The Truth about Monarch Airlines

The CAA should have acted against Monarch three years ago, when it was clear they were already broke

Monarch was Insolvent from 2014

The collapse of Monarch Airlines has been widely blamed on Brexit. In fact given the state of the company's balance sheets nothing could be further from the truth. 

The fact is that Monarch was heavily insolvent from 2013/2014. This is ,ade clear by their balance sheets filed with Companies House for financial years 2016, 2015 and 2014.

Detail 2016 2015 2014
Non-Current Assets 113.428,000 199,279,000 149,107,000
Current Assets 247,358,000 146,690,000 157,007,000
Total Assets 360,786,000 345,969,000 306,114,000
Current Liabilities -468,331,000 -388,517,000 -403,916,000
Net Current Liabilities -220,973,000 -241,827,000 -246,909,000
Long Term Liabilities -208,938,000 -81,436,000 -89,856,000
Net Liabilities / Equity Deficit -316,483,000 -123,984,000 -187.658,000

Net Current Liabilites

Net current assets represents the working capital of a business. "Net current liabilities" therefore represents failure for the very simple reason that a company's core trading activity cannot generate enough cashflow to pay the bills.

That made Monarch effectively cash-flow insolvent regardless of what equity value says, although in their case that was spectacularly in deficit too. Adding more debt is all very well but it does not solve the insolvency problem, in fact having to service addtional dent only makes things worse.

Monarch was a dead duck back in 2014. 

Net Equity in Deficit

Non-Current assets and long term liabilities are added to net current assets in order to arrive at net assets / equity, also known as net worth.

That says it all about Monarch Airlines really as its net worth for 2014 was minus £188 million. From then on it was in effect a zombie company (one needing constant bailouts to continue trading) until creditors called time on it.

In real cash terms though the equity deficit  is very much worse because it includes the net book value of the company's fixed or non-current assets. Net book values are calculated as cost less depreciation in order to measure the useful working life of the assets, not fair market values.

The fact is that fixed or non-current assets almost always have real disposal values that are considerably lower than their net book values. In the event of a forced sale such as when a company is administration, the discount to their net book values is likely to be higher still.

To see a working example of what a solvent balance sheet (forecast) ought to look like, follow the link below.

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