Monarch Airlines

Baroness Randerson Excerpts

Monday 9th October 2017 Lords Chamber

[Lord Rosser (Lab)]

I thank the Minister for repeating the Statement made earlier in the Commons by the Secretary of State. I also appreciate that the Minister has himself been directly involved in these issues as the Aviation Minister.

The demise of Monarch Airlines has caused a great many problems and much distress for both passengers and certainly some 2,000 staff who have lost their jobs. Could the Minister say how many Monarch staff have so far either found alternative employment or, perhaps more realistically at this stage, been offered alternative employment?

The government Statement said that the CAA had essentially set up one of the UK’s largest airlines to conduct this operation. I agree that this is a very good example of how a state-run enterprise can deliver effectively and efficiently. Those involved in bringing home Monarch customers left stranded by its demise are to be congratulated, not least the staff of the Civil Aviation Authority. There are, though, a few questions I would like to raise.

First, how long before the demise of Monarch Airlines did the CAA start to organise aircraft to bring stranded passengers home, since concerns have been expressed about the reality that Monarch Airlines was still selling flights a few hours before it ceased trading? If the CAA knew that Monarch Airlines was on the verge of failing, and it must have done otherwise there would not have been the issue over renewing the licence, why did it not warn the public of the potential adverse consequences of continuing to purchase Monarch flights? Is this part of a general issue that the Government are looking at in the light of the comment in the penultimate paragraph of the Statement that they intend to look at all the options for ensuring that passengers do not find themselves in this situation again?

Secondly, the organisation that took over Monarch in 2014, Greybull Capital, a private investment firm, frankly has form when it comes to the collapse of companies—My Local convenience stores and Comet, for example. Bearing in mind that the taxpayer is having to pick up at least part of the price tag of Monarch’s failure, do the Government intend to consider what role they should play in future when companies are being taken over in situations where the taxpayer is likely to have to pick up a not insignificant part of the bill if the company that has been taken over then fails?

Thirdly, I understand that KPMG was appointed to seek buyers for Monarch’s short-haul business prior to the airline’s collapse, and was actively doing so. If that is correct, is it also correct that KPMG is now acting as Monarch’s administrator, and, if so, does that not raise questions about at least potential conflicts of interest?

Fourthly, I understand that that there was a report in yesterday’s Sunday Times suggesting that the £165 million rescue package to Monarch last year was largely funded by Boeing as part of a cut-price deal for an order for aircraft. Is that suggestion correct or incorrect? It has also been claimed that Monarch had £50 million in the bank. Is that correct and, if so, who will get that money, and indeed the money from the value of Monarch’s landing slots, claimed to be £60 million?

Fifthly, the Statement says that the Government are currently engaged in discussions with the relevant credit and debit card providers with a view to recouping from them some of the cost to taxpayers of what the Government describe as repatriation flights. What is the current cost to taxpayers of these flights? What is the likely final cost before any money is recouped? What is the legal position of credit and debit card providers, and indeed the other travel providers with which the Government have said they are in discussions, when it comes to paying the cost of those government repatriation flights?

Sixthly, and finally, the government Statement says that the CAA’s responsibility for bringing passengers back extends only to customers whose trips are covered by ATOL, but that the Government instructed the CAA to ensure that all those currently abroad were offered an alternative flight home, although I understand this does not apply to those returning after next Sunday. Perhaps the Government could say if, and if so why, this latter point is the situation. In the light of the penultimate paragraph of the Government’s Statement, which referred to looking at the options and trying to prevent passengers being, to put it mildly, inconvenienced in this way again, there appear to be issues about the Government’s future intentions, to be pursued perhaps more appropriately during the Committee stage of the ATOL Bill on Wednesday.

[Baroness Randerson (LD)]

My Lords, I start by thanking the Minister for repeating the Statement and for having provided the opportunity to talk to him about this issue following the failure of Monarch.

