Thomas Cook chiefs face parliamentary grilling over company’s collapse – business live – The Guardian

Thomas Cook chiefs face parliamentary grilling over company’s collapse – business live – The Guardian

The committee are now asking about Thomas Cook’s last few weeks, when it became clear it needed more money.

Q: When did you learn that the banks required £200m of extra funding? Which date in August?

Fankhauser agrees to report back which date he was told about a “downcase scenario” which would require extra funding of £150m-£200m.

He says he knew that this scenario existed on 28 August when Thomas Cook announced it had agreed a £900m rescue deal that will give the Chinese conglomerate Fosun.

But, he says it wasn’t a formal request from the banks at that stage.

This is a crucial issue — this extra funding demand cause the collapse of the Fosun deal.

Q: But why didn’t the lenders provide the extra funding?

Fankhauser says he doesn’t know.


My colleague Rob Davies is tweeting the key points from the hearing:

Rob Davies

Thomas Cook boss Peter Fankhauser concedes he was paid an “enormous amount”. Says the company was making right steps to cut debt when it was hit by European heatwave. Admits they were “not fast enough” in mending the problems.

October 15, 2019

Rob Davies

Thomas Cook CEO Peter Fankhauser being asked at select committee how much of his bonuses can be clawed back. It’s about £558k. See our story this morning.

“No more than £1m will be recouped from Thomas Cook chiefs.”

October 15, 2019

Rob Davies

BEIS committee chair launches a broadside at Thomas Cook chair after he lists successes. “You chaired a business that has gone under because of the decisions made collectively by your management team.” Asks for “a bit more humility”.

October 15, 2019

Rob Davies

Thomas Cook pay committee chief Warren Tucker says pay linked to underlying earnings (which ignore massive one-off negatives) to avoid providing a disincentive to invest. Pretty extraordinary idea that execs need an incentive to do what’s required to save a company.

October 15, 2019

Rob Davies

Thomas Cook boss Peter Fankhauser admits that selling the airline when it had the chance “might have been a solution”.

October 15, 2019

Q: Why didn’t Thomas Cook’s management realise that its rescue plan was going wrong?

Peter Fankhauser insists he believed the plan would work – the company tested “every day at four o’clock” that the deal could work.

Q: So every day at four o’clock you were wrong?

With hindsight you can say that, Fankhauser replies.

Q: Why did Thomas Cook underestimate the amount of money it needed to save it?

Fankhauser says the company tried to sell its airline, to generate cash to help tide it through this winter, along with fresh bank financing.

But it then realised that this plan wouldn’t work, because the company wasn’t generating enough cash.

Q: But wasn’t this just a fantasy sale, it would never have worked?

Fankhauser denies it, he says Thomas Cook devised a complicated refinancing plan.

But then the company came under pressure this summer from suppliers, and from credit card merchants. Plus, the refinancing costs were putting pressure on cashflow, Fankhauser says.

He then explains how Thomas Cook’s financial needs spiralled:

On 12 July, we said we needed £750m in recapitalisation. Then on 12 August we saw that would not work, so we needed another £150m to £900m. Then we were stuck.

Q: Can’t you see that this looks like a company out of control, and downplaying the difficulties you faced to your investors, and your staff?

It could look that way, Fankhauser agrees, but he insists that’s not what happened.

Rachel Reeves MP turns to the sale of Thomas Cook’s shops to Hays Travel, a family owned firm (excellently profiled here).

Q: Can they make a success of it?

“I wish they can. I honestly do,” Peter Frankhauser replies.

The former Thomas Cook CEO says that “one of the brighter days in recent weeks” was when he learned that Hays would take on the stores and save around 2,000 jobs.

The retail business runs on commissions – he explains, so if Hays can renegotiate leases, create a much leaner debt structure, then “for sure” it can be successful.

I wish them all the luck, he adds.

Reeves homes in on the debt issue. Surely Hays, which doesn’t have a large debt pile, is doing things right – and Thomas Cook did it wrong.

Fankfauser says Thomas Cook already had a big debt pile when he arrived in 2014 — but he wasn’t fast enough in reducing it.

But he insists that Thomas Cook, with its large operations including an airline, is much more complicated than a simple travel agent.

But the insolvency service has taken decisive steps in three weeks, Reeves replies scathingly. You had five years!

Fankhauser says he was trying to save the whole business, rather than simply selling assets off in bits.

But look what happened in the end, Reeves hits back. The whole company collapsed, stranding 150,000 people.

Back to the bonuses, and Warren Tucker (former remuneration committee chair) confirms that underlying profitability was used to set bonuses.


