For Thomas Cook Group Plc, one out of three isn’t enough. 

The travel agent is struggling to shore up investor confidence, and had positive things to say on Thursday: it said it had arranged 300 million pounds ($384.8 million) of extra funding and had received multiple bids for its airline. But that is where the good news stopped.

Its first half loss was worse than expected, it cautioned yet again on profit and announced a 1.1 billion pound write off in its U.K. business. The shares sank as much as 23% to the lowest level since 2012.

As I have argued, putting Thomas Cook onto a firmer footing means ensuring greater financial flexibility, selling its airline and improving sales. So far, it has achieved only the first of these.

The facility from its lenders was accompanied by some covenant relief, which is useful. But it isn’t a permanent solution. It will be available for just nine months, and principally serves as a bridging loan to see the company over its winter slump if it has agreed to sell the airline but not yet completed the transaction. There are a few conditions under which it can access the financing, but the main one is evidence of progress on this.

The company says the extra funding gives it breathing room to strike a deal on the division, and the amount has been tested against the most pessimistic scenario.


But the sale won’t be straightforward, and there is no doubt now that the company is a forced seller: that could potentially weaken its negotiating hand. 

Meanwhile, trading remains poor, not just in Brexit-hit Britain, but also in Germany. Consumers in northern Europe are waiting to see if 2018’s heatwave will be repeated before booking this year’s holidays. Add in a growing movement against air travel on environmental grounds and it is little wonder that sales have fallen short.

Consequently, it expects underlying earnings before interest and tax in the second half of the year to be lower than in the year-earlier period. It had previously anticipated these would be in line.

Thomas Cook itself acknowledges the gravity of the situation: the ability of the company to continue as a going concern relies on selling the airline and accessing the financing.

Even with progress on both these fronts, over the long term, the company must bolster its balance sheet. Net debt at the half year rose from 886 million pounds to 1.3 billion pounds. With the write-off it has negative balance sheet equity of 1.35 billion pounds.

But its options right now are limited. Given the 87% slump in the stock price over the past year, it won’t be easy to raise money from shareholders. And issuing bonds would be expensive. It has to either lift sales materially, which looks unlikely, or consider some kind of restructuring, perhaps a debt for equity swap.

Of course, Fosun International Ltd, which has been building its equity stake, could rescue the company.

But Thomas Cook won’t be able to rely on this. It can’t keep living hand to mouth on short-term financing, either. Even if it survives this near-term rough patch, it’s not a sure thing that investors will want to resume this journey. 

To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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