Clearly, this is a massive task and our thanks must go to those who are engaged in bringing people back to Britain. This is probably the first failure of a major UK company that can be directly ascribed to the impact of the falling pound caused by the Brexit vote. I fear that it will not be the last such failure and that the Government will have to intervene to alleviate the impact of Brexit-induced failure on numerous occasions in the future.

It is true that other factors, such as increased costs of security, were involved in this situation, but the falling value of the pound increased the costs of fuel, handling charges and lease payments in a way that proved fatal for this company. So, despite a 14% growth in the number of passengers travelling with Monarch, the company was not viable any more and nearly 1,900 Monarch employees have lost their jobs. Our sympathy must go to those who have been made redundant. It also needs to go to those customers who experienced distress and will face considerable financial loss, as many are not covered by the ATOL scheme.

My questions to the Minister are as follows. First, rumours about the financial instability of Monarch had been swirling around for weeks, yet it continued trading. I received an email a couple of days before the company collapsed tempting me to buy one of hundreds of thousands of holidays on offer. Why was the company allowed to continue not just to provide holidays to those who had already booked but to entice new customers at a time of such instability?

Secondly, it appears to have been revealed that credit card firms withheld from the airline an estimated £30 million from ticket sales because they feared that it would go under. Is the Minister satisfied that this practice was legal and that it did not contribute to tipping Monarch over the edge? Do the Government intend to investigate this situation and to ensure that in future cases of a similar nature there is no knock-on effect from action of this sort by credit card companies?

Thirdly, what percentage of customers are not covered by the ATOL scheme? I appreciate that the Minister may not be able to give us a precise figure at this stage but some indication would be helpful. In what respect will the ATOL Bill, which is before this House at the moment and will be discussed in Grand Committee on Wednesday, improve the situation in the future? Will he undertake to re-examine that Bill in the light of these events to see whether more could or should be done to protect customers buying flights as part of a holiday in the new online arrangements that the vast majority of us now participate in?

Finally, how much will the repatriation cost? How far do the Government believe that they will be able to recover that cost and what steps will they take to do so?

This collapse of a company nearly 50 years old and the sheer number of customers involved emphasises how much we travel abroad these days and how important it is that the Government grapple urgently with the challenges that the transport industry faces in relation to many aspects of Brexit.

[Lord Callanan]

My Lords, let me first thank the noble Lord, Lord Rosser, and the noble Baroness, Lady Randerson, for their complimentary statements about the Civil Aviation Authority, with which I completely concur. It has done a fantastic job in very difficult circumstances, and—if I can perhaps concede something to the Labour Party—it demonstrates that the Government can organise things relatively well, sometimes, although I continue to believe that the airline industry is best carried out in the private sector.

The noble Lord, Lord Rosser, asked what percentage of staff have found alternative employment. I am afraid that I do not know that yet. It was only last Monday that this unfortunate collapse occurred, but as soon as we have some available figures I will be sure to share them with him.

How long in advance were we aware? Clearly, we had advance information that this was a possibility—indeed, it nearly happened a year ago—and contingency arrangements were put in place. It is right and proper that, when we received information a few days in advance that this was a possibility, we of course put in place contingency arrangements. I am sure that noble Lords would have been on their feet criticising me if we had not done that.

It is the case that flights were sold a few hours before the collapse, but the situation is very difficult for any airline because as soon as they stop selling flights, they will automatically collapse. Why did the CAA not inform passengers, or indeed the Department for Transport? The same argument applies. If we came out and made a statement, the one thing that that would guarantee is that the airline would then collapse. Rumours of the health of this airline have been around for a long time, as the noble Baroness, Lady Randerson, indicated. The CAA works closely with airlines and, for those that are UK based, issues them operating and ATOL licences. Part of those checks involves studying the airline’s financial health and the airline would not have received the licence 12 months ago if the CAA was not satisfied that it was in robust health. I am told that, at the time, there was a long period during which the licence was extended temporarily until further financing was received.

