Monarch Airlines

Lord Callanan Excerpts

Monday 9th October 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Transport (Lord Callanan) (Con)]

My Lords, with the leave of the House I shall repeat a Statement made by my right honourable friend the Secretary of State for Transport in another place. The Statement is as follows:

“I would like to make a Statement about the steps that the Government have been taking to support those affected by the collapse of Monarch Airlines, in particular the 110,000 passengers that it left abroad without a flight back to the UK and the almost 2,000 people who have lost their jobs.

Mr Speaker, this situation is deeply regrettable, and all parties considered options to avoid the collapse of the company. Ultimately, however, Monarch’s board took the decision to place it into administration and it ceased trading at around 4 am on Monday 2 October. The engineering arm of the group remains a viable business and continues to trade.

Ahead of the collapse, my department had been working closely with the Civil Aviation Authority and several departments across Whitehall to prepare contingency plans, and the response has been swift and substantial. To put this into context, this is the largest operation of its kind ever undertaken, and has meant that the CAA has essentially set up one of the UK’s largest airlines to conduct this operation. To give Members a sense of the scale, we have put arrangements in place to bring back 110,000 people to the UK, which requires 700 flights over a two-week period and a maximum of 35 aircraft in operation at one time. The CAA is working with 27 different airlines, and more than 200 CAA staff are working on the project, with thousands more in partner organisations. There are over 40 airports involved, in the UK, around the Mediterranean and beyond. It has required 267 coaches, carrying over 13,000 passengers. So far there have been over 39,000 calls to our customer service centre, all swiftly answered by more than 250 call-centre staff. There have been over 1 million unique visitors to a dedicated website—monarch.caa.co.uk—and 7 million page views. Furthermore, more than 1 million people have been reached through our Facebook promotion. There have been 10 government departments and agencies involved, including the FCO in London and our extensive diplomatic and consular network in those affected countries.

I have seen at first hand the work being done across government and by the CAA to make this operation a success, and spoken to some of the passengers who have returned to the UK on government flights. I have been hugely impressed by what I have seen and we have had a very strong response from passengers, with many praising the CAA and the Government themselves for a well-organised and professional response.

Normally, the CAA’s responsibility for bringing passengers back would extend only to those customers whose trips were covered by ATOL. However, this is the largest airline failure in UK history and there would have been insufficient capacity in the commercial aviation market to enable passengers to get home on other airlines. The danger was that we would have seen tens of thousands of passengers abroad with no easy means of returning to the UK. I therefore instructed the CAA to ensure that all those currently abroad were offered an alternative flight home. As of last night, around 80,000 passengers have returned to the UK, almost three-quarters of the total number who were abroad at the time of the collapse. We have also deployed teams of government officials to overseas airports to provide advice and assistance to passengers. Despite robust plans and their success so far, this is a hugely distressing situation for all concerned. Obviously, one of my top priorities has been to help those passengers abroad get safely back to the UK and our hearts also go out to those passengers who had lost advance bookings as a result of the collapse.

In addition to supporting passengers, we have been working across government to ensure that the almost 2,000 former Monarch employees receive the support they need. I am pleased to report that airlines have already been directly appealing to Monarch’s former employees. For instance, Virgin Atlantic is offering a fast-track recruitment process for cabin crew and pilots, and easyJet has invited applications for 500 cabin crew vacancies. EasyJet is also calling for direct-entry captains or first officers who meet captain qualifications. All former Monarch employees will have received information from Jobcentre Plus outlining the support available to them. In total, Jobcentre Plus has pulled together a list of more than 6,300 vacancies across the major UK-based airlines—more than three times the number of people made redundant—which will help former Monarch employees remain in the airline industry.

The Aviation Minister has been in contact with those Members whose constituencies will have been hardest hit by these job losses, and given assurances that we will work with the industry to offer what support we can. However, I am also aware of the duty the Government have to the taxpayer, and while affected passengers have been told they will not have to pay to be flown back to the UK, we have entered into discussions with several third parties with a view to recovering some of the costs of this operation.

The ATOL scheme will, of course, provide the financial cover for those who have ATOL protection. We are currently engaged in constructive discussions with the relevant credit and debit card providers in order that we might recoup from them some of the costs to taxpayers of these repatriation flights. We are also having similar discussions with other travel providers through which passengers may have booked a Monarch holiday, and I would like to thank all those involved for their constructive and realistic approach. The initial response to this unprecedented situation would not have been as successful were it not for the support and co-operation of many players.

