A Strange Silence Befalls Colombian Government Regarding Avianca – Viva Acquisition

Investors, thousands of passengers, and the travel public have been waiting for the Colombian government to pronounce one way or another regarding the Avianca acquisition of low-cost airline Fast Colombia, better known as Viva. Colombia’s Minister of Transportation Guillermo Reyes announced last Thursday that the Transportation Ministry’s aviation unit, Aerocivil, would declare its decision the morning of Tuesday, March 21. However, today Aerocivil issued a cryptic Tweet saying that it must notify the parties (Viva and Avianca) before notifying the public. However, sources within both airlines assure Finance Colombia that they have received nothing more than silence from the Colombian government.

The group of shareholders that owns Avianca also purchased Viva from Irelandia Aviation and minority investors in April of last year, but placed the airline in a holding entity while they applied for and awaited approval of the deal by Colombian regulators. They were caught unprepared when regulators rejected the acquisition in November on competition grounds.

It now appears, as Viva’s aircraft began to be repossessed by aircraft finance companies, that the new shareholders did not supply adequate capital to Viva to keep the airline in visit. While Avianca claims that its goal was to keep Viva as a separate and viable entity, Viva’s collapse on the last day of February seems to benefit no one more than Avianca, which saw Viva erode its market share over the past decade.

Viva’s cash flow issues seem to have only begun after Avianca shareholders took control purchased Viva’s “economic rights.”

Transportation Minister Reyes also announced last week that he had submitted complaints to Colombia’s attorney general for criminal prosecution, saying that for Viva to continue to sell tickets once the decision had been made to cease operations amounts to mass consumer fraud. A separate investigation is already active with regards to whether Avianca executives or their shareholders were making decisions for Viva while a merger had not been approved. This would also be illegal under Colombian law. Less than a week before Viva closed down (who gave the order?), longtime CEO Félix Antelo resigned abruptly leaving a strong suspicion that the well-regarded airline executive refused to participate in what was being contemplated.

The next week, after Viva abruptly grounded its planes, stranding or disrupting the plans of tens of thousands of customers, Avianca’s CEO Adrian Neuhauser and General Counsel Richard Galindo left the country when government investigators raided both Viva and Avianca headquarters seeking evidence of illegal activity.

Competing airlines Ultra Air, Jetsmart, Wingo and Latam have all registered their opposition to the Avianca – Viva tie-up, and the Colombian government admitted them as interested third parties. Meanwhile, last week Ultra Air, formed by no less than Viva’s co-founder William Shaw agreed to be acquired by Jetsmart; an airline that also submitted an offer to buy Viva in January, along with Avianca rival Latam; also from Chile.

Latam has already begun to hire former Viva employees, and Viva aircraft are already being returned to lessors. It is difficult to imagine the airline surviving without employees or aircraft. This leaves us with three questions. One immediate, one timely, and one really big, important question.

1. Why is there a delay in Aerocivil’s pronouncement? Even if issued today, what is the cause of the delays and postponements? Incompetence? Corruption? Thorny legal issues? Political interference?
2. Who will respond on behalf of the thousands of passengers stranded, many with vacations or trips they have saved months for destroyed, with funds tied up with an insolvent airline, and who will respond for the jilted employees and vendors?
3. Who “pulled the trigger?” Who gave the order to shut down Viva in such a disruptive way, while charging for tickets up to the last minutes, in a way sure to destroy the company’s brand, reputation, cashflow, and viability? It is simply not credible that whoever made such a decision did not also understand the consequences. The chaos clearly benefits Avianca. Were Avianca executives or shareholders involved?

Finance Colombia is following this story as it continues to develop on your behalf.