In a plan that Avianca has proposed to exit bankruptcy, current company debt, including debtor-in-possession financing would be converted to equity shares in a reorganized holding company, taking precedence over, and thus wiping out any residual value in shares of the bankrupt holding company. In other words, the new lenders would become the shareholders and existing shareholders would get nothing.

“As a result of the foregoing, under the Chapter 11 plan, the value of the shares of the Company would be reduced to zero, due to the decrease in equity of the Company attributable to the Debtors’ liabilities to third parties and creditors, as well as the injection of capital by new investors pursuant to the Chapter 11 plan.”

A US federal judge has a hearing scheduled to assess the proposal on September 14. Avianca’s 6K filing dated September 1 follows below.

In the context of Avianca Holdings S.A.’s (“Avianca” or the “Company”) Chapter 11 proceedings, on September 1, 2021, the Company, as debtor-in-possession (“DIP”), intends to file a motion with the Bankruptcy Court (the “Court”) seeking approval of the terms of, and the Company’s entry into and performance under, an Equity Conversion and Commitment Agreement (the “ECCA”), dated September 1, 2021, by and among the Company, certain of its subsidiaries and a majority of Avianca’s “Tranche B” Lenders under the Company’s outstanding DIP Credit Agreement (the “Supporting Tranche B Lenders”). The terms of the ECCA provide for the potential conversion of approximately $900 million in Tranche B DIP obligations into equity in a reorganized new holding entity of the Companies (as defined below) and the contribution by the Supporting Tranche B Lenders of $200 million of additional capital in exchange for equity in such reorganized entity upon the satisfaction of certain conditions.

Following a competitive marketing process for exit financing, the Company’s management decided (in consultation with certain stakeholders) to refinance Tranche A of its previously outstanding DIP facility with New Tranche A-1 DIP/Exit Loans and New Tranche A-2 DIP/Exit Loans (as disclosed to the market on July 22, 2021) and to move forward in its negotiations with its Tranche B lenders. The ECCA, which remains subject to final approval by the Court, evidences Avianca’s decision to elect the conversion option under its DIP credit agreement and is the result of such negotiations with the Supporting Tranche B Lenders.

Further to our disclosures to the market on May 20, 2020, April 14, 2021 and July 22, 2021, although the Supporting Tranche B Lenders have executed the ECCA, the ECCA remains subject to approval by the Court and to the satisfaction of certain other conditions. Accordingly, at this stage of the process, it is still not possible to know (i) if third parties, creditors or shareholders will contribute new capital, or if the value of the shares of the Company (ordinary and/or preferred) will be diluted and, to the extent such is the case, the extent of such dilution; or (ii) if the Company or any of its affiliated debtors in the Chapter 11 proceedings (the “Debtors”) will be liquidated. In any event, U.S. law imposes upon the Debtors a priority order (known as the “absolute priority rule”) to pay claims existing before the restructuring proceeding filing date. Generally, the value of the Debtors must be directed (i) first, to satisfy secured claims, up to the value of the collateral securing such claims; (ii) second, to satisfy unsecured priority claims; (iii) third, to satisfy non-priority unsecured claims; and (iv) fourth, to shareholders of the Debtors. Generally, a particular class of claims may not receive any distribution until all claims senior to such class have been paid in full. If the Court confirms a plan of reorganization on terms consistent with the ECCA, the Company’s shareholders (including ordinary shareholