TUI finances in tailspin as risk of insolvency looms without external support

An international travel and tourism group has reported that it will not be able to continue business operation without further financial support.

TUI Group, which owns travel agencies, airlines, hotels and cruise ships, saw group revenue drop by 89 per cent over the past half year to €716m, which it said is the result of international travel bans.

The tourism group said that as a result of the pandemic’s impact, there is a risk that it will not be able to survive without external support.

It added that this could likely be the case unless it sees an increase in new travel bookings in the coming months.

As part of previously announced plans to save approximately €400m per year, the company has so far cut 6,000 of a planned 8,000 jobs.

The group commented: “Several principal risks materialised simultaneously as a result of the Covid-19 pandemic, which has led to travel restrictions across the world, both within the markets as well as in destination countries.

“There is material uncertainty as to when the TUI Group’s travel activities can be fully resumed.

“Taking into account the financing lines still available and the low operating cash inflows in the last six months due to the pandemic, there is a risk that, in the absence of an increase in new travel bookings in the coming months and related customer prepayments from summer 2021 onwards, the TUI Group will no longer have sufficient financial resources to continue its business operations without further support measures or the short-term sale of non-current assets.

“Overall, there is a risk that the TUI Group will not be able to continue its business operations without further external support measures and realise its assets and service its liabilities in the normal course of business.

“TUI’s solvency could also be jeopardized if a further suspension of covenant compliance is not achieved for the test period ending on 30 September 2021 and beyond.

“Furthermore, the loans from KfW (both tranches) and the initial revolving credit facility totaling €4.6bn will have to be refinanced in FY 2022.

“Due to the uncertainty regarding future business development, there is a risk that refinancing on the banking and capital markets will not be successful and that an extension of the existing financing or further government support measures will therefore be necessary.

“During this period of travel suspension, the executive board continues to monitor the key risks, particularly heightened risks such as customer demand and those that impact the financial profile (i.e. cost volatility and cashflow) of the group.

“Additionally, TUI Group is preparing to restart operations to align to the requirements to be introduced by source markets and destinations once restrictions begin to lift. This is to ensure resumption of activities at the earliest and in the safest manner.”

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