EC Approves Bridging Loan For Collapsed Thomas Cook Subsidiary Condor

The European Commission (EC) has approved, under European Union (EU) state aid rules, Germany's plans to grant a €380 million ($420 million) six-month bridging loan to Frankfurt-based Condor, an airline subsidiary of bankrupt Thomas Cook Group. 

A Condor spokesperson told FreightWaves: "Condor will continue to carry cargo during the six-month period and thereafter. Based on the bridging loan received by the German government, Condor has a secured financing throughout the winter. There is no reason why shippers should be worried." Condor has been transporting an average of 2,000 tons of air cargo per month during 2019, with plans to increase that monthly volume in 2020, the spokesperson maintained.

The group, which ceased operations on Sept. 23, filed for bankruptcy after failing to secure £200 million ($252 million) of emergency bailout funding from the U.K. government. Founded in 1841, the holding company has since entered into liquidation. 

The €380 million survival package granted to Condor far exceeds the £150 million ($193 million) that the U.K. government declined to offer as a rescue package for now-defunct Thomas Cook Group. The U.K. government maintained that throwing the U.K.-based leisure and tour specialist company a financial lifeline would set a bad precedent for other struggling companies.

EC guidelines on rescue and restructuring aid allow EU member states to support companies in financial difficulties, provided that the public support measures are limited in time and scope. Rescue aid can be granted for a maximum of six months to allow a recipient company time to work out solutions in an emergency scenario.

The EC ruled that the Condor loan, granted by the German federal government and the Hessian state government, will keep the carrier aloft without distorting competition in the single European market. Disbursement of funds will be paid out to Condor gradually via German state development bank KfW. 

Germany has committed to ensure that, after six months, the loan either will be fully repaid or Condor will carry out a comprehensive restructuring exercise to return to long-term viability, with the restructuring subject to EC assessment and approval.

Condor faces a liquidity shortage following the entry into liquidation of Thomas Cook Group. Financial support via the bridging loan will provide additional liquidity to the carrier as it enters the low-activity winter season. Further, Condor was forced to write off significant claims against other group companies, which Condor will no longer be able to collect. As part of the deal, Condor will be removed from the joint liability agreement with Thomas Cook, according to the German economics ministry, ensuring that assets will not be liquidated.

Condor is expected to begin a restructuring program in December that will include identifying a suitable replacement, either a strategic partner or private equity investor, to replace the now-defunct Thomas Cook Group.

Lufthansa reportedly made a nonbinding offer in May to purchase Condor from Thomas Cook Group. Condor had been part of Lufthansa Group since 1959, but the German flag carrier sold its remaining 25% stake to Thomas Cook in 2009. Takeover of Condor, at a cash price of €77.19 million ($87 million), gave Thomas Cook sole ownership of the airline, ending 48 years of Lufthansa involvement in the carrier.

Thinly capitalized European airlines are facing a number of obstacles, including cutthroat competition from low-cost carriers, uncertainty over the looming Brexit and continued grounding of the B737MAX aircraft. Among recent casualties in European skies, Iceland-based low-cost carrier Wow Air filed for bankruptcy on March 28, after being unable to raise $41 million to remain in the air; XL Airways, a France-based low-cost carrier went into administration on Sept. 12 due to financial difficulties; Aigle Azur, France's second-largest airline, entered liquidation on Sept. 27 after two unsuccessful attempts to land a buyer; and Slovenian flag carrier Adria Airways announced it was entering bankruptcy proceedings on Sept. 30 after unsuccessfully seeking a new source of capital to counter severe financial problems.

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