The move comes just one day after Colombian civil aviation regulator Aerocivil issued a conditional approval for Avianca to takeover insolvent  low cost carrier Viva, but then Avianca issued a statement saying that it was revisiting the potential merger due to changed conditions, such as Viva ceasing operations and losing both planes and employees.

Jetsmart hints that it may “go it alone” and simply wait for Ultra and Viva to disappear, taking the low-cost market for itself, along with Copa subsidiary Wingo.

“Our commitment and confidence in the Colombian market remains firm. As we have affirmed throughout this time, at JetSmart we will continue to focus on meeting the requirements of our certification process, working closely with Civil Aeronautics, who have performed with the highest level of professionalism. In this way, we hope to obtain our Air Operator permit in Colombia, with a view to starting the operation as soon as possible and thus being able to participate in the slot reassignment process at the El Dorado airport,” said Estuardo Ortiz, CEO of the Chilean airline.

This move leaves Ultra Air in a serious position, as creditors and suppliers have tightened terms due to Viva’s collapse. Even Colombian Transportation Minister Guillermo Reyes has expressed concern over Ultra’s situation.

Finance Colombia has reached out to Ultra Air for comment but has received no response.

After Avianca and Viva repeatedly demanded speedy approval by the Colombian government for their deal, Viva abruptly ceased operations on the last day of February. Now, Avianca is no longer in such a hurry to consummate the deal, citing Viva’s deteriorated situation and the conditions imposed by Aerocivil.

If Viva remains shut down, Avianca has effectively eliminated its strongest competitor.

In a statement issued this morning, Avianca said (translated by Finance Colombia):

After having informed [the Colombian government] in 2022 about the acquisition of the economic rights of Viva Air by the controlling shareholders of Avianca (transaction covered by Resolution 10390 of 2015 of the Superintendence of Industry and Commerce) and having requested more than seven months ago the integration of both companies to the Civil Aeronautics -Aerocivil- in the framework of the evident financial crisis of the low-cost carrier, Avianca received yesterday the notification of approval with conditions by the Civil Aeronautics.

Given the operational, financial and technical implications of Aerocivil’s decision, Avianca will study the resolution and the implications of the measures set forth by the authority as soon as possible to determine the feasibility of complying with them. In this context, it should be noted:

• • • Viva Air no longer has the same capabilities – route network, planes, workers – that it had before the temporary suspension of its operations, a factor that must be analyzed in detail to determine the relevance of the conditions established by Civil Aeronautics.
    • As provided by the Civil Aeronautics, against this decision there is room for appeals and reinstatement not only by the parties involved but also by interested third parties recognized by the authority in the process (LATAM, Wingo, Ultra Air and Aerolíneas Argentinas), for which approval with conditions is not yet firm. Until that happens, Avianca is not empowered to intervene in the operational or financial situation of the Viva airline, nor will it be able to resolve, as required by the resolution, the situation of the users affected by the low-cost carrier.

Regardless of the foregoing and meeting the needs of users who have been affected by this situation, Avianca will continue to offer those with confirmed tickets alternatives for their relocation:

1. 1. 1. Free of charge until March 24, subject to seat availability and in order of arrival at the airport.
      2. Through special protection rates that allow seat confirmation.

To date and seeking to preserve the stability of the Colombian air system, Avianca has led the protection of passengers affected by Viva by having relocated more than 70,000 users on 103 routes (61,000 on the domestic Colombia and 9,000 on international routes), and has arranged five planes and has put 56 exclusive counters at the airports at the service of the situation.

The speed of the authority will be essential so that there can be a solution that allows safeguarding the existence of what remains today of the low-cost pioneer in Colombia.

The two airlines were dealt a blow after the April 2022 deal when Aerocivil in November rejected the merger on grounds of market dominance. Viva no longer had access to additional capital once the airline changed hands, leading to the repossession of several of its airlines, and in February of this year, a chaotic termination of operations, stranding passengers, abandoning employees, and (possibly irrevocably) destroying the airline’s brand trust.

But by this point, Colombia’s Ministry of Transportation, which Aerocivil reports to, had ordered Aerocivil to re-evaluate the acquisition based on technicalities in its original decision. The long-delayed final ruling was released at almost midnight, last night.

Still, Shareholders and certain executives of both Avianca and Viva are now facing civil charges from Colombia’s commerce regulator, and potential criminal charges for fraud from the attorney general—the latter due to the airline continuing to sell tickets for future travel once executives determined to shut down operations.