The loss of a major British brand, which was close to celebrating its half-century, is undoubtedly a sad moment. However, this should not be seen as a reflection of the general health of the UK aviation sector, which continues to thrive. We have never had the collapse of an airline or holiday company on this scale before. We have responded swiftly and decisively. Right now our efforts are rightly focused on getting employees into new jobs, and passengers home. But then our efforts will turn to working through any reforms necessary to ensure that passengers do not find themselves in this position again. We need to look at all the options, not just ATOL, but also whether it is possible for airlines to be able to wind down in an orderly manner and look after their customers themselves without the need for the Government to step in. We will be putting a lot of effort into this in the weeks and months ahead.

This has been an unprecedented response to an unprecedented situation, and I am grateful to all parties who have stepped in to support those affected”.

--- Later in debate ---

[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.

[Lord Myners (CB)]

My Lords, the Minister said that this was an unprecedented and most regrettable story, but it is not unprecedented for Greybull, the owner of Monarch, to have seen a company fail. In the past, companies have failed with damage to creditors, customers and employees, but with much less damage to Greybull because it has taken secured credit on receivables and fixed assets. It has put itself in the position of being a preferred creditor. I hope that the Government will encourage the authorities to investigate whether that is not an issue of fraudulent preference.

Secondly, the Minister praised the CIA and said that it could organise things reasonably well. I wonder whether it did so a year ago because the method by which Monarch was recapitalised was to lease planes from Boeing, which told it that the planes were worth £100 million more, which it could book as equity in its accounts. The Minister said that the money was in the bank. I suggest that the Minister is showing a complete failure to understand what has happened here. I encourage him to look objectively at the performance of the CIA, which appears to have licensed a business with inadequate equity, and also at the Insolvency Service and its investigation into the activities of Greybull—which this House was previously told would be reported on to Parliament, although the Government then decided that they would not publish the Insolvency Service report.

[Lord Callanan]

I am sure that the CIA is doing a great job, but on this occasion I will talk about the CAA—the Civil Aviation Authority. The noble Lord makes a number of very serious accusations. As I said, the administrators have a duty to report to the Government within three months on the actions of the directors. Again, as I said, if there is any evidence that those directors have acted improperly we will not hesitate to take action against them. I am afraid that I do not agree with the noble Lord: the CAA has done an excellent job in unprecedented circumstances. I have been working very closely with the CAA and it has acted in the best interests of the passengers involved. The noble Lord shakes his head. If we had not done anything and not put any contingency plans into action to bring people back, I am sure that he and many of his colleagues would be criticising us for not doing so. The CIA—the CAA; the noble Lord is getting me into it now—has acted properly and done an excellent job in very difficult circumstances pulling together a huge rescue operation for over 110,000 people. It deserves our credit.

[Lord Cavendish of Furness (Con)]

My Lords, as someone who was stranded rather absent-mindedly by Monarch’s failure, may I be allowed to recognise the Government’s response? Clear instructions appeared on the internet and arriving at Palma airport we were met by courteous and efficient representatives and returned home with only a few minutes’ delay. Significantly, the representative also explained the need to protect the taxpayer as far as possible. Will my noble friend pass on the appreciation for a rescue that was so efficiently carried out?

[Lord Callanan]

I thank my noble friend for his comments. I will certainly do that. Of course, we are all happy to criticise government agencies and organisations when things go wrong—quite rightly—but in this instance we should pay credit to those who have put so much work into organising this rescue operation. I am pleased that his repatriation flight worked well. The Secretary of State visited the first repatriation flight at Manchester Airport and I visited Leeds Bradford Airport to meet repatriated passengers. I was met with almost universal praise from those people for the way that the problem had been handled and the way they had been met in foreign airports by both Foreign Office staff and government surge team staff who were sent out to assist with the efforts in over 40 airports across the continent. On this occasion, things have gone extremely well. We still have a few more days of the operation left so we should perhaps not speak too early, but so far it is looking very good and we should thank the agencies involved.

