When Monarch Airlines halted operations last month the carrier held very little in the way of fungible assets. The company’s backers focused on a single and decidedly virtual possession to cash out: Landing slots at various UK airports. Airport Coordination Limited (ACL), the group that manages the slots, sought to revoke those assigned to Monarch and redistribute them to airlines still flying. ACL won an early court case but, this week an appeals court ruled that Monarch should have its slots at Luton and Gatwick airports allocated as if it were still flying. Those slots will be sold by Monarch’s bankruptcy administration to pay out creditors.
Airport slots typically are a “use it or lose it” proposition. If an airline does not fly the allocated route sufficiently often during the 6-month assignment window the slot is reverted to ACL for assignment to a different carrier. This arrangement has led to “ghost flights” in the past where empty planes operated to squat on slots, hoping to eventually sell the assets. At Heathrow a well-timed slot can be worth tens of millions; the Monarch portfolio at Luton and Gatwick is expected to realize as much as £60 million.
Rather than the slots returning to the pool for reallocation they will be sold, with private equity firm Greybull Capital set to reap the benefits. The company acknowledges that it has a “moral obligation” to reimburse the UK government for the costs of repatriation flights operated after Monarch halted operations. Amusingly, that operation’s cost is reported to be near £60 million as well. Of course, that “moral obligation” is likely to be paid only after other debts are covered, meaning British taxpayers are unlikely to see the full rate recovered.
That money will come from other airlines with deep pockets. Wizzair, IAG, Norwegian, and Easyjet are expected to bid on the slots to support growing operations at those airports and no doubt some smaller players will vie for access as well. Ultimately those costs are passed on to passengers, though amortized over many flights and years of operations.
And so, in a roundabout manner, the airlines that survived Monarch’s collapse pay for its failings while Greybull’s exposure is significantly reduced. That comes on top of news last month that Boeing helped fund the 2017 operations through a release of funds tied to a 737MAX order by Monarch placed in 2014. That 30-aircraft order was extended earlier in 2017 with the execution of options on 15 more MAX planes. Short-term good news for the Boeing order book now will appear as a loss on the balance sheet as those funds will not be recovered in the bankruptcy proceedings.
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