Monarch aircraft maintenance arm denies winding up threat

Monarch aircraft maintenance arm denies winding up threat

The aircraft maintenance arm of Monarch Airlines is reported to be working on a financial restructuring deal amid the threat of a possible winding-up petition from the taxman.

Her Majesty’s Revenue & Customs (HMRC) has drawn up plans to take action against Monarch Aircraft Engineering (MAEL) over an unpaid tax bill, the size of which was unclear last night, according to Sky News.

The move raises questions over the future of a business which employs more than 800 people working with airlines including Cathay Pacific, easyJet, Norwegian, Virgin Atlantic and Wizz Air.

It comes almost exactly a year to the day since Monarch collapsed.

People close to the situation said that HMRC had yet to serve a winding-up petition but confirmed that one had been discussed between the engineering group’s stakeholders in the last few days as they seek to resolve its future, Sky News reported.

MAEL stressed that it was “not the subject of a winding-up order or any other form of administration or insolvency process”.

Insiders said there was optimism that a “cleaned-up” MAEL freed of the legacy liabilities generated by Monarch could have a bright future, with a large part of the revenues lost when the carrier collapsed already having been replaced by new customers.

Technically still a subsidiary of Monarch Airlines, MAEL is not in itself in administration but is said to have debts of more than £100 million.

The bulk of that is secured debt held by Greybull Capital, the investment firm which owned Monarch for three years before administrators from KPMG were called in when regulators declined to renew its licences.

The Air Travel Trust, which helps to meet the cost of refunds and repatriation when Atol licence-holders go bust, is thought to be owed roughly £15 million by Monarch’s engineering arm after the debt was transferred to it from its former parent.

Several sources said that one possibility being explored was to launch a Company Voluntary Arrangement (CVA), a mechanism used to reduce obligations to creditors.

If used by MAEL, such a move could impact on the claims of unsecured creditors including the ATT, which falls under the auspices of the Civil Aviation Authority, with Greybull also expected to write off some of its substantial debt and provide new capital to the business.

New capital would be provided by MAEL’s existing stakeholders, according to one source.

The unit’s other creditors include Boeing, which contributed to a rescue package for Monarch Airlines in the months before its demise, the Pension Protection Fund and PNC, an asset-based lender which is thought to be owed more than £10 million.

KPMG is leading the talks about MAEL’s restructuring, which the company insisted was being conducted from a position of strength.

“One year on from the failure of Monarch Airlines, MAEL has successfully stabilised operations and transitioned to a standalone business.

“It has built on its strong foundations as a leading, independent aircraft maintenance company and, under the leadership of its skilled and experienced management team, has strengthened its customer base through new contracts with customers including Thomas Cook Airlines, Virgin Atlantic and Vueling.”

It added: “The company’s hangars in Luton and Birmingham are now fully utilised and operating at maximum capacity, with contracted work stretching throughout 2019.”

The ownership structure, it said, was “unsustainable in the medium and longer term and the review is now necessary”.

“MAEL has made good progress in agreeing the terms on which the ownership structure and legacy issues will be resolved.

“As part of this process, the MAEL balance sheet will be strengthened and management are confident that the process will be finalised by the end of this month.”

Monarch Aircraft Engineering chief executive Chris Dare said: “I’m proud of what we have achieved in the last 12 months. We have stabilised our operations and grown our business significantly. Our teams and employees have done remarkable work.

“I’m excited about our future potential and this process is the final phase in the journey to go from being a division of Monarch Group to a successful, standalone entity. We have enjoyed strong support from our key stakeholders which has been so important as we complete our journey.”

MAEL has increased its geographical footprint with the opening of a new component maintenance facility in Northampton and has created more than 100 new jobs, growing its workforce to more than 800 people in the last year. It has also doubled the size of its apprentice scheme.

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