financial Times reported.

The Travel Updates section on the company’s website is dominated by posts on its financial situation, with Thomas Cook reassuring clients that its flights continue to operate as normal and all bookings are covered by a government-backed travel insurance program.

“We’ve got the contingency planning in place to make sure that in any worst-case scenario we can support all of those who might otherwise be stranded,” Raab said.

Founded in the 1840s by a Victorian entrepreneur of the same name, Thomas Cook started out by organizing train trips through the English Midlands. The business expanded as Britain’s growing middle class discovered they had more time, and money, to discover the delights of Europe.

The company, which was briefly absorbed into the state rail company soon after World War II, got its biggest boost in the 1970s and 1980s as Britons sought the sun on a cheap budget. The ad slogan “Don’t just book it, Thomas Cook it” entered the national psyche. The company even revived the slogan in 2017.

Blue Chip

Formerly a member of the FTSE 100, Thomas Cook labored under its large debt burden and the costs associated with maintaining a high-profile presence in Britain’s provincial towns. Nimbler online rivals ate into the company’s core business and a succession of turnaround plans failed to stick, while a sluggish European vacation market and uncertainty over the economic impact of Brexit also crimped demand.

The company, with more than 500 locations nationwide, generated cash flow-per-employee of just 188 pounds last year.

The latest rescue plan proposed swapping existing debt into shares, leaving Fosun holding the majority of Thomas Cook’s tour-operating business while creditors would have controlled its airlines. The company had debt of almost 2 billion pounds as of March 31, according to data compiled by Bloomberg. The restructuring proposal is due to be put to a vote on Sept. 27, a crucial step to get the plan approved by a U.K. court.

The rescue efforts faced multiple challenges. A group of hedge funds began to organize to block the plan because it would stop them from cashing in on holdings of credit-default swaps that pay out when a company defaults.

--With assistance from Richard Weiss, Vivianne Rodrigues and Danielle Moran.

To contact the reporters on this story: James Ludden in New York at jludden@bloomberg.net;Alex Morales in Brighton, England at amorales2@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Virginia Van Natta

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