StockMarketWire.com - Struggling travel company Thomas Cook Group said that it was in advanced discussions with largest shareholder Fosun and its core lending banks about a potential recapitalisation and break-up of the group.

The company also warned that it expected to post a fall in operating earnings for the second half.

Under the proposal, an injection of £750m of new money would be provided to the company, offering it sufficient liquidity to trade over the winter 2019/20 season and 'invest in the business for the future'.

The recapitalisation would see Fosun acquiring a 'significant controlling stake' in Thomas Cook's tour operator business and a significant minority interest in its airline.

The proposal also envisaged a significant amount of the company's external bank and bond debt being converted into equity, to be agreed following discussions with financial creditors.

'Existing shareholders will be significantly diluted as part of the recapitalisation,' Thomas Cook said.

'However, shareholders may be given the opportunity to participate in the recapitalisation by way of investment alongside Fosun and converting financial creditors on terms to be agreed.'

The company said that since announcing a review of its airline business in February, the operating environment in the European travel market had become progressively more challenging.

The strategic review of the airline had been paused, pending the outcome of the recapitalisation.

'While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees,' chief executive Peter Fankhauser said.

In a separate trading update, Thomas Cook said is summer 2019 programme was 75% sold, slightly ahead of the same period last year.

Tour operator bookings were down 9%, though pricing was up 2%.

'While bookings in recent weeks have seen a marked improvement, reflecting the annualisation of the summer 2018 heatwave, margins remain weak due to continued intense competition with high levels of promotional activity across all businesses,' the company said.

Airline bookings were down 3%, with pricing up 2%.

'Looking forward, it is clear that the trends experienced in the first half of the year have continued into the second half, reflecting an uncertain consumer environment particularly in the UK, leading to intense competition,' Thomas Cook said.

'As a result, the group expects underlying Ebit in the second half to be behind the same period last year.'

'The group is helping to mitigate these challenges with a rigorous focus on cost, while remaining fully focused on delivering a stronger holiday offering to customers through high quality, higher-margin hotels, underpinned by a digital focus and market-leading innovation.'

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