Scotland’s biggest airline, Edinburgh-based Flyglobespan, has been placed in administration with all scheduled flights cancelled.
Administrators PricewaterhouseCoopers said Globespan was in contact with about 5,000 passengers booked with or travelling with the airline.
Last year the airline, which employs about 800 staff, carried more than 1.5m passengers and operated 12,000 flights.
The majority of the company’s staff have been made redundant.
The move followed attempts to conclude a financing deal for the airline with Jersey-based Halcyon Investments which broke down earlier on Wednesday.
In a statement tonight, the administrators said the Civil Aviation Authority (CAA) would be responsible for the repatriation of about 1,100 people who are on holidays booked as part of a Globespan package holiday.
However, a further 3,400 people are overseas and are not protected, who booked directly through flyglobespan.com.
Customers who booked Flyglobespan flights directly via the Flyglobespan website or the call centre would not get a refund on the cost of their flight but the Department of Transport said they may qualify for a reduced rate repatriation fare.
Transport minister Paul Clark said: “I spoke earlier this evening with a representative of the European Low Fares Airlines Association, who confirmed that several of their members will provide special fares.
“I urge all affected passengers to identify themselves as former Flyglobespan customers to alternative carriers in order to ensure they benefit from these special repatriation fares.”
There are also 27,000 people who have future flights booked through the Atol insurance scheme, and around 90,000 people who have forward bookings but have no Atol protection.
They may be protected under their own personal travel insurance or through their credit card transaction.
Bruce Cartwright of PricewaterhouseCoopers said: “Unfortunately I am obliged to confirm that, the Group will not longer be able to operate flights.
“Our focus right now is on assisting those passengers who need to complete return journeys and communicating with those who have future reservations.
“We would strongly advise those passengers who had expected to travel tomorrow to remain at home or make alternative arrangements as there is no prospect of their planned flight taking place.”
It is understood the company also has a contract with the Ministry of Defence (MoD) to transport troops to and from destinations such as the Falklands.
An MoD spokeswoman said: “We are aware that Flyglobespan has gone into administration and we are currently assessing the wider impact on MoD business.”
A spokesman for Glasgow Airport said: “We are doing everything in our power to help passengers rearrange their travel plans, wherever possible, and to secure additional capacity from other airlines serving Glasgow.
The vast majority of destinations served by Flyglobespan are already served by other carriers, a number of whom have already stepped in to offer support to Flyglobespan’s customers.”
Flyglobespan was the sixth biggest operator out of Edinburgh airport.
Managing director, Gordon Dewar said: “This is a sad day for the Scottish aviation industry.
“However, our immediate attention must turn to the thousands of passengers who were due to fly with the airline over the coming months.
“We are already holding urgent discussions with a number of other airlines and are hopeful of replacing much of the capacity that has been lost from Flyglobespan going into administration.”
A Scottish government spokesman said: “This is extremely disappointing news. The Scottish government is contacting the company as a matter of urgency to seek clarification on the situation.
“Customers booked with Globespan either returning from holidays or about to travel can seek further advice through the Civil Aviation Authority’s website.
“We recognise that this will be an anxious time for employees and their families, particularly at this time of year.”
The Secretary of State for Scotland Jim Murphy said: “The news that Flyglobespan has gone into administration is a real blow for Scotland and first and foremost for the hundreds of employees who now face redundancy a week before Christmas.
“Our other immediate priority must be to help the thousands of people who booked and flew with the airline and are now effectively stranded abroad.
“My officials and I have been in touch with the Department for Transport as this issue unfolded and will continue to work with them to see what can be done to help those caught in the middle of this unfortunate situation.”
Earlier this year, Flyglobespan announced it had made an operating profit of £1.2m following a loss of £19m the previous year.
Set up in 2002, the company operates from five UK airports, including Prestwick, Edinburgh and Aberdeen.
Earlier this year, it pulled its services out of the Durham Tees Valley airport, blaming the worsening economic climate.