Thomas Cook makes it hard to see the sunny side - Telegraph.co.uk

When holiday companies start to unravel, they unravel fast. Just think of Harry Goodman's International Leisure Group – where Fontenla-Novoa started out – or MyTravel itself, which prior to the merger wiped out the shareholders with a painful recapitalisation.

Financial problems spook customers. Wyn Ellis, a Numis analyst, said Thomas Cook had sent "a terrible message to potential customers. Competitors are likely to take advantage of the opportunity to grab market share, leading to a potentially dangerous further downward trend in bookings." One top 15 shareholder was even more pessimistic. "Fatal" was his word for Thomas Cook's announcement.

Analysts have raised concerns for months over the company's debts, fearing a rights issue, though the board ritually batted away such worries. Even when Fontenla-Novoa got his marching orders – with a £1m-plus pay-off – the company's largely invisible chairman Michael Beckett insisted: "An equity placing is currently not being considered at all." Under pressure from shareholders, the 75-year old Beckett has since had his exit brought forward.

Instead of a cash-call, Thomas Cook now finds itself in a far worse position. Just a month after prising an emergency £100m out of its 17-strong banking syndicate, led by HSBC, Barclays and Unicredit, it's back for another £100m.

Little wonder the shares dived 30.91 to 10.2p. Nick Batram, a Peel Hunt analyst, now has a 1p target price, believing Thomas Cook could require a £700m equity injection – possibly via a debt-for-equity swap. "The reaction of the share price today reflects the absolute loss of confidence in the business and management," he said.

How has Thomas Cook got into such a mess? As recently as September 29, the company said in a pre-close trading statement that it had "circa £830m headroom of available cash and committed bank facilities". On Tuesday, its stand-in chief executive Sam Weihagen insisted the company had not "burnt through" £100m in the past month. "We found trading had deteriorated more than we thought, especially in France and Russia," he said, hit by the ongoing tourist fallout from the Arab spring and unexpected losses at its new Russian joint-venture Intourist. Russians' two favourite holiday destinations, he said, were Egypt – home of fresh unrest – and Thailand, home of flooding.

He said trading was poor enough "for us to be worried" going into the lean winter months when the cash position can swing by as much as £800m. "At this moment in time we will not break the covenants and we are quite certain that we will reach an agreement with our banks," he said – though hardly inspired confidence by admitting he did not "know how to explain exactly" what a covenant based on "leverage EBITDAR" actually meant.

One senior industry source does not buy the notion that the problems are due to a sudden trading downturn – or Thomas Cook's exposure to cash-strapped mass-market tourists.

"You have to ask what the board has been doing," he said. "In a business like this you need a very conservative capital structure because you don't know what's going to come and bite you. But a few years ago they did a £300m share buyback and were always acquiring businesses."

Paul Hollingworth, the finance director, now admits "we could do with the £300m". Neither does he unequivocally back last year's deal that saw Thomas Cook take on 401 barely profitable travel agents from the Co-Op. "Manny was a retailer," he says. "I wasn't the driving force behind that."

Hollingworth is adamant Thomas Cook can raise £200m, selling properties, five Spanish hotels known internally as the "HCV" assets and its stake in air-traffic control system NATS, though admits the latter is hard to sell. It can also cut costs – aircraft and jobs.

But how much time has it got? That depends not only on its banks but its customers. As one senior industry figure put it: "MyTravel was just a holding company name, so most people didn't know what brands it owned. When you have Thomas Cook plastered over the front pages, customers stop booking."