Transport secretary Grant Shapps has hinted the government could look at legislating to allow UK-based airlines to continue flying while insolvent.
Addressing the Commons on Wednesday (25 September) following the collapse of Thomas Cook, Shapps said: “We need to look at… whether it’s possible for airlines to be wound down in a more orderly manner.”
Any such move would mirror the situation in Germany, where Air Berlin in August 2017 was allowed to operate while insolvent to repatriate its own passengers using its own aircraft.
Such legislation was a key theme of the Airline Insolvency Review, which championed the “controlled winding down” of airlines to avoid the large-scale repatriation efforts convened following the collapse first of Monarch in October 2017 and now Thomas Cook Airlines.
“We’ve never had the collapse of an airline or holiday company on this scale before,” said Shapps. “Our efforts will turn to working through the reforms necessary to ensure passengers do not find themselves in this ridiculous situation again.
“We need to look at the options, not just with Atol, but also whether it’s possible for airlines to be wound down in a more orderly manner. They need to be able to look after their customers, and we need to be able to ensure planes can keep flying in order that we don’t have to set up a shadow airline for no matter what period of time.”
The government is yet to formally respond to the Airline Insolvency Review, or “Monarch review”, which issued its recommendations to ministers back in May, which the Department for Transport said would be considered as part of its Aviation 2050 review.
Shapps said the Monarch review suggested the UK should have rules not dissimilar to those in Germany allowing airlines to trade in administration, making repatriation “massively easier”.
“This is where we will focus our efforts in the next couple of weeks. But in order to do this, we will require primary legislation.”
Insolvency trade body R3 though, when it responded to publication of the review in May, said its proposals "did not overcome" the political challenges involved.
President Duncan Swift said the introduction of a new Special Administration Regime to allow insolvent airlines to continue to fly wouldn’t resolve "some real practical difficulties".
"One of the reasons an insolvent airline’s planes are safely grounded at home in the UK is that – without well-publicised financial backing for a rescue – planes are vulnerable to creditor action," said Swift.
"It’s all too easy for a disgruntled food or fuel supplier to block a plane on a taxiway at an overseas airport until they’ve been paid what they’re owed. This would pose a risk to passenger safety and disrupt the whole insolvency process.”
“If full financial backing is there, the risks of creditor action are lowered because creditors are more confident of being paid. Without full financial backing, there are other complex issues to resolve, including crew wellbeing and insurance costs. A Special Insolvency Regime for airlines won’t make these problems go away.”
Swift though said wider insolvency reforms to assist in the event of airline insolvency were possible, and could sit alongside the Atol scheme.
On Cook, Shapps rejected criticism of the government for failing to bail out Thomas Cook at a cost of “up to £250 million”.
“Given the perilous state of the business, including the company’s £1.5 billion half-year loss reported in May, there was no guarantee the [cash] injection would have secured the future of the country,” said Shapps.
“Our concern is we would have put in £250 million and risked throwing away good money after bad. And then still have to pay for the repatriation.
“It is quite clear in the last several years, the company ran into a number of different problems trying to expand itself out and invested more in the high street rather than less while the entire market was moving in the opposite direction.
“The loss, nonetheless, of an iconic British with a 178-year history, one of the oldest travel companies in the world, is an extremely sad moment.”
Shapps added the failure of Cook “should not be seen as a reflection on the general health of the UK aviation industry”. “The truth is the way people book their holidays has changed an enormous amount,” he told MPs.
The transport secretary also praised Thomas Cook employees for working “above and beyond” during what is a “distressing situation” for them. He said the government would do everything in its power to help them back into work.
He also praised the CAA for its preparation for Cook’s failure, with its repatriation effort – Operation Matterhorn – set to bring home more than 150,000 Cook passengers over the next two weeks.
“This has been an unprecedented response to an unprecedented situation, and I’m grateful to all parties who have stepped in to support these efforts,” said Shapps.
Shapps echoed calls from his ministerial counterparts for a thorough investigation into the failure of Cook.
He told members the government would prioritise “as a matter of urgency” an investigation into both the causes of the company’s failure, and the conduct of its directors and auditors.