The debt-fuelled expansion of Thomas Cook between 2007 and 2011 may have caused its downfall, the Institute of Directors has said, as the tour operator’s former bosses prepare to give evidence to MPs investigating its implosion.
The business, energy and industrial select committee will question former chief executives Manny Fontenla-Novoa and Harriet Green on Wednesday, building on evidence given last week by directors who were in charge when the travel agent collapsed.
In written evidence to the inquiry, the IoD – one of the UK’s most influential business lobby groups – said it did not believe flaws in the wider corporate governance regime were to blame.
Instead it advised MPs to focus on the tenure of Fontenla-Novoa, who took over after the ill-fated £2.7bn merger with MyTravel and oversaw a period of aggressive debt-fuelled expansion.
“This may have led to a situation whereby the company was subsequently unable to withstand significant downward shocks to its market environment,” the IoD said, citing setbacks such as terror attacks in tourist destinations and a heatwave that kept holidaymakers across Europe at home.
“We would be interested to understand the decision-making and oversight process surrounding the acquisition and management of these debt levels,” the IoD said.
Thomas Cook’s auditors and Fontenla-Novoa’s successor, Harriet Green, are also due to give evidence to MPs. The two bosses were paid £27m between them and are likely to face criticism over their pay deals.
The IoD also said it was concerned at reports that some debt investors tried to block a rescue for Thomas Cook because they hoped to make money from credit default swaps, a form of insurance against a company going bust.
It also echoed MPs’ concerns that directors’ pay and bonuses were calculated on profit numbers that excluded one-off negative items.
In a separate submission to the inquiry, British pilots’ trade union Balpa called for a closer examination of how Thomas Cook’s overseas subsidiaries, including the German airline Condor, avoided being placed into liquidation.
