You may have read in the travel press or on social media that on 1 March 2016 the CAA issued a series of new financial assessments for Standard and Small Business ATOL holders.
All of the new changes are highlighted in the CAA’s guidance note: – “ATOL Policy and Regulations 2016/01 – Criteria for an application for and grant of, or variation to, an ATOL: Financial”. To help you understand the changes more fully we have provided a clear, concise assessment of them.
This information was originally supposed to have been made available in May 2015. It will become operative from 1 June 2016 and impacts Small Business ATOL (“SBA”) holders and Standard ATOL holders and will be the criteria applied to the September 2016 renewals.
What does it all mean?
The summary below outlines all aspects, but is still a brief outline :
- SBAs (ATOL holders with less than 500 passengers and £1 million licensable turnover) will now be financially assessed based on 4 financial factors – Current Ratio, Cash Ratio, Leverage Ratio and Return on Assets. It is a holistic approach and if an SBA fails in relation to any of these financial factors then the CAA will issue requirements in order to renew and/or maintain the licence which will normally involve an injection of cash.
- Standard ATOL holders with licensable turnover less than £20 million will need to be assessed on the following 7 financial factors:-
- Current Ratio
- Cash Ratio
- Leverage Ratio
- Return on Assets
- EBITDA Margin
- Revenue Growth
- Revenue Variance
Interestingly, the band for Standard ATOL holders has been increased from £5 million licensable turnover up to £20 million licensable turnover. Large ATOL holders with licensable turnover in excess of £20 million will continue to be in reviewed in depth by the CAA Risk Management Department (“RMD”).
Our assessment is that the licensing of SBAs and Standard ATOL holders will be based upon objective tests, while larger ATOL holders are still open to the vagaries of subjective testing by CAA RMD.
Shortly after 1 March 2016 the CAA will send all SBA’s (Small) and Standard ATOL holders that renew in September 2016 a Self-Assessment Tool, to be completed in line with financial information extracted from their most recent statutory accounts. This can be completed either by the company or their financial advisers and is submitted to the CAA, who will submit a decision within five days in relation to the information provided.
Please note that this Self-Assessment Tool does not replace the normal renewal process. Ultimately this renewal process will be done online, but for the foreseeable future will still be done via the usual process of submission of a renewal pack, including the most recent statutory accounts. The application form will change and will encompass a broader summary of the information required on the self-assessment tool.
Financial Assessment Design
The CAA used a professional services firm and an international credit rating agency to analyse a wide variety of financial and non-financial factors. They decided upon the 7 financial factors for Standard ATOL holders (medium) and 4 for SBAs (small). These are summarised on the grid below and are based upon an assessment of the statutory year-end figures of the relevant ATOL holder.
|1 Current Ratio (Current Assets/Current Liabilities)||√||√|
|2 Cash Ratio (Cash/Current Liabilities)||√||√|
|3 Leverage Ratio (Total Liabilities/Total Assets)||√||√|
|4 Return on Assets (Net Profit/Total Assets)||√||√|
|5 EBITDA Margin (EBITDA divided by Revenue)||X||√|
|6 Revenue Growth (Revenue divided by PY Revenue)||X||√|
|7 Projected Revenue Variance (Revenue/Projected Revenue)||X||√|
[Projected Revenue = revenue for the next financial year ended projected at the start of the year (Section 7 of application)]
If you or your team require further information regarding any of the changes noted above please contact a member of the WHA Travel & Leisure department on 0208 878 8383 or email us at firstname.lastname@example.org