Britain’s oldest surviving airline, Monarch, has gone into administration and partners from KPMG have been appointed joint administrators.

Blair Nimmo, Jim Tucker and Mike Pink have been appointed joint administrators to Monarch Airlines Limited while Blair Nimmo, Jim Tucker and Steve Absolom have been appointed joint administrators to Monarch Travel Group Limited.

About 300,000 future Monarch bookings have been cancelled and 110,000 customers who are overseas will be brought back to the UK on 30 chartered planes in the country’s “largest peacetime repatriation”, according to Transport Secretary Chris Grayling.

Why did this happen?

A series of factors including geopolitical turbulence, market competitiveness and government inaction converged to cause the collapse of Monarch, making it the largest UK airline ever to enter administration.

Monarch revenues slumped in the year end October 2016, and the airline reported losses of £291m in comparison with £27m profit the previous year. Due to over-capacity in the short-haul market ticket prices dropped, leading to the airline carrying 14% more passengers last year for £100m less revenue.

Blair Nimmo, partner at KPMG and joint administrator to the companies, added that Monarch’s troubles were exacerbated by the weakness of the pound against the dollar, as many of the company’s costs e.g. fuel and handling charges were denominated in dollars.

In a widely quoted letter to staff, chief executive Andrew Swaffield said the “root cause” of Monarch’s downfall was the terror attacks in Egypt and Tunisia and the “decimation of Turkey”, which led to overcrowding in the busy market of routes to Spain and Greece. When the airline began to flounder it tried to pivot from short-haul to long-haul flights, but failed to secure an offer from a buyer for its short-haul operations.

Uncertainty surrounding Brexit may have also played a role, as Oliver Richardson, national officer of trade union Unite, explained that the government has not yet secured an “open-skies” agreement with the EU post-Brexit which would allow UK airlines to fly freely in Europe, which “undoubtedly hindered Monarch getting the investment it needed to restructure and survive”.

Furthermore, Unite accused the government of “sitting on its hands” as it refused to aid Monarch with a restructuring loan of the nature granted to Air Berlin by the German government. The loan would have been “charged at commercial rates, to tide the company over while it restructures the business to focus on its long-haul operations.”

What’s next?

KPMG and the Civil Aviation Authority are immediately focussed on the repatriation of customers, after which the Big Four firm will shift focus to realising value from Monarch’s assets.

Nathanael Young, senior associate at law firm SA Law, commented: “Administration is often used to assist insolvent companies, to enable them to restructure or realise their assets. By entering administration, the company benefits from a statutory moratorium, which means that creditors cannot take enforcement action against them.”

Young explained that an insolvency practitioner would try to “rescue the company”, and if that failed, would attempt to “obtain a better result for creditors than if the company had gone into liquidation.”

Blair Nimmo of KPMG told the BBC Radio 4’s Today programme that dismantling the company seemed to be the most likely course of action, as despite there being expressions of interest, there were no realistic leads on a company-wide purchase. He said: “We now are looking for who might be interested in certain parts of the business, whether it be physical assets or whether it be slots, i.e. routes that they currently operate.”

The airline nearly collapsed in 2014 but bounced back, and Devi Shah, partner and head of  Mayer Brown’s restructuring, bankruptcy & insolvency group in London commented: “Monarch is an example of how difficult it may be to turn around a business that is heavily exposed to a wide variety of geopolitical and economic factors over which its management would have had no control, following on as it does from other recent airline insolvency filings.” Both Air Berlin and Alitalia have experienced similar troubles lately.

Monarch employs between 2,000-3,000 people, who are likely to lose their jobs. Monarch has said it will work with administrators and unions BALPA and Unite to help its employees find new jobs as quickly as possible.

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