* British holiday airline saved by cash injection
* Funding came hours before deadline to renew ATOL licence
* Major shareholder agrees $205 million equity deal (Adds CEO comments)
By Paul Sandle
LONDON, Oct 12 (Reuters) - British airline Monarch secured a 165 million pound ($205 million) lifeline from majority shareholder Greybull Capital on Wednesday, enabling the low-cost carrier to renew a key operating licence and fund new aircraft.
The equity investment was agreed only hours before its operating licence was due to expire, allowing the airline, which sells flights and package holidays to tourist destinations, to keep flying.
The 48-year-old airline said the investment would fund the replacement of its Airbus jets with more fuel-efficient Boeing 737 MAX-8 aircraft between 2018 and 2021.
Monarch warned in September that security concerns and the devaluation of the pound after Britain's vote to leave the EU in June had made market conditions difficult.
Based at the southern English airport of Luton, Monarch has been hit by a decline in the popularity of destinations in Tunisia, Egypt and Turkey due to security concerns. The carrier mainly sells holidays and flights to Spain, Italy and France.
Larger budget airline easyJet warned last week that annual profit had fallen by more than a quarter and hinted that trading would remain tough.
Monarch Chief Executive Andrew Swaffield said he now had "real confidence" about his airline's future despite the current environment.
The fall in the pound had increased fuel and leasing costs paid in dollars and navigation and ground handling costs paid in euros, Swaffield said, adding that security concerns were also a negative factor.
The combined impact would cut profit this year to about 40 million pounds from more than 70 million pounds last year.
"We believe the market is going to remain fairly challenging over the next few years, particularly related to terrorism and the weak pound," he said on Wednesday.
Questions about Monarch's finances were raised last month, forcing the carrier to say it was operating normally.
Days later, Britain's aviation regulator, the CAA, said it had until 2259 GMT on Oct. 12 to satisfy the requirements needed for a full Air Travel Organiser's Licence (ATOL).
Swaffield said airline bookings had been relatively unaffected by the deadline, but there had been a "dampening" in holiday sales in recent weeks.
He said sales were already returning to normal, and he was confident the weaker pound would not hit consumer demand.
"People very quickly re-align to a new exchange rate," he said. "The British are resilient when it come to holidays."
$1 = 0.8042 pounds Editing by Keith Weir