Last-Minute Negotiations Fail
The seemingly never-ending Brexit saga has taken a strange turn this week!
World-famous travel company Thomas Cook has plunged into insolvency, creating travel chaos. The firm has been battling financial difficulties in recent months, exacerbated by the Brexit uncertainty.
Despite last-minute negotiations, which many hoped would save the company, Thomas Cook has now “ceased trading with immediate effect” according to the UK Civil Aviation Authority (CAA).
Rescue Mission Underway
The collapse of the firm has had an immediate and severe impact on many UK holidaymakers.
According to figures from the firm, 150,000 UK citizens are now stranded abroad. Many are unable to secure return flights.
Given the severity of the situation, the UK government is now having to make plans to retrieve stranded citizens. It is currently preparing for the biggest peacetime rescue mission in UK history.
The UK government has chartered 45 airplanes to aid the standard former Thomas Cook users. It will run 64 flights on Monday with 16,000 people due to return.
The operation, dubbed “Operation Matterhorn” will make the fleet of aircraft running on Monday the country’s fifth-largest airline for the day.
Government Bailout Rejected
Thomas Cook approached the government for a bailout as the impending collapse became clear.
The company requested £250 million in government aid to keep them afloat.
However, the request was turned down with UK transport secretary Grant Sharps explaining:
“I fear it would have kept them afloat for a very short period of time and then we would have been back in the position of needing to repatriate people in any case.”
However, shadow chancellor John McDonell opposed the decision. McDonnell stated that the government should have helped Thomas Cook “if only to stabilize the situation while a real plan for the future of the company could be addressed”.
What Happened to Thomas Cook?
The holiday agent had secured a £900 million rescue package from a Chinese shareholder firm in August.
However, a further demand from its banks to secure an extra £200 million threw the deal into uncertainty.
Consequently, Thomas Cook’s management spent the majority of Sunday attempting to negotiate a deal with other lenders. Ultimately, it was unable to secure a package.
The company has cited a range of issues. These include the political turmoil in holiday destinations like Turkey, the UK heatwave last year which disrupted holiday bookings and the increasing Brexit risks.
What is the Latest with Brexit?
The UK is currently scheduled to leave the EU on October 31st.
However, in accordance with the recent passing of new legislation, if MPs cannot approve a deal by the 19th October, the PM is required to seek an extension to Article 50. This would delay the departure date, keeping the UK in the EU for longer.
BOE Still Blocked by Brexit
The Bank of England has once again noted the uncertainty from Brexit as the main obstacle to any rate increase.
At the latest monetary policy meeting this month, BOE Governor Carney revealed the bank has revised its growth forecasts lower. This, of course, is due to the ongoing impact of Brexit uncertainty.
However, he did note that if the government could secure a Brexit deal, a rate increase would likely be appropriate.
Impact on GBP
GBP has been seen lower in the wake of the news. While not directly impacting the exchange rate, the collapse of such an established name in UK business has added to the fragile environment ahead of the UK Brexit date. As businesses and consumers continue to struggle with the uncertainty around Brexit, UK asset prices have been knocked lower with the UK100 breaking below support levels.