The Colombian government has a well deserved reputation for treating foreign investors on par with domestic ones. Of the main arlines operating in Colombia, only Viva Air and Copa Airlines are weathering the Coronavirus Covid-19 pandemic well. Avianca, LATAM, and Easyfly are all bankrupt. While Colombian President Ivan Duque has repeatedly said that airlines would be equitably treated, the Colombian government has recently announced a $370 million USD loan to Panamá-domiciled Avianca, majority controlled by US-based United Airlines. Nothing has been announced to support other airlines like Easyfly, LATAM, or Colombia’s low-cost carrier Viva Air that is based just outside of Medellín and financially healthy. One can only speculate on the government’s justifications, but President Duque’s sister is Avianca’s Chief Commercial Officer. Mere coincidence? The reader can judge.
Finance Colombia’s founder Loren Moss was able to connect with Viva Air’s Executive Chairman Declan Ryan to better understand the gap between what the Duque Administration has said, and what they are doing. Are investors being treated equitably? Play the video to hear first hand. The complete written transcript follows.
Declan Ryan: You’re very welcome.
Finance Colombia: So let’s get right into it. I know you’re busy. We know that in the news right now, the Colombian government, after spending most of the summer saying that all airlines were going to be treated equitably if there was any kind of financing or backup from the government, has announced a $370 million dollar loan to Avianca, even though Avianca is in bankruptcy, and it seems like a shock because I know that Viva was hoping to get a much smaller amount and Viva was in much better, better shape. Can you give us some insight on that?
Declan Ryan: Yes, we had a conference call with the president and his advisers in March at the beginning of the pandemic, and he reassured us then on the call that all the carriers would be treated equally. And of course, we took that at face value. And subsequently we had heard a lot of rumors, but didn’t act upon them until the announcement was made that Avianca was going to get $370 million dollars in the package that Viva had been offered is about twenty $5 million, and it’s through a different scheme. It’s a scheme for businesses and so on. We were quite shocked.
We kind of get that Avianca is a bigger carrier and it’s loved, and you know, people feel like it’s the Delta or the Lufthansa of Colombia. We get all that. But the proportionality between $25 million for ourselves and $370three millions or Avianca. The other thing you have to take into account, Loren, is that Avianca is shrinking because of Chapter 11, and about 12 months ago, they had nearly 200 airplanes. And in the next six months they’re going to be operating 57 airplanes. So it’s a totally different Avianca. And one of the arguments put forward is all about their connectivity, but their connectivity is going to be smaller.
“We have a thousand employees and Medellín is our home”-Declan Ryan
Finance Colombia:Not only that, I think that you guys have something like 20 Airbus, 320 is on order. I know you guys did a $3.2 billion dollar deal for you guys are in growth mode.
Declan Ryan: Yeah, exactly, and low costs have been in Colombia since we started approximately seven years ago. And if you take what a mature market looks like with low cost airlines, we take Southwest in the United States or Ryanair in Europe, it should be about up to, you know, 40 to 50 percent of the market. And we’re only just a little bit over 20 percent. So Viva has a long road to grow and we have another 35 airplanes coming in the next couple of years.
Finance Colombia:I did some back of the napkin calculations and it seems that if Avianca got almost $400 million dollars, then if that were going to be proportionate would be within you guys would be getting at least a hundred million dollars.
Declan Ryan: Yes, we think it’s a little bit over that, but we want to be careful about putting too much pressure on this government and Colombia, because there’s a lot more kinds of priorities when it comes to people’s health and safety and all the issues that are going on in the streets, and, you know, lockdown is very hard for people and we understand that, but we just don’t understand why nearly $400 million dollars have been given to a bankrupt airline.
Finance Colombia:Not just that, it’s weird because, I mean, their alliances and ties with United Airlines, which has been a big investor in their…I predicted in the past, and maybe I’ve been wrong, I don’t think I am. But I think that it is kind of United’s problem to solve. And United, which counts on Avianca for South American access, would be the logical entity that would step up and do that. I find it hard to believe that if the Colombian government had not done this, there are not enough interested parties outside that would have come and done this. This almost—It just smells bad to me. If I look at it and I’m trying not to be biased, but I am really surprised and shocked.
Declan Ryan: It’s a very valid point, Loren. If you take the US, which is the most advanced aviation market in the world, effectively, it’s like giving all the money to Delta and not giving any to Southwest or United or anybody else. So I think that just highlights the example.
Finance Colombia: What are what the next steps? So you guys obviously are—I’m sure that you’re negotiating with the government and trying to resolve things, what, without disclosing anything strategic, What are the options that are available to you and what do you foresee happening in the near future?