Last night, Aerocivil issued the following announcement (translated by Finance Colombia):

Faced with the request for pre-evaluation of a business integration presented by Avianca S.A., Viva Air and Viva Air Peru, Civil Aeronautics informs:

1. 1. On November 4, 2022, [Aerocivil] Civil Aeronautics, in accordance with the preceding procedures, objected to the application for integration in the terms that were presented because it considered it contrary to free competition and the condition of the company [Viva] being in difficulty was not proven.
   2. On January 18, 2023, through resolution 00079 of the Secretariat of the Aeronautical Authority of this entity [Ministry of Transportation], it was ordered to redo the administrative action and establish as a procedure for this type of request as enshrined in Law 1340 of 2009 with norms concordant to the tenor of extant consumer protection rules.
   3. The intervening companies, in the context of the new procedure, submitted a “final offer” of remedies to mitigate the underlying anticompetitive effects of the proposed transaction, which were the subject of analysis.
   4. The Directorate of Air Transport and Commercial Air Affairs of this entity carried out a detailed and technical study of the application submitted and, in turn, of the related remedies, to evaluate the viability of the solution, finding that the proposed ones failed to mitigate the effects of concentration, dominance and asymmetry derived from the transaction.
   5. Management took stock of the situation generated by the suspension of VIVA’s operations, its operational condition and the crisis that materialized in February, as well as the possibility of authorizing the integration by imposing a set of remedies that, from the point of view of competition, would mitigate the effects that current market agents and potential entrants would experience on behalf of the operation.
   6. As a consequence of the above, it was decided to authorize the integration, conditioning it to the fulfillment of various structural and behavioral remedies that guarantee, among others:
      1. That the rights of VIVA users be respected, that they be reimbursed for cancelled flight tickets and that those who have outstanding tickets be allowed to fly. In any case, they must respond to VIVA passengers affected by the unilateral decisions of the company to cease their operations.
      2. The return of the slots that imply aggravating the situation of concentration in the most demanded slots (prime) for both the Summer and Winter seasons, both in departures and arrivals, in order not to increase the barriers to [market] entry that this market generates access to the infrastructure of [Bogotá’s] El Dorado Airport
      3. Maintain the low-cost scheme of VIVA as an option in terms of air transport, which materializes options for air service users.
      4. The return of frequencies on the Bogotá – Buenos Aires route, which is particularly impacted.

Critical questions (and charges) remain:

The good news is that this provides in the short term, some certainty and a path for remedy for customers and travel agents affected by the recent chaos. The second immediate question is whether, with a damaged brand, repossessed planes, and key employees departed, Viva will continue to exist as a separate airline, or be absorbed into Avianca as many suspected all along?

The third question is what will happen to the Superintendency of Industry and Commerce investigation charges against Avianca and Viva, specifically Resolution 87164 of 2022 for “allegedly having participated in a business integration operation without the prior authorization of the SPECIAL ADMINISTRATIVE UNIT OF CIVIL AERONÁUTICA (hereinafter, AEROCIVIL).”

The agency, which is independent of Aerocivil and the Ministry of Transportation said in a statement:

“For this Superintendency, the acquisition of the economic rights of VIVA AIR and VIVA PERÚ by INVESTMENT VEHICLE 1 LIMITED, parent company of AVIANCA, could be sufficient to constitute a business integration or, at least, the beginning of the execution of the business integration between the aforementioned airlines. Operation that was not informed or authorized prior to its completion by the competent authority. Therefore, the investigated companies allegedly engaged in practices restricting free competition.”

Lastly, the Ministry of transportation Guillermo Reyes stated that he has submitted a criminal fraud complaint to Colombia’s attorney general for Viva’s management continuing to sell tickets to passengers and travel agencies once the decision had been made to shut the airline down.

Viva in a press release issued earlier this month, defends its actions, instead blaming Aerocivil for not approving the merger: “We want to be vehement, Aerocivil did not respond to our urgent calls in the face of the urgent need to define the alliance with Avianca, nor did our calls for notice of temporary suspension of operations, unlike what they are saying in the media about our misnamed ‘surprise’ anyone.”

Who is to blame? Will Viva fly again? Let us know in the comment section below.

Photos: Loren Moss

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.