Tucker claims they didn’t want to “disincentivise” executives from taking necessary investment decisions which would hit earnings.

Stephen Kerr MP says this smells very fishy — wouldn’t it be great if everyone could just ignore irritating costs they’d rather ignore?

This board was rewarded for failure, Kerr insists.

Thomas Cook management roasted over management failures

The former Thomas Cook executives are claiming that their business was complicated, needed turning around, so it was right to class some losses as ‘one-off’ items on its balance sheet.

Chair Rachel Reeves dispute the argument — she argues that Thomas Cook used exceptional items to burnish its balance sheet, and give a rosier picture.

Q: In the end, this focus on underlying profits caught up with you, didn’t it?

Chairman Frank Meysman denies it — saying there was “a lot of effort” underway to reduce debts, offer exciting new holidays.

He tries to paint a picture of success….saying the firm had 20 million happy customers, exciting new routes, a joint venture in China was looking good. There was a lot of restructuring underway, he insists….

Reeves has heard enough!

She reminds Meysman that he has been summoned to the committee because 9,000 people have lost their jobs, and 150,000 holidaymakers had to be brought home at a cost to the taxpayer.

With all respect, Mr Meysman, you can point to as many successes as you like, but you have brought down a 178 year old business with huge repercussions for customers, staff, and taxpayers.

So you can point to the successes, but I’ll point to the failures and they hugely outweigh the successes.

Reeves points out that Meysman and his former colleagues began the session by apologising, but was that contrition genuine?….

I think you’re deluded about the business you ran.

You chaired a business that has gone under because of the decisions made collectively by your management team. When you point to your successes, maybe show a little more humility.


Stephen Kerr MP takes issue with the claim that Thomas Cook was trading well. You only made a profit in 2015, he insists — every other year recently was a loss.

Q: So how can you justify bonuses?

Fankhauser says that some bonus payments came from a “long-term incentive plan”, to reward turning the UK business around.

Kerr points out that Thomas Cook regularly classed losses as “exceptional items”, allowing it to report an underlying loss.

Q: You did this for eight years — and eventually your auditors raised concerns, so how can they be valid?

Former chair Frank Meysman agrees that this is a “high value”, but insist they were valid.

Q: Buy you needed to use underlying profitability to give confidence to your banks and investors…

Meysman insists that there was no deceit, everyone knew the situation.

Chair: Heatwave and Brexit meant debt were unsustainable

Former chairman Frank Meysman is now challenged — why did Thomas Cook not write down its goodwill earlier?

Meysman argues that trading looked strong, so there was no need to.

But wasn’t it a serious mistake to wait until May 2019 to booking a £1.1bn goodwill impairment relating to the merger with MyTravel, a decade ago?

Meysman denies it — he claims that it wasn’t clear in 2018 that Thomas Cook couldn’t hit the growth targets it aimed for.

He insists that Thomas Cook’s £1.2bn debt pile was the ultimate cause of its demise.

Once “the heatwave” in 2018 came, and “the anxiety of Brexit”, the company realised it needed a new business plan, Meysman adds. That led to the profit warning in November 2018.

Antoinette Sandbach MP turns to Thomas Cook’s accounts. She points out that Thomas Cook’s last full accounts included £2.5bn of goodwill.

That was based on strong earnings growth (28% per year, for three years) .

Q: A few months later, the company slashed £1bn off its goodwill — so was it a mistake not to write down earlier?

Audit committee chair Martine Verluyten says the company honestly believed trading would strengthen after a tough 2017.

Q: But what was earnings growth in 2018?

There was a decrease in earnings, due to a “loss of faith in the business”, Verluyten replies.

Q: Don’t you think slashing £1bn off your goodwill contributed to this loss of faith?

Verluyten reiterates that the company believed its forecasts were accurate.

Q: Why were the debts so high?

Peter Fankhauser says Thomas Cook’s debts were high when he joined in 2014, so he tried to bring them down.

By May 2018 we were in a good position, he insists, with good bookings and cash generation. But he (then claims) that the summer heatwave hit trading hard.

Q: So it was a trading failure, not a financial one?

Fankhauser argues that tougher trading made it harder to tackle the financial challenges from the debt pile. He claims the company was taking the right steps.


Former CFO Sten Daugaard says he joined the company in 2018, after two profit warnings.

He says the company’s “very high” debt made it hard to execute the turnaround plan. Plus, the company wasn’t generating enough cash to pay down debts.

Q: So was Thomas Cook’s collapse inevitable?

