Why did XL go bankrupt? It was set up, mafia style!

Surely I am not the only one who has read and seen the news about the XL Leisure Group and thought,"How strange that a profitable company purchased only 23 months ago, is so heavily in debt? what happened?"

The answers that I found may be considered good business practice in the real world, but I am truly confused to say the least. And to be honest, it reads a bit like a scam that Tony Soprano might pull off...

A timeline of events:

2004 to 2006- The Avion Group is formed and begins to acquire tour operators and airlines in France, Germany and the UK.

October 2006- The Avion Group sells nearly all airline holdings to a managerial group for $450m at a profit of $107m gross. The managers borrow a large sum of the investment capital from two Icelandic banks: Straumur Investment Bank and Landsbanki Íslands. The Avion Group guarantees the $280m loan to the managers from Straumur Investment Bank.

November 2006- The Avion Group becomes Eimskipafelagid, divested airline holdings become the XL Leisure Group.

August 2008- The XL Leisure Group is in debt to Barclays Bank for £10m due to fuel hedging issues.

September 2008- Eimskipfelagid (formerly the Avion Group), fearing that it may have to pay the guaranteed $280m loan, secures its position with the help of two Icelandic billionaires willing to invest. These men are father Björgólfur Guðmundsson (owner of West Ham United, who are sponsored by XL.com) and son Björgólfur Thor Björgólfsson, the richest man in Iceland. Together they are worth around $4.6 billion according to the Forbes list.
3 Days later it is curtains for the XL leisure Group in the UK. and they go into administration. XL France and XL Germany, both still profitable now belong to the Straumur bank to cover the still outstanding loan.

So far, so good and all looks pretty normal. But lets take a closer look at who is who in this game...

Lets start with XL Leisure Group. Well they are just XL, owned by a group of people who have been in the British travel industry for up to 2 decades.
Barclays is just Barclays, one of Britain's biggest banks.

And now lets look at the Icelandic site of the story;

Avion Group was the investment company started by Björgólfur Guðmundsson and Björgólfur Thor Björgólfsson
Landsbanki Íslands is 45% owned by Björgólfur Thor Björgólfsson, who is also the chairman of the board.
Straumur Investment Bank are at least 61% owned by Björgólfur Guðmundsson and Björgólfur Thor Björgólfsson, the last one is also the chairman of the board.
Eimskip is owned by Björgólfur Thor Björgólfsson.

There, that clears the whole thing up a bit. from now on Björgólfur Guðmundsson will be referred to as BG and his son, Björgólfur Thor Björgólfsson, will be called BTB...

Now... time to look at this history again

2004-2006 BG and BTB is formed and starts to acquire tour operators and airlines in France, Germany and the UK. BG and BTB name this operation XL Leisure Group

October 2006 BG and BTB sell XL Leisure to the managers of XL Leisure Group for $450m. BG and BTB make a profit of $107m before tax. The managers borrow a large sum of money for their investment from 2 Icelandic banks; BG and BTB and BTB. BG and BTB guaranteed the $280m loan to the managers from BTB.

November 2006 BG and BTB become BG and BTB

August 2008 The XL Leisure Group has run up a debt of £10m with Barclay's Bank.

September 2008 BG and BTB, fearing that hey may have to pay the guaranteed $280m loan, secure their position with the help of two Icelandic billionaires willing to invest in their business. These men are father BG (owner of West Ham United, who are sponsored by XL.com) and son BTB , the richest man in Iceland. Together they are worth around $4.6 billion according to the Forbes list.
3 Days later it is curtains for the XL leisure Group in the UK. and they go into administration. XL France and XL Germany, both still profitable now belong to BTB to cover the still outstanding loan...

Pretty simple and straight forward dealings! But some how it just does not feel right... 2 Years after selling their travel group BTB and Bg have their travel group back, but in a leaner, healthier form. The parts that didn't work have gone bankrupt without them carrying any real responsibility for it. They are not responsible for any debts that XL Leisure Group UK had with creditors, nor do they have to offer redundancy deals to any employees that would lose their jobs.

As it said in the timesonline.co.uk on sunday 14/09/08 "Behind the scenes, industry sources say, he (Peter Owen, then CEO of XL) began looking for investors to fund a new management buyout. The takeover, however, would have valued the business at much less than Wyatt and his colleagues had paid for it"

And with the National Bank of Iceland charging 15% interest, it would have been bad business if BG and BTB had lend the managers the money for the buyout for under 10%. That means that the interest alone to repay was $28 million, half of XL's annual loss.

How is it possible that a group of people who are renowned (and around Crawly hated) for their sharp business sense and with more than 15 years of experience in the airline industry did not see that this was simply a bad deal?! Did they lose their ability to calculate the worth of a company?

And last of all, WHY DID XL HAVE TO GO BUST? Why did BG and BTB prefer to cough up $280m to cover the loan, rather than..... GIVE BARCLAYS £10m, ADD THAT TO THE OUTSTANDING LOAN AND DEMAND XL SLIM DOWN ITS OPERATIONS? Why? Because BG and BTB are not about building companies, they are about quickly selling on at huge profits and do not care who gets done over! And now they get to sell XL France and Germany all over again.

http://en.wikipedia.org/wiki/Bjorgolfur_Thor_Bjorgolfsson
http://www.invgr.com/bjorgolfur_thor_bjorgolfsson.htm
http://en.wikipedia.org/wiki/Bj%C3%B6rg%C3%B3lfur_Gu%C3%B0mundsson
http://www.m-travel.com/news/2006/10/avion_group_ann.html
http://en.wikipedia.org/wiki/Straumur_Investment_Bank
http://en.wikipedia.org/wiki/Landsbanki
http://www.straumur.net/en/Investor-Relations/Share-information/Share-ownership/
http://www.eimskip.com/desktopdefault.aspx/tabid-687/
http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article4748313.ece