Tuesday 7 February 2023

Who does Avianca owe? Will it survice it’s latest financial crisis?

Being in a financial crisis is not a new situation for the airline. Avianca has survived a century of turmoil, including wars, bankruptcy, and economic crises.

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7 February 2023 - At The Banks - BCCR

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(QCOSTARICA) With debts exceeding US$7 billion dollars, Avianca Holdings filed on Sunday, May 10, for Chapter 11 Bankruptcy in a court in New York.

Being in a financial crisis is not a new situation for the airline. Avianca has survived a century of turmoil, including wars, bankruptcy, and economic crises.

The request would protect the airline from its multiple creditors while reorganizing its operations and improving its financial situation, which had already faltered since before the pandemic due to the new coronavirus that froze its commercial operations and planted its 142 planes on the ground.

Since last year, Avianca began in the region an aggressive process of restructuring its operation due to the financial problems that led to layoffs in Costa Rica. At that time, the company stated that it had around 1,000 workers in the country.

Who does Avianca owe?

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Avianca’s public file shows it has five main creditors who have collateral on the amounts loaned.

At top of the list is the Wilmington Savings Fund Society, FSB, based in the State of Delaware, which is owed US$484.4 million in bonds.

Next is UMB Bank, N.A., based in Salt Lake City, Utah. The airline owes it US$325 million on a long-term credit.

The third is Wells Fargo Bank Northwest N.A., also located in Salt Lake City, and which lent Avianca US$271.1 million with payment guarantees for eight aircraft: six Airbus and two Boeing 787s.

In fourth place is the New York-based ING Capital LLC US, which loaned the airline US$123.5 million, with a guarantee of payment for a Boeing 787-900.

Finally, there is the Banco de Bogotá (New York Agency), based in Bogotá, Colombia, which extended a long-term loan to the company for US$107.2 million.

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Unsecured lenders

40 companies are listed in the list of other unsecured creditors. Among the largest in that group are: Wilmington Savings Fund Society FSB (US$65M), IAE International Aero Engines AG (US$36M), Banco Davivienda (US$33.4M), General Electric & CFM International (US$33.4M), and Rolls Royce PLC (US$28.3M).

Colombia’sn Finance and Public Credit Minister Alberto Carrasquilla said on Monday, May 11, that the government does not rule out bailing out the airline, although the country does not have the funds and could be limited in the amount it can offer.

This “is not an insolvency proceeding, Avianca’s operations will continue during and after the Chapter 11 process,” said Anko van der Werff, Avianca CEO.

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In Peru, however, the company will enter the process of dissolution and liquidation, and will have to compensate all its employees, said Renato Covelo, Avianca’s vice-president. Peru accounted for around 5% of the company’s operations.

While in Colombia – where it dominates more than 50% of the domestic market – Ecuador, El Salvador and other countries where it will continue to operate, Avianca will seek to negotiate flexible tax conditions, credits and other financial measures with governments.

Avianca, a company with a 100-year history, provides services to more than 50% of the Colombian market, travel to South America, North America and the European markets. To this is the cargo operations, currently employs 21,000 people directly in Latin America (14,000 in Colombia) and works with more than 3,000 suppliers.

Financial crisis from before the coronavirus

Being in a financial crisis is not a new situation for the airline. Avianca has survived a century of turmoil, including wars, bankruptcy, and economic crises.

The company recorded a net loss of US$894 million last year versus a US$1.1 million profit in 2018.

The company denied bankruptcy after a video was released last August in which the president of the board of directors, Roberto Kriete, assured that the company was bankrupt.

Avianca Holdings – which carried 30.5 million passengers last year, sold airplanes, reducing its fleet from 108 to 88 aircraft.

Throughout the world, the aviation industry has suffered a severe blow from the coronavirus, being directly affected by the confinement and closure of borders.

According to the International Air Transport Association (IATA), Latin American airlines will lose US$15 billion in revenue this year, in the worst crisis in the sector’s history.

Will Avianca survive?

It is not the first time that the airline has turned to Chapter 11 protection. It already went down this path in 2003 when its debts amounted to about US$269 million.

The chapter 11 process starts with the United States Trustee appointing committees that represent the interests of creditors and shareholders, and work with the company to develop a reorganization plan to get out of debt.

This plan must be accepted by creditors, bondholders, and shareholders, and approved by the court.

As shown in Avianca’s bankruptcy filing in New York courts, the company reported assets of US$7.273 billion and a debt of about US$7.269 billion.

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