UK government steps in as Carillion forced into compulsory liquidation

Carillion officials made a final rescue appeal to its lending banks on Sunday night after the government refused to rescue the struggling construction and services company. (Reuters)
Updated 15 January 2018
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UK government steps in as Carillion forced into compulsory liquidation

LONDON: Britain’s Carillion collapsed on Monday after its banks lost faith in the construction and services company, throwing hundreds of major projects into doubt and forcing the government to step in to guarantee vital public services.
Carillion was forced into compulsory liquidation after costly contract delays and a slump in new business left it at the mercy of its lenders and battling a ballooning debt pile.
The demise of the 200-year-old business poses a major headache for Theresa May’s government which has employed Carillion to work on 450 projects including the building and maintenance of hospitals prisons, defense sites and the country’s new superfast rail line.
“In recent days we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision,” Chairman Philip Green said.
“This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years.”
Employing 43,000 people around the world, including 20,000 in Britain, Carillion has been fighting for survival since July when it revealed it was losing cash on several projects and had written down the value of its contract book by £845 million.
With banks refusing to accept the group’s latest attempt to restructure, May’s senior ministers met around the clock in recent days, under pressure from the opposition Labour Party and unions not to use taxpayer money to prop up the failing company.
Carillion has debt and liabilities of £1.5 billion with creditors that include banks RBS, Santander UK, HSBC and others. It has a pension deficit, included within that figure, of £580 million.
David Lidington, the minister in charge of the Cabinet Office which oversees the running of government, said his first priority was to ensure that public services continued. He urged the company’s staff to continue to work and said the government would pay their salaries.
Some contracts handled by Carillion would go to alternative providers, he added.
The company’s collapse comes at a difficult time for the government as it negotiates its exit from the European Union.
“It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company,” Lidington said in a statement.
“For clarity, all employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do.”
Labour’s business spokeswoman Rebecca Long-Bailey called for a full investigation as to why the government continued to award Carillion contracts when it was clear it was in trouble.
“This company issued three profit warnings in the last six months yet despite those profit warnings the government continued to award government contracts to this company,” she told BBC TV.
“We’re ... asking for a full investigation into the government conduct of this matter.”
Spun out of Tarmac nearly 20 years ago and having bought Alfred McAlpine in 2008, Carillion has worked on key construction projects including London’s Royal Opera House, the Suez Canal road tunnel and Toronto’s Union Station.
In July last year it won contracts to build Britain’s new High Speed 2 rail line, a major project that will better connect London with the north of England.


Lufthansa profit warning spooks European airline sector

Updated 17 June 2019
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Lufthansa profit warning spooks European airline sector

  • Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called ‘attritional fare wars’

FRANKFURT: Germany’s Lufthansa sent shockwaves through the European airline sector on Monday as it cut its full-year profit forecast, with lower prices and higher fuel costs compounding the effect of losses at its budget subsidiary Eurowings.
The warning follows gloomy comments last month from Irish budget airline Ryanair, which vies with Lufthansa for top spot in Europe in terms of passengers carried. Air France-KLM also reported a widening quarterly loss last month.
In a statement issued late on Sunday, Lufthansa forecast annual EBIT of between €2 billion and €2.4 billion, down from the previously targeted €2.4 billion to €3 billion.
“Yields in the European short-haul market, in particular in the group’s home markets, Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share,” it said.
European airlines are locked in a battle for supremacy, with a surfeit of seats holding down revenues and higher fuel costs adding to the pressure. A number of smaller airlines have collapsed over the past two years.
Lufthansa cited falling revenue from its Eurowings budget business as a key reason for the profit warning.
“The group expects the European market to remain challenging at least for the remainder of 2019,” it said.
It also pointed to high jet fuel costs, which it said could exceed last year’s figure by €550 million, despite a recent fall in crude oil prices.
Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called “attritional fare wars” and said four or five European airlines were likely to emerge as the winners in the sector.
“No signs that anyone is prepared to reduce capacity, therefore we would anticipate the wave of consolidation in European short haul is not over,” said analyst Neil Wilson, analyst at London-based broker market.com.
Earlier this month global airlines slashed a widely watched industry profit forecast by 21 percent as an expanding trade war and higher oil prices compound worries about an overdue industry slowdown.
Lufthansa’s problems are centered on its European business, with a more positive outlook for its long-haul operations, especially on transatlantic and Asian routes.
Eurowings management is due to implement turnaround measures to be presented shortly, Lufthansa said, adding that efforts to reduce costs had so far been slower than expected.
Lufthansa’s adjusted margin for earnings before interest and tax (EBIT) was forecast between 5.5 percent and 6.5 percent, down from 6.5 percent to 8 percent previously, it said in a statement.
Lufthansa also said it would make a €340 million provision for in its first-half accounts, relating to a tax matter in Germany originating in the years between 2001 and 2005.