Yesterday (10May20), the world’s second oldest airline after KLM filed for bankruptcy after failing to meet a bond payment deadline. 20,000 staff are affected, whose salary payments and jobs are at risk. The Colombian state has denied any financial support.
Yet whether the government can maintain this position is doubtful. Avianca's role as a pillar of passenger and cargo traffic, not only in its home country Colombia, but far beyond its borders, seems too important for this. In view of the immense level of debt, this is currently the only valuable asset in the Chapter 11 proceedings following Sunday’s insolvency filing by CEO Anko van der Werff and his management. A hope that is shared by the staff, creditors, and the numerous suppliers.
In a first reaction, however, the Colombian government denied any state aid. Whether this is the last word remains to be seen. Should Avianca fail to come out of bankruptcy, the Bogota-based airline would be one of the first major carriers worldwide to bite the dust as a result of the global coronavirus pandemic. Avianca has not operated a regular pax flight since late March and most of its employees have gone without pay since then.
Ya estaba quebrada en 2019
The Chapter 11 move, protecting Latin America’s second largest airline after LATAM from creditor’s claims, doesn’t come unexpectedly. In a meeting with Avianca staff on 27AUG19, Roberto Kriete, Chairman of the Board of Avianca Holdings SA, described the carrier’s situation drastically, proclaiming that “Avianca está quebrada,” (“Avianca is broke”), while repeating the phrase various times. “Porque quebrada?” he asked, “because we are not paying our creditors, we are not paying our aircraft lessors, nor do we pay our suppliers.” That said, he announced: “We are in the process of renegotiating all this and restructuring the debt."
Obviously, these plans went to ashes by and large. Now, the negotiation marathon has to start from scratch. This includes intentions to shut down the Perivian station and a fleet reduction. Until
the date of the filing request submitted to the Bancruptcy Court of the Southern District of New York, Avianca operated 181 aircraft, among them 13 freighters.
Phoenix from the ashes?
Prior to the outbreak of the Covid-19 pandemic and the halt of most pax flights, the carrier had accumulated an estimated US$ 7 billion in debt. Much money, including a loan in the region of US$ 700 million granted by Star Alliance partner United Airlines. Funds that might be lost should Avianca fail to restructure its business and renegotiate its Cordillera high mountain of liabilities with its lenders and banks. Without state granted aid, this appears to be a mission impossible.
Though, not impossible for CEO van der Werff, who believes that Avianca will rise like a phoenix from the ashes: “As soon as the current travel ban is relaxed, we will start flying again,” he announced - protected by Chapter 11 from access by his creditors. “U.S. companies have successfully taken advantage of creditor protection and, largely free of debt, have emerged strengthened from their crisis. Their doing shows that it works.”
Meanwhile, the carrier’s cargo operations continue unabated.
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