This comes after Jetsmart’s bid to purchase Colombian airline Viva was rebuffed by Viva’s shareholders, the same group that controls Colombian legacy carrier Avianca. Avianca’s shareholders purchased Viva from aviation venture capital firm Irelandia Aviation and minority shareholders last April, but did not inject sufficient capital to keep the airline operating, leading to the airline’s cessation of flights on February 28. Avianca and its shareholders are now under investigation by Colombia’s competition regulators and prosecutors for deliberately causing the airline’s collapse.

Finance Colombia has reached out to Ultra Air but has not received a response.

William Shaw created Viva as Colombia’s first low cost airline after conceiving the idea for his Stanford University MBA thesis. Along with three other cofounders, Shaw launched the airline after receiving funding from aviation venture capital firm Irelandia Aviation. Three years after leaving Viva, Shaw launched Ultra Air to directly compete with his first airline.

The deal is currently under due diligence, and must be approved by Colombian regulators, though Transportation Minister Guillermo Reyes has already spoken positively of the union. “There are lessons with Viva regarding the integration process with Avianca. The Ultra and JetSmart process will be much faster. It is a capital injection that the airline needed,” he said. Regarding Ultra’s survival, “…we can now have peace of mind.”

“We believe in the potential of the Colombian market and we are determined to contribute and add to the development of tourism and employment in the country . We have seen the operational and commercial qualities of Ultra Air and we have reached an agreement on the terms of the purchase of the airline,” said Jetsmart President and CEO Estuardo Ortiz. “The possible purchase of Ultra Air will empower it to offer more routes, affordable prices and more options to all passengers.”

The Colombian Congress has been looking into the changes insisted upon by the Petro administration regarding the Metro de Bogotá project, as Lopez warns of unacceptable delays and cost overruns that Petro’s proposal to rework the metro design from above-ground to a subway would cause.

The dispute about the metro railway has reached Colombia’s  Congress, with plans now in flux as discussions on the changes become serious. Congress is also looking into how to protect the current work that has been thus far completed on the project.

The Petro administration has been very insistent about changing the current plans for the Metro de Bogotá, demanding changes and concessions in the contract with the Chinese consortium heading the project.  Petro claims that the underground portion will benefit the markets and merchants who would otherwise have to move due to the elevated railway.

Petro has even claimed that the projected cost overruns of the project will not exceed 2 billion pesos, though it is unclear where his office received these figures.

Attorney and former justice minister  Enrique Gil Botero, who was hired by the Petro government to study the viability of the changes in the subject, that the project could be changed to an underground railway without forcing a new bidding process to occur, but only in the definition of the layout of the railway and only if both the government and the contractors agree on the changes.

The lawyer also says that if the government proceeds with the new changes, renegotiations on the contract could reach a “very high fiscal cost” for the government, especially with the weaker peso in comparison to the US dollar which may further exacerbate the costs.

Petro and López have been publicly battling over the elevated metro plans, with Petro having choice words about his perspectives on the project, calling the elevated railway “grotesque” and claiming that future generations of Colombians will not be enthralled with the finished product.

“They expropriated Bogota families without having studies. [With a subterranean metro ] , all the properties are valued, including those expropriated by the district . There is no detriment but patrimonial enrichment,” Petro tweeted.

Petro has also argued that the revision and changes being proposed were done in a legal manner, tweeting, “In the tender documents for the metro, the draft of the contract presented never forced the elevated metro, the clause was added later, therefore the modification of the contract is absolutely viable, as was done with the El Dorado airport.”

Administrative blackmail?

Petro’s Minister of Transportation Guillermo Reyes  has even   to pull funding from other projects in Bogota if López does not comply with the proposed revisions of the government, including the Regional Tram del Norte, Calle 13, and the Avenida Longitudinal of the West (ALO SUR)

“If they are not accepted as has been said, the proposed modifications are made within the legal framework, then the government  too, to the extent that it finances 70% of the other projects, well those other projects are going to have to stop,” said Reyes during an interview with W Radio.

Later on, Reyes had to clarify that the statement was not “blackmail,” but that the government would instead “review those projects and commitments.”

“Bogotá is not going to run out of metro, nobody has stopped the financing. We are discussing the possibility of financing,” he continued.

For her part, López has refused to halt the construction process of Line One of the Metro de Bogotá and seems very firm in ensuring that the project will remain a fully-elevated railway instead of one that may be underground.

Above photo of Bogotá’s mayor Claudia Lopez and Colombian President Gustavo Petro traveling together to the meeting of Colombian capital cities in Guaviare credit: Andrea Puentes – Presidencia de la República