The best way to deal with an airline insolvency is to keep aircraft flying to repatriate passengers in the event of a failure, an interim report following the Monarch collapse says.

When Monarch Airlines went bust in October 2017, the UK government spent £60 million to bring 110,000 passengers stranded abroad home.

Current rules mean that when an airline enters administration it is stripped of its operating licence, meaning it must cancel its flights and is left unable to fly passengers home. In the case of Monarch, the Civil Aviation Authority stepped in to provide tens of thousands of flights a day.

In contrast, German carrier Air Berlin had gone into administration earlier in the same year but the German government chose to provide financial support to keep the airline temporarily running.

The report found that both options were expensive, but that the “most effective option is to keep the fleet of an insolvent airline flying”.

Both Atol-protected customers and non-Atol-protected customers were brought home at a cost to the tax payer in the wake of the Monarch failure.

Travel industry figures said the move made a “mockery” of the Atol system at the time.

The Airline Insolvency Review’s interim report, published today, says: “Findings of the review so far have shown that there is no one-size-fits-all solution to repatriating passengers in the aftermath of an airline failure – the best approach will depend on the airline and circumstances of the failure.

“One area to be explored, therefore, is how to alter CAA’s powers to give more options for dealing flexibly and proportionately with emerging signs of financial distress in a UK licenced airline with a view to preventing or managing a failure more effectively.

“In particular, this could explore whether it is possible to adapt the existing licensing framework to provide a mechanism that could deliver an orderly wind-down of a UK airline.

It also found that there are limits to the numbers of passengers that can be handled by existing capacity and Monarch-style charter operations, meaning that larger UK airlines would need to be kept flying in administration to ensure passengers are able to make swift returns home and avoid long delays.

But the report noted that a range of options should be available, including using existing alternative capacity where possible and chartering additional aircraft. More detail of this approach is to be given in the final report.

The interim review follows a call for evidence made in April through which 33 companies have contributed there advice to creating a smoother process of dealing with airline insolvency in the UK. Its final recommendations will be made when the final report is published at the end of the year.

Its initial report also suggests too many air passengers are flying without adequate protection against the insolvency of their airline and called for greater clarity and confidence for passengers about the risks of airline insolvency and how they are protected. It also said current protection measures such as travel insurance and credit cards often overlap with Atol.

Peter Bucks, chair of the Airline Insolvency Review, added: “Air travel clearly brings huge benefits, connecting people from all over the world, but when an airline goes out of business, it can affect large numbers of people who can often look to their Government and the taxpayer to assist them in their hour of need. Too many do not have protection of their own, too often requiring the taxpayer to step in.

“Even though airline insolvencies are relatively rare, we need to be prepared to deal with the consequences for passengers when one occurs. Ensuring all passengers can get home requires organisation, funding and in many cases more than simply rebooking onto other flights.

“The Interim Report is a key milestone in the Airline Insolvency Review, giving the opportunity to reflect on the views we have heard to date and setting out our initial conclusions. In the next phase of our work, we will continue to engage openly with interested parties as we develop concrete proposals to address these complex issues.”

Abta chief executive Mark Tanzer said: “It is good that the review has confirmed there is a problem with the existing protection arrangements if an airline goes out of business.

“Abta has been highlighting for some time that the lack of any formal protection arrangements for scheduled flights leaves many passengers at risk, and the government and taxpayer with a potential repatriation cost. This review is an opportunity to set this right.

“We’re pleased that the review team is engaging with industry and look forward to continuing to work with them to come up with concrete proposals.”

But the general secretary of BALPA, the UK’s pilots’ union, criticised the interim report for not addressing the effect on staff who lost their jobs amid the failure.

Brian Strutton said: “BALPA is disappointed the review into the collapse of Monarch has focussed solely on passengers and taxpayers, with no thought given to the staff who lost their jobs.

“Monarch’s 3,000 staff were kept totally in the dark, they only heard their company had gone under through news reports, and were then told to call a premium rate phone number in order to hear they had been made redundant. And of course they lost earnings and pensions.

“It is important to protect passengers from any future airline collapses, but BALPA urges the Department for Transport to also consider measures to protect staff.”