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 evidenced by the balance sheets of their own accounts 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

This ought to read net current assets, not "liabilities". Current assets (cash and cash convertibles within one year) less current liabilities (payable within one year) represent the working capital and therefore the liquidity of any business.

A decent level of working capital is vital for any business because if that is in deficit as it has been for three years in Monarch's case, a business is effectively cash-flow insolvent regardless of what equity value says. Adding more debt is all very well but that has to be matched by with a strong recovery in core trading and profits. In the real world though, with the working capital deficit Monarch was reporting in 2014 its situation was already looking hopeless. 

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.

FAQs
The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions Depreciation What is Business Operating Activity What are Fixed Assets