Daugaard says he has been through five successful restructurings in his career. He believe Thomas Cook could have been turned around, by cutting costs and becoming more efficient.

But, the high debt levels and debt servicing costs made it harder.


Warren Tucker, former chair of the remuneration committee, says he is also sorry that Thomas Cook couldn’t be rescued.

Former CFO Sten Daugaard also associates himself with Fankhauser’s opening contrite statement, as does former chair Frank Meysman and former audit chair Martine Verluyten. She says “I always feel terribly sorry about what happened”.


Fankhauser urged to hand bonuses back

Committee chair Rachel Reeves turns to the issue of bonuses.

Q: Some £20m was paid to executives in the last five years — so will Peter Fankhauser repay his bonuses?

Fankhauser says he worked “extremely hard and exhaustively” to earn his basic pay, and didn’t get any bonus in 2018 and 2019.

Half of my pay was in shares, he adds, and he’s never sold a single one (they’re now worthless).

He also confirms that board rules mean that only bonuses from the last two years could be clawed back.

Q: What was your bonus in 2017?

Fankhauser says he received around £750,000 – 30% in shares. He won’t say whether he’ll hand it back.

Although he “fully understands” the sentiment, and the views of the public, he also argues that he “worked tirelessly” to try to save the company during his five years as CEO.

Reeves presses him hard on this — the company went into the rocks on his watch, so how can he justify a bonus? Saying sorry is one thing, but we’re not seeing much practical contrition.

Fankhauser, sensing the mood in the room, says he will “take it back, and consider what is right, but I will not decide today”.


Fankhauser: I’m deeply sorry

Former CEO Peter Fankhauser speaks first.

He tells the committee that he is “deeply sorry that we couldn’t save this iconic brand, and this company with a long, long history.”

I’m deeply sorry about this failure, and deeply sorry for the distress to customers, and suppliers, he says, adding:

I’m especially sorry to all my colleagues who worked tirelessly to make Thomas Cook a better company.

He adds that he’s grateful for the professional work that the CAA has done to bring holidays home, and especially proud of the 2,000 colleagues who helped — showing the company’s commitment to its customers.

Q: But what are you actually sorry for, Mr Fankhauser?

Not not being able to turn around the company “at pace”, and to reduce Thomas Cook’s debt pile, Fankhauser replies.

He says the debt pile made the job much harder — saying £1.2bn was paid in interest and refinancing costs.

Imagine what a better place Thomas Cook would be in, if only half of it had been re-invested, he adds.

Q: What would you have done differently?

Fankhauser says he would have pushed the transformation faster.

Thomas Cook inquiry begins

The business committee’s inquiry is underway.

MPs will hear from Peter Fankhauser (former CEO); Frank Meysman (former chairman); Sten Daugaard (former CFO); Martine Verluyten (former chair of the audit committee); and Warren Tucker (former chair of the remuneration committee).

Several former Thomas Cook cabin crew are in the room.

You can watch it live, here (right-click to open in a new tab).

While we’re waiting in the departure lounge for the inquiry to begin, do check out our interview with John and Irene Hays.

They’re the husband and wife team who bought Thomas Cook’s 555 high street travel agencies this week, and hope to hire thousands of workers who lost their jobs when the firm collapsed.

.Irene and John Hays Hays Travel 11-10-2019 Photograph by Martin Godwin

Photograph: Martin Godwin/The Guardian

Here’s a flavour:

“People have portrayed us as country bumpkins,” says John, 70, who founded Sunderland-based Hays Travel from the back of his mother’s childrenswear shop in 1980. “We’ll see what they think in a couple of years’ time.”

The pair have a Herculean task ahead of them, picking up at least some of the pieces left over from one of the worst corporate failures in UK history.

The demise of Thomas Cook has so far resulted in 8,123 redundancies. The official receiver is still paying 931 staff to help with the wind down. But the Hayses now want to recruit around 2,500 of those who have lost their jobs, quadrupling the size of their business in the process.

It’s a daunting prospect but the reality is that the couple behind this family-run operation, which unlike Thomas Cook is profitable and free of debt, are nobody’s fools.

“My husband is a clever boy, he’s got a brain the size of an elephant,” says Irene, 65, who chairs the business.

The evidence from the last few weeks – and their four decades in business – suggests she and her husband know exactly what they are doing. In the final stage of negotiations, they triumphed over two US private equity companies to take control of Thomas Cook’s high street network for an undisclosed sum.

More here:

Business, Energy and Industrial Strategy Committee

The first session of our inquiry into the collapse of Thomas Cook starts at 9.00am. You can watch live here

October 15, 2019



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