The former owner of Monarch Group says the new owners face a tough job as it seeks to compete in the low cost arena against easyJet and Ryanair.
Fabio Mantegazza and his family poured £50 million into a survival package earlier this year that saved 2,500 jobs and kept the business they had owned for nearly half a century intact
The payment helped reduce the deficit in the company’s defined-benefit pensions scheme and provide capital as part of the sale to Greybull Capital.
The turnround specialist is putting in £75 million for a 90% stake.
A charter airline business for many years, Monarch is being streamlined. Some 700 jobs have gone and charter and long-haul flying is ending.
It will operate as a low-cost airline, flying to Mediterranean and other European destinations.
“Life will be hard. They will have to work as hard as easyJet and Ryanair,” Mantegazza told the Financial Times.
“Customers have enormous choice. The industry is changing all the time, businesses have to be well run and financed, very competitive and clear what they are about.”
Monarch made good money for the Swiss-Italian Mantegazzas. It was one of a clutch of travel businesses, including tour operator Cosmos, that helped the family to a ranking of 317 on the Forbes billionaires list worth an estimated $2.4 billion.
But failed rescue plans and the ultimate sale of the group last month have proved financially costly for the Mantegazzas.
“We had a very good run of good luck,” said Mantegazza. “But good luck comes to an end.”
A potent mixture of the internet and low-cost airlines overhauled the way people booked holidays and made Monarch’s charter business increasingly anachronistic.
Sudden events made it particularly vulnerable. The Arab Spring of 2011 drove up the price of oil and pushed Monarch to the brink. That summer, Mantegazza had a heart attack.
The same year his family injected £40 million into a rescue plan, but it was not deemed sufficient, so another £20 million was required.
The rescue plan promised £17 million of profits in 2013, doubling to £35 million this year. But the forecasts were revived downwards – to £20 million, then break even.
New chief executive Andrew Swaffield was predicting a £50 million loss at Easter.
More money was needed to prop up Monarch: £15 million last Christmas, £25 million in the summer. A new rescue plan, requiring a further £75 million of investment, promised a return to profit – in 2018. But the family rejected it.
“Before we got there, we knew we would get clobbered again,” the FT reported Mantegazza as saying.
He, his father Sergio and the Albeck family – partners of the Mantegazzas since the 1950s – decided to sell.
“We did not want to continue to support the business,” said Mantegazza. “We felt it was not viable to become investor of last resort and it was not a business we wanted to stay in. We didn’t want to sign any blank cheque.”
But the Mantegazzas felt loyalty to the Monarch staff.
The sale to Greybull involves a 10% stake going to the Pension Protection Fund, the lifeboat fund for scheme members.
The Mantegazzas feel a sense of “privilege” at achieving an exit that keeps the business alive. A liquidation would have been “a very regrettable outcome”, he said.
“There were 15 occasions in the summer when if we had got a wrong answer the business would have gone down the tubes,” Mantegazza admitted.
His 87-year-old father felt a sense of closure when told the sale had gone through, said Mantegazza.