Outlook: MyTravel looks like it's heading for the departure lounge

It's Nuts at Nats; Holmes Place

Internal links

MyTravel in danger after third warning

Cannons drops Holmes Place bid

If only the holiday bookings could keep pace with the profit warnings. This week's shocker from MyTravel (Airtours as was) came packaged with advance notice that yet another is just around the corner. Since May, the tour operator has issued three profits warnings, reducing its share price to rubble, but this latest one could ground it permanently.

In May, the problem was a million unsold holidays, which left a nasty dent in the summer schedule. In September, the glitch was blamed on booking income too early from the insurance policies tour operators habitually force down holidaymakers' throats.

Yesterday's, however, was in a class of its own. Although it is only 17 days since the last trading update (that's MyTravel language for a profit warning), the company has uncovered a whole new set of horrors, which add up to a £50m black hole in the accounts. Of that, £8m is profit that turns out to have been double-counted while £12m is down to a gremlin in the central computer in Rochdale, which causes costs to appear as revenues and losses to appear as profits.

MyTravel's best estimate is that another £30m of profits may prove to be non-existent but shareholders could be forgiven for taking that with a pinch of salt when the company has already demonstrated that it is incapable of simple arithmetic.

After the second profits warning the chief executive, Tim Byrne, packed his bags and David Crossland, MyTravel's retiring chairman, reluctantly tore up his round-the-world cruise ticket to take charge again. The internal appointment yesterday of a new chief executive and chief operating officer looks ominously like a case of deckchairs being re-arranged on the Titanic.

Miraculously, the finance director, David Jardine, is still there but surely only because someone has to man the shop until what passes for the accounts are signed off in November.

The company sought to reassure the market yesterday that it is not in default of its banking covenants, but that merely heightened the air of crisis. MyTravel is clearly flying so close to the sun that a crash is on the cards. It needs to refinance a £250m revolving credit next March and then redeem a £220m convertible bond the following January.

In desperation, MyTravel is contemplating a sale and leaseback of its freehold hotels and the disposal of non-core assets to raise perhaps £170m. But any firesale at distressed prices will erode the level of net assets, which is key to the CAA bond that allows MyTravel to stay in business.

The accounts now resemble a Swiss cheese. In these circumstances, no other tour operator would touch MyTravel with a bargepole, even though Peter Long, at First Choice, could now pick the business up for a song. Better to let it go bust, which would help ease the overcapacity in the package holiday market, and then pick up the best pieces.

The alternative is a debt-for-equity swap that would destroy what little value remains in the company for shareholders. In retrospect, the sell sign was not May's profits warning, however, but the decision three months earlier to re-appoint a certain Arthur Andersen as auditor.

It's Nuts at Nats

The plight of MyTravel is a timely reminder that capitalism works precisely because it allows companies to fail. Without risk there can be no reward. No so, apparently, in the case of National Air Traffic Services, which has managed to defy the laws of gravity as well as market economics with a little help from its regulator.

Nats is the Public Private Partnership that the Government created to run the UK's airspace. It is 46 per cent owned by a group of UK airlines including Sir Richard Branson's Virgin Atlantic and British Airways and it was going bust until the Civil Aviation Authority stepped in yesterday and allowed it to increase the amount it charges its airline customers.

Sir Roy McNulty, the CAA chairman, denies that he was leaned upon to spare John Prescott's blushes. But the decision was controversial enough to prompt the CAA's director of economic regulation, Doug Andrew, to resign in protest from the panel that sets Nats' charges.

Mr Andrew took the not unreasonable view that in a commercial world, commercial businesses such as Nats have to take the rough with the smooth and pay for their mistakes. But what would Mr Andrew know? He's only the CAA's expert.

Nats' biggest mistake was to start life with £730m of debt around its neck, a legacy of the lunatic bid which the Airline Group put in to ensure that no foreigners got their hands on our air traffic control system. The Government and the unions connived in making sure the Airline Group was the only possible private sector partner.

Not long after the PPP took off, 11 September happened, wrecking what was left of an already hopelessly unrealistic business plan. So Nats went back, cap in hand to its regulator, asking to be allowed to charge its customers more. For BA, Virgin and the other three airlines which own Nats this is money out of one door straight into the other.

But for airlines outside the magic circle such as Michael O'Leary's Ryanair, which though Irish is fast becoming one of the UK's biggest carriers, it is legalised theft.

The increase in charges will at least pave the way for the Government and the airports operator BAA to recapitalise Nats with a £65m investment each. But it is a bad advert for the principle that risk capital is precisely that and it is an even worse one for the Public Private Partnership.

Holmes Place

So, Holmes Place has not proved to be quite the muscle-bound business that the rival fitness chain Cannons thought it was. Cannons' 200p-a-share offer is off the table and Allan Fisher, the chief executive of Holmes, is back on the treadmill trying to resuscitate talks with another buyer.

The trouble lies mainly in the City where the investment bankers are not doing enough deals and are, therefore, not pumping enough iron either at Holmes Place or anywhere else. Business, in the dealing rooms and in the gyms, has fallen off a precipice since the fund managers came back from their summer hols and decided to sell the market.

Holmes charges joining fees of anything up to £500 and then a monthly membership of £100 on top for its five clubs in the Square Mile so it is easy to see why the gym is the first perk to go when the deal flow dries up and the axe is taken to the trading floor.

Cannons says it will fire another shot at Holmes – but at a price well below the 171p Holmes was trading at until it dropped its little dumb-bell yesterday.

Cannons is financed by Royal Bank of Scotland and the other bidder is thought to be Cinven so either way Holmes looks intent on selling out to venture capitalists. That is always a sure sign a business is being bought too cheaply. Mr Fisher should use this setback as an opportunity to do a little body building before he comes back to the negotiating table. In the meantime, shareholders could relieve the stress with a workout.

m.harrison@independent.co.uk