In a year of major anniversaries and jubilees, one ‘ruby’ milestone in the restructuring world has passed largely without notice in 2022: 40 years since the high profile collapse of transatlantic budget airline Laker Airways.
Time flies, even if Laker doesn’t anymore. I was personally involved in the liquidation of Laker Airways Ltd in the early stages of my career. It was several years after the airline’s contentious failure in 1982 that I was able to compile the statutory closure for the Laker Airways Group of companies, part of which was governed by articles in Jersey law.
As the anniversary coincided with this year’s launch of a JV between our own firm, Buchler Phillips, and Airline Management Group to tackle the critical challenges still faced by the airline and aviation industries, I wondered to what extent the sector had learned from the Laker experience over the following decades – as well as numerous other airline insolvencies – and how much of its pain was chronic and needed very careful long term management. We advise businesses all over the world, but other UK examples of airlines no longer with us will be familiar: Dan Air (1992), Monarch (2017), Thomas Cook (2019) and FlyBe (2020).
While there are a few notable exceptions, airlines generally are not profitable. Herb Kelleher, the late co-founder of Southwest Airlines once joked: “If the Wright brothers were alive today, Wilbur would have to fire Orville to reduce costs.” Exposed to numerous market and external forces, the industry struggles to secure financial longevity and sustainability, finding itself continually striving to manage change. Laker’s problems were many and complex, but cashflow is so often the terminal blow and it was dealt by its much larger transatlantic competitors, Pan Am, TWA and BA, when they matched the upstart’s price cuts.
Not surprisingly, Covid-19 exacerbated the financial fragility of the aviation industry. Whilst the market is gradually recovering, revenues from trading are expected to be insufficient to help battered balance sheets – IATA estimates that airline industry debt levels increased by more than $220bn to over $650bn during the pandemic. This enormous burden is compounded by ongoing cost pressures, exacerbated by war in Europe, global inflation, higher interest rates, and a requirement to focus on investing in a net zero future. Laker’s debts were £270m when the business folded – more than £1bn today – making it the biggest corporate failure Britain had seen at the time.
Airline and aviation companies will face tough and deeply rooted issues for the next 40 years and beyond. The sector needs all the operational, strategic, commercial and financial restructuring skills it can get its hands on – and it needs them working together at the same time towards a sustainable outcome.
Written by Larry Jobsz, Director at Buchler Phillips, the UK’s leading independent corporate recovery, restructuring and turnaround firm.