[Lord Berkeley (Lab)]

My Lords, I am sure the whole House is grateful for what the Government have done with the CAA to sort out this urgent problem. I am sure contingency plans were in preparation for many months. It happens on the railways, too, when a passenger franchise goes bust or similar. But my worry is that there is a much bigger problem sitting on the sidelines in the shape of Ryanair, which seems to have forgotten that its pilots need holidays. Enormous numbers of flights have been cancelled—probably many more than in the case of Monarch. Where it will all end up we do not know. The passengers have probably had a much more difficult time sorting out how to complete their journeys than the Monarch passengers because the CAA was well organised. Will the contingency plans that have worked so well in this case be available in the future for other potential failures, whether the airline concerned is registered in the UK or not? I hope the answer will be yes.

[Lord Callanan]

The noble Lord is tempting me to comment on the financial health of airlines but it would be wrong to do so. I think I have been robust in the conversations and exchange of correspondence I have had with Ryanair. The company’s actions and the way it treated passengers during the flight cancellations were disgraceful and it certainly misled me when I wrote to it about the cancellations. I have made that extremely clear to Mr O’Leary in writing. While it is the responsibility of the CAA, we will not hesitate to ensure that the passengers of Ryanair or any other airline get the compensation that they require and that Ryanair and other airlines fulfil their legal responsibilities to let people know the terms of the EU 261 directive. We will not hesitate to take action through the CAA to ensure that they do so.

[Viscount Waverley (CB)]

My Lords, would the Minister care to say a word about the passengers who were caught out in needing to return home from the UK as opposed to returning passengers? In the wake of Monarch and wishing to ensure no future disruption to passengers, should the Government be encouraging Ryanair to abide by the payment of local taxes and social security to individual EU countries where pilots are stationed on a permanent basis rather than to Ireland, where their contracts are designated? I understand that the French have won a case in the ECJ, with the result that Ryanair pulled all its planes from France.

[Lord Callanan]

I am afraid I am not familiar with that case, but Ryanair will have to comply with the rules and regulations in the same way as everyone else, as I said in my previous answer. With regard to passengers who are leaving this country, I am afraid that in this case our responsibilities extend to getting those who are stranded abroad repatriated. People who have booked flights in advance with Monarch will need to look at their travel insurance or their credit or debit card companies to gain a refund. However, I am sure the noble Viscount will understand that it cannot be the Government’s responsibility to fly people out from this country. We took the view that our responsibility was to repatriate those who were stranded abroad at no cost to themselves. As I have said, we are working with credit and debit card companies to try to recover as much of that money as possible, but there is a limit to how much we can intervene in these matters.

[Lord McKenzie of Luton (Lab)]

My Lords, I start by declaring my interest as an advisory member of the board of London Luton Airport. These are difficult days locally, as the Minister has said. Monarch has been a proud Luton-based carrier for nearly 50 years and a good employer. It is one of two airlines that for many years helped to sustain the airport itself, together with Britannia Airways. If there is a silver lining, as has been explained, it is the vibrancy of the aviation sector, and London Luton Airport in particular, which is the fastest growing airport in the UK and the country’s fifth-biggest airport.

I welcome the action that the Government have taken and recognise that substantial costs have hit the public purse in the form of repatriation costs, redundancy payments and the pension scheme, involving the PPF. Is it right that when Greybull Capital purchased Monarch Airlines, it was on the basis that the PPF should take responsibility for a £600 million pension scheme obligation in return for a derisory stake in the business? Can the Minister also say something about Monarch Aircraft Engineering? He has said that it is not affected by this, which is good news so far because plenty of skills and skilled jobs are deployed in that company. However, can he say where this will leave the ownership of that entity?

[Lord Callanan]

The noble Lord has given me an opportunity to pay tribute to the five UK airports involved, considering that they were informed only a matter of hours before the administration took place. All five airports, including Luton, did an absolutely fantastic job in helping us by laying on staff to inform people who, sadly, were arriving on the Monday morning expecting to go away on holiday that the airline had gone into administration. Credit is due to all the airports. I am not aware of the precise circumstances of the bailout a year ago, but I understand that the information the noble Lord has is correct. The PPF took responsibility for the pension fund as part of that deal. I was not in post at the time and I do not know all the details, and it would be remiss of me to comment too much on them, but I will write to him.

[Lord McKenzie of Luton]

Could the Minister please deal with the point about Monarch Aircraft Engineering?

[Lord Callanan]

As I understand it, the engineering business is still trading normally and is not in administration. Clearly, a substantial part of its work was with Monarch, but the majority of it is with other airlines. As I say, I believe it is trading normally but if I have any updated information, I will be sure to let the noble Lord know.