Colombian Low-Cost Airline Viva To Enter Financial Reorganization

Finance Colombia has just learned that Colombian low-cost airline Viva has initiated a voluntary reorganization process in Colombia. A company spokesperson emphasized that this is not a bankruptcy, which is defined under Colombian Law 1116 of 2006 and analogous to Chapter 11 in the US, rather a form of non-judicial mediation made available to companies in Colombia adversely affected by the COVID-19 crisis, and based on Colombian Legislative Decree 560 of 2020 and Regulatory Decree 842 of 2020.

Viva and competing carrier Avianca have both expressed a degree of frustration with the Colombian government, as the merger proposed by the two airlines last year was first rejected by Aerocivil, Colombia’s civil aviation authority, and then on appeal to Colombia’s transportation ministry, the initial denial was overturned and while the merger was not approved, but sent back to Aerocivil for reconsideration. To further complicate things, at least for Avianca as Viva’s suitor, Just this week, Chilean low-cost carrier Jetsmart submitted a competing offer for Viva that would overcome the market dominance objections raised by Aerocivil.

Viva said in a written statement: “Viva is taking advantage of this 90-day voluntary recovery process in order to restructure its debts through negotiation with its primary creditors allowing the airline to continue operating under sustainable conditions that guarantee the continuity of the company. This decision comes after six months of waiting for the definition of the alliance with Avianca, which if approved would allow us to continue in the low-cost aviation business through our link to another group of regionally important airlines, thereby ensuring the preservation of jobs, and strengthening our commitment to generating higher levels of connectivity in the country at a low cost by obtaining the required capital injection.”

Colombia’s “Proceso de Recuperación Empresarial” (PRE)

Created during the COVID-19 pandemic, Colombia’s “Business Recovery Process” is a mediated, non-judicial process mediated by reconciliation centers through any of Colombia’s regional chambers of commerce. Unlike in other countries, the chambers of commerce have an official function in Colombia, as the repository of articles of incorporation for the organization of business entities. In other words, when one registers a business in Colombia, it is done through the local Chamber of Commerce rather than at a government office such as state secretaries in the US or Companies House in the UK.

Details of Colombia’s PRE:

• Filed with the local Chamber of Commerce, not a judicial court
• Maximum duration of three months
• Facilitates debt renegotiation with creditors
• Suspends coercive collections such as repossessions, evictions & foreclosures
• Though mediated, has the force of law
• The debtor may ask for judicial validation, extending terms to all creditors, whether participants in the mediation or not

“Viva has taken this step due to the crisis it faces because of the effects of Covid 19 and the current macroeconomic factors that are public knowledge. Additionally, the company has not been able to access capital during the last nine months since it has not yet been possible to implement its integration with another airline, which is still pending authorization by the national government,” said the airline in a statement.

“After studying all the available alternatives to the current situation, we are entering this voluntary mediation process while we urgently wait for the decision by the authority on our alliance with Avianca. Just as we have adapted in the past, we are convinced that we will be able to overcome this situation for the good of all passengers who have benefited from the low-cost model in which we are experts.”