Coronavirus Victim: Avianca, One Of Latin America’s Largest Airlines, Files For Bankruptcy

Avianca Holdings (AVH), the parent of Colombia's national airline and one of the oldest carriers in the world, has filed for Chapter 11 bankruptcy protection in a U.S. court in New York due to the harmful effects of the coronavirus pandemic.

The filing was necessitated after the airline failed to make a $65 million bond payment on Sunday.

Largely grounded since mid-March, Avianca, the second largest airline in Latin America, said the pandemic has reduced its consolidated revenue by more than 80% as it remained burdened by high fixed costs.

Avianca’s principal hubs, Colombia, El Salvador and Peru, have all closed their airspace to prevent the spread of the coronavirus.

Most of Avianca’s 21,000 employees, including 14,000 in Colombia, have been placed on unpaid leave while more than 140 aircraft remain idled.

The airline has also shut down its Peruvian subsidiary and plans to lay off this unit’s workforce. “In this time, we do not have liquidity to sustain a loss-making operation,” Silvia Mosquera, Avianca’s chief commercial officer, said about the Peru division.

With the bankruptcy filing, Avianca will be able to restructure its debts and sell of certain assets.

"Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic," said Anko van der Werff, chief executive officer of Avianca. "We believe that, in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges."

Van der Werff added: "When government-mandated air travel restrictions are lifted and we are able to gradually resume our passenger flights, we look forward to welcoming back our furloughed employees and playing a leading role in restarting the economy in Colombia and our other key markets.”

Avianca also said it is engaged in talks with the Colombian government on possible emergency aid -- however, such discussions have yet to be fruitful.

Van der Werff also noted he expected the airline to emerge as a "better, more efficient airline that operates for many more years.”

Avianca previously filed for bankruptcy – and successfully emerged from it – in the early 2000s after it was rescued by Bolivian oil businessman, German Efromovich, who was ousted from the board last year.

Reuters reported that Efromovich did not agree with the airline’s decision to file for bankruptcy and that he had no involvement in the proceedings.

“This [filing] isn’t a surprise at all,” said Juan David Ballen, chief economist at Casa de Bolsa brokerage in Bogota. “The company was heavily indebted despite the fact it tried to restructure its debt last year.”

Avianca already reported $7.3 billion in debts in 2019.

Since Avianca is indirectly controlled by U.S.-based United Airlines (UAL), there is much political opposition to providing the carrier with a government bailout.

Colombian lawmaker Luis Ernesto Gómez tweeted: “When they talk about saving Avianca, they are actually talking about saving United Airlines and [another foreign shareholder] Kingsland Holdings.”

United Airlines could potentially lose up to $700 million in loans to Avianca.

Should it now fail to successfully emerge from bankruptcy, Avianca will become one of the first major airlines to collapse due to the pandemic.

Jay Singh wrote in SimpleFlying.com: “As one of the largest airlines in Latin America, it would be a major loss to the continent. The carrier has a significant market share, over 50% in Colombia alone, and flies a large number of long-haul services.”

Singh added: “It will take time to see how these proceedings play out. In all likelihood, Avianca will emerge as a smaller airline. Perhaps some more unprofitable long-haul routes will have to be cut. Meanwhile, some older and leased aircraft could make their way back to a lessor. Some subsidiaries may also be wound down.”