Declan Ryan: We’re obviously going to go back to the government and we are thinking of resubmitting our requirements, but we haven’t decided upon that yet. But effectively, we will be representing to them in the strongest way possible that this is unfair. And it’s not our nature to go down the road of legal options or anything else like that, but I can’t rule them out at this stage because we need to get the rest resolved. And we have a thousand employees and Medellin’s our home, and it’s very important. And, you know. I don’t know how people would fly in Colombia without Viva, because our fares are at the right price and so we’re going to try to…I think the best words I could use at the moment and mediate with government and hopefully they will. They will, you know, deliver on their promise, Loren, because it wasn’t just in this conference call, but President, Duque also made it clear in particular press conferences where he reassured the other carriers, including EasyFly and so on, that we will all be treated equally.
Finance Colombia: It doesn’t look good with his own sister being the Chief Commercial Officer for Avianca, even if they were going to do that, I would just for the perception, maybe announce that in conjunction with saying “here’s what we’re going to do for all the airlines, including EasyFly that’s also in bankruptcy,” maybe if there’s something that they’re going to do with LATAM, perhaps. But I think it doesn’t pass the smell test that they just came out the way that they did, but you also mentioned something that that I’ve seen.
I can think of some people I know, some of my wife’s friends who the first time they ever flew, maybe they were from a humble background, and the first time they flew was on Viva Air. They took a vacation to Santa Marta and one of her friends was terrified just because she’d never been on an airplane before! And it’s hard for people like us to travel under normal circumstances, every single week to conceive of that, but I’ve seen that case and I’ve talked to some people where it really has made flight possible. I mean, the price is…It’s funny because, I’m up here by the airport and it is now is less expensive to fly on Viva Air to Bogota and back than it is to take the white cars, the taxis from the airport into the city, and actually the flight’s cheaper than the taxi!
“We just don’t understand why nearly $400 million dollars have been given to a bankrupt airline.”-Declan Ryan
Declan Ryan: I’ll touch upon what is happening with passengers in Colombia in a minute. With regard to President Duque and his sister. It doesn’t pass the smell test. And I don’t want to be throwing stones at any particular situation. I have to say, if it was my sister, I’d ask her to get a job somewhere else, because no matter what company your family works for, they’re always going to get a serious cloud over them when you make a decision like this.
Yes, listen, buses are pretty hard-going in Colombia and other parts of South America and, invariably what happens around the world Loren, is people don’t value their time enough and their selves enough, and you know, taking a nine hour bus ride to Bogota, when you could fly at $25 bucks. I just don’t see the reason why people would waste that amount of time. There’s also security and other factors, Safety as well, so, we’re taking a lot of traffic from the buses, and it’s great, there’s nothing nicer than seeing first time flyers on Viva and I think it helps marriages, I think it helps romance, I think it helps family and, if you’re not getting on with your sister, you can say “listen, I’ll fly down and let’s have dinner” and all that kind of stuff so, I think it’s really important for the synthetic of an economy and the people.
Finance Colombia: I remember back in the early 2000’s when I first traveled to Colombia and I took the bus. I first bus tripped to Bogota, because I wanted to see the countryside, but there was a landslide and blocked the freeway and we were stuck out in the middle of nowhere for twelve hours. We couldn’t turn around because we were on the side of a mountain and just had to sit there until some bulldozers came and rescued us, and you don’t have that problem when you’re flying and also, we’ve spoken to some people recently, some technical people there about the type of filtration systems.
Declan Ryan: I was going to raise that point and thank you for bringing it up. The aircraft filtration systems are excellent, you get a new quantity of air every couple of minutes and during the lockdown the buses were full, you know, that can’t be safe, and I’m talking about biosecurity now, and the buses. People weren’t wearing masks you know. They say social distancing Loren, is a phrase for people who have money and are wealthy. You know it’s really hard to social distance in Colombia, even in some of the towns and so on. There’s a lot of advantage to flying, and also, how does a doctor who is needed in Bogota get from Cartagena? But hopefully things are a little more open now.
Finance Colombia: Absolutely, I’m glad the airlines have started to fly and domestically hopefully we’ll get the international routes open as soon as possible. One good sign is that the majority of inquiries that we get from readers are people asking when the air space going to open back up. “I have business I need to do in Colombia, I have…” You know, the mining sector, the petroleum sector, even people are ready to go on vacation and get down here and they just have family and friends they need to visit so I don’t think that the demand will be slow to return once the borders open back up.
Declan Ryan: Yes, I think that’s correct and our own view is that the short haul traffic will recover first, I think business traffic is a bit different and if you have long haul flights between Bogota and Madrid, I think you’ll think twice about that, but hopping up to Cartagena or in a 2 or 3 hour flight we think we’ll be fine.
Finance Colombia: Absolutely, thank you for your time, I really appreciate it.