XL collapse a pointer for things to come

Probably the last thing that the government wanted to here is the collapse of a holiday company leaving thousands of people either stranded or with holidays they were looking forward to now cancelled.

It brings thoughts of recession closer to home and will not help the school of thought that thinks we are talking ourselves into negative growth.

Firstly though there is the company itself.The administrator of XL is talking of significant redundancies,it employs 1700 people in the UK and their jobs are at risk.Added to that the secondary jobs that any travel business supports and these will not be insignificant figures.

Secondly the failure will lead to a lack of confidence in the travel industry and there are already rumours of other business's teetering on the edge.

The company is blaming the high cost of aviation fuel and had already announced that it was cutting back on some of its business to concentrate on the American and European markets.It is always the low cost carriers that will be hit first and with the main holiday season tailing off,cash flow will be tight and there is little in the way of refinance around due to the global tightening of credit markets.

Two weeks ago,Barclays announced that it would be withdrawing financing based on fuel future positions but it seems that the bulk of the financing came from an Icelandic outfit and the Guardian is reporting that

an announcement was made by Icelandic transport group Eimskipafelag Islands - known as Eimskip - and referred to a loan it had made when it sold XL Leisure to a management buyout in 2006. Eimskip had made a loan guarantee of €207m (£165m) to the buyers of the airline and was concerned that the "conditions in the aviation market and information of the operation of XL" would make it more likely that it had to honour the guarantee.
To protect itself, Eimskip had lined up a group of "significant investors" - led by local multimillionaire businessmen and father and son duo Bjorgolfur Gudmundsson and Bjorgolfur Thor Bjorgolfsson to takeover the loan.

Nevertheless the travel industry will be under close scrutiny over the next few weeks and months