Monarch Gets Equity Lifeline, Restructures 30-Jet Boeing Deal

  • Majority shareholder Greybull injects 165 million pounds
  • 737 Max purchase to become sale and leaseback, CEO says

Monarch Airlines Ltd. announced a 165 million-pound ($202 million) capital injection from majority shareholder Greybull Capital LLP just hours before the U.K. carrier faced a possible grounding amid concern that it lacked the funds to stay in business.

The equity is sufficient for the U.K. Civil Aviation Authority to renew Monarch’s air-travel organizer’s license for 12 months, Monarch said Wednesday. The Atol certificate is mandatory for package-holiday providers and is intended to ensure that passengers aren’t stranded abroad by an unexpected collapse.

Chief Executive Officer Andrew Swaffield said Monarch has seen a “dampening” of bookings in recent weeks amid speculation over its finances. Leisure carriers across Europe are under pressure as the sluggish economy and a spate of terror attacks clip demand, with U.K. operators facing a further challenge as the pound slumps following Britain’s vote to quit the European Union.

Luton, England-based Monarch expects to post earnings before interest, tax, depreciation and amortization of “just over” 40 million pounds for the year ending Oct. 31, down from more than 70 million pounds in 2015, Swaffield said.

The airline will go ahead with the $3.1 billion purchase of 30 Boeing Co. 737 Max 8 jetliners originally placed in October 2014, though the deal will be now be structured as a sale and leaseback, in which planes are typically purchased from a carrier by a leasing company and then rented back.

Boeing Flexibility

Monarch didn’t provide details of the revised terms but said the manufacturer’s flexibility had been instrumental in securing the new capital. “We have had Boeing’s cooperation around restructuring certain aspects of our purchase agreement, which has facilitated the shareholders’ injection,” Swaffield said.

The first of the single-aisle jets will arrive in 2018, replacing older Airbus Group SE A320-series planes that currently comprise Monarch’s 34-plane fleet. The company, which carried about 6 million passengers in 2015 and has 2,800 employees, also has options to take a further 15 planes.

Greybull bought Monarch from the Mantegazza family in 2014 via a 125 million-pound recapitalization that also saw staff take pay cuts of as much as 30 percent. The investment firm has a 90 percent stake with a pension program holding the rest.

Swaffield, who joined in 2014 after running the Avios Group Ltd. frequent-flyer reward program of British Airways parent International Consolidated Airlines Group SA, said that the “decimation” of the Turkish market and closure of some Egyptian routes as terrorists target tourist centers will create challenges for years to come.

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