I am afraid that I cannot comment on the role of KPMG. It is the court-appointed administrator and will fulfil its statutory duties, part of which is to report to government within three months on the actions of the directors of the business. The noble Lord can be assured that we will take robust action if any malfeasance is proved.

In response to questions on the Boeing bailout or financing last year, I am aware of the press reports. However, as to where the money in the bank goes, there is a set process under the administration Act for how that money is allocated.

The value of the slots is an extremely complicated legal conundrum that many lawyers are currently grappling with. It is not clear at all whether it will be able to sell the slots, because the slots have to be owned by a viable licensed airline before they can be sold. Intense legal discussion is going on about whether the value of those slots can be realised. That is a matter for the CAA, the slots administrator and the administrators of the company to work out between them.

The legal position with regard to credit cards is regulated under the Consumer Credit Act, and for anybody who paid with a credit card, the credit card company is liable for the refund of their flight home and any incidental costs incurred. Similarly, with debit cards there is a charge-back arrangement. It does not provide quite the same protection as under the Consumer Credit Act but, nevertheless, customers and passengers are still protected.

Of those returning after next Sunday, we estimate that only about 5% of passengers will remain abroad. There will then be plenty of capacity in the commercial market. The reason we felt the need to step in on this occasion—as indeed the last Labour Government did in the case of XL Airways in 2008—is that there just was not enough capacity available in the commercial market to repatriate so many people. Even if you had had the money, travel insurance and ATOL protection, you would not have been able to purchase a commercial flight in the market—the capacity was just not there—and therefore people would have been stranded abroad.

Moving on to the questions from the noble Baroness, Lady Randerson, I am afraid that I just do not agree that this was the impact of Brexit. I know that she wants to attribute everything that goes wrong at the moment to Brexit, but on this occasion she is just wrong. Monarch Airlines was carrying 14% more passengers this year than last year. The issue is that because of intense competition, particularly on the Mediterranean routes, prices dropped to such a level that the airline was not able to make money on them. Nevertheless, other airlines are making substantial profits—they have been announced in recent weeks—and they are doing well. There is competition in the market. Some routes, such as Sharm el-Sheikh and Tunisia, have had to be dropped for understandable security reasons. That has concentrated all of the market in the eastern Mediterranean. Many other airlines are setting up other routes and businesses as we speak in airports across the country in order to serve those markets. If noble Lords look on those websites they will see just how cheaply tickets are available. This was because of competition in the market. Of course, the value of the pound dropping also played a small role, but that applied to all the other airlines as well.

With regard to the rumours that were circulating, I have studied them in great detail. There were a lot of rumours in the media beforehand but, again, as a responsible Government we cannot comment on the financial health of companies; we can only act on definite information and decisions when they are made. I assure the noble Baroness that we will look at the implications of this, and I am sure that there will be studies from this House’s committees and possibly committees in the other place to look at all of the circumstances. We will take any appropriate action that falls from that. I can give the noble Baroness an estimate of the number covered by at ATOL. We estimate that, roughly, 10% to 15% will be covered by ATOL protection.

The noble Baroness asked about the ATOL Bill. Actually, the Bill would have had very little effect on this. Most of the people were flying as normal airline passengers under normal airline conditions and the ATOL Bill would not affect them. A very small proportion—10% to 15%—are covered by the existing ATOL provisions, but even with the extension to other operations that we are currently discussing in the ATOL Bill, I do not believe that many of the Monarch passengers would have been affected if that Bill had been in effect.

The noble Baroness asked about the costs. We estimate that the total cost will be roughly £60 million. We will get the final bills when the operation has finished. I can confirm that the Secretary of State and I are in active discussions with the credit and debit card companies and with the travel agents to attempt to secure as much of those funds for the taxpayer as possible. When I have more precise financial information, I will update the House.