Avianca returns to bankruptcy protection

Colombian airline, one of the oldest in the world, filed voluntary petition under Chapter 11 in New York due to lack of financial resources

The second largest airline in South America, Avianca is in serious danger of going bankrupt. On Sunday, the parent company, Avianca Holdings, filed for bankruptcy protection in a New York court to avoid paying $ 65 million of debt by its creditors.

Affected by the coronavirus crisis, Avianca has not flown regularly since the end of March, however, its financial situation was already serious before the pandemic to the point that currently it is not known exactly how big its debt, which can reach $ 10 billion, according to media.

The company also confirmed the end of the Avianca Peru subsidiary, which operated in the neighboring country. In the words of its CEO, Anko van der Werff, “Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic”.

The airline’s argument for having filed voluntary petition under Chapter 11 is to preserve its operations, which represent 50% of the Colombian domestic market, in addition to international routes in South America, Europe and North America.

Avianca also cited its 21,000 employees as a reason to renegotiate its debts, however, most of them have been on unpaid leave since the flights were suspended. The company is also discussing a financial aid package from the Colombian government.

Boeing 787 from Avianca Colombia (Oliver Holzbauer)

New crisis

Founded in 1919, Avianca is the second oldest airline in the world, after KLM. The company went bankrupt in the 2000s when it was acquired by the entrepreneur German Efromovich. Under his command, Avianca resumed growth and expanded its operations.

Efromovich and his brother José implemented an aggressive expansion strategy that included another airline, OceanAir, which started using the Avianca Brasil brand years later. In addition to the Peruvian division, the group also launched Avianca Argentina years ago.

With increasing debts, the Argentine and Brazilian airlines succumbed last year. The Efromovich brothers, however, had legally separated these companies so that they did not directly affect Avianca Colombia, but damaged its image.

The situation of the parent company, however, was not very different and the large volume of debt ended up being used in order for the partners of Efromovich, United Airlines and Kingsland Holdings Limited, to remove him from the direction of the company.

In January, Avianca announced the reduction of its A320neo family order (Airbus)

To return to a profitable operation, the new managers launched the ‘Avianca 2021’ plan, which renegotiated debts and leasing contracts and obtained $ 375 million in financing.

The airline eventually reduced an order for Airbus jets from 108 to 88 aircraft in January. In addition, Avianca postponed deliveries of the remaining units for the period between 2025 and 2029, and canceled the delivery of two 787s with Boeing.

In view of the expectation of a long recovery in the demand for air passenger transport in the coming years, it seems difficult to believe that Avianca will be able to recover this time.