Monarch 4

[tubby linton]

Monarch owners could profit from collapsed airline

Administrator warns secured creditors unlikely to be repaid in full


Monarch entered administration after it failed to find a buyer earlier this month © AFP

Monarch Airlines’ former owners could yet make a profit on their investment despite administrator warnings that secured creditors are unlikely to be repaid in full.

In its first creditors report since Monarch’s collapse, KPMG said the airline’s secured creditors would probably “suffer a shortfall” even once two of Monarch’s main assets — its take-off and landing slots and the airline’s engineering business — were sold.

Though it remains unclear how much money will be recovered for Monarch’s secured creditors, Greybull Capital, which has first call on the airline’s assets, could still walk away with money.

The creditors report does not detail how much money is likely to be recovered for Monarch’s secured creditors, which after Greybull includes PPF, Monarch’s pension scheme. In total, Monarch has a secured debt of about £167m, with Greybull owed about £160m and PPF £7.5m.

However, a large proportion of Greybull’s exposure was either debt assigned from Monarch’s previous owners, the Swiss Mantegazza family, or cash contributed by them. The actual cash put up by Greybull was no more than about £85m, according to a previous FT analysis.

The initial report, published on Friday evening, comes just days after KPMG won an appeal against a previous High Court ruling stripping Monarch of the rights to sell its valuable airport slots at London Gatwick and Luton. The decision was seen as a big boost for Monarch’s administrators, as selling the slots to rival airlines will help recover money for creditors.

But KPMG did not provide an estimation of how much money these slots could raise, or ascribe a value to the airline’s engineering business.

The report also noted that Monarch has about £30m in cash, and estimated the administrator’s costs to be about £10m.

At least one deal for the slots is expected to be announced early next week. EasyJet, IAG, Wizz Air and Norwegian Air Shuttle have previously signalled their interest in buying Monarch’s slots. The slots at Gatwick have generated the most interest because of a lack of airport capacity during peak times.

Greybull previously said it would expect Monarch’s pension scheme — which is owed £7.5m — to be repaid if the private equity group made any profit.

KPMG’s report said, “No distributions have been made to the secured creditors to date. Overall we consider there is likely to be a shortfall to the Company’s secured creditors.”

It added, “Whilst the slots and the engineering business have yet to be realised, in our view value is likely to break in the secured debt.”

However, KPMG said it expects preferential creditors, Monarch’s employees, to receive 100 per cent of the money owed to them.

The rest of the airline’s creditors are likely to get nothing, or just pennies in the pound.

In October, Monarch became the third carrier in Europe to enter administration this year after it failed to find a buyer for some of its assets. The collapse led the UK government to launch Britain’s biggest peacetime repatriation, flying home over 85,000 holidaymakers stranded overseas, costing taxpayers £60m.

Over the past two months, Greybull has come under pressure to foot some of the government’s repatriation bill following speculation they may end up making a profit. Last month, following public criticism from the transport secretary, the private equity group acknowledged it had a “moral obligation” to help meet the government’s costs.

The authors of the article obviously didn’t read the line about employees compensation being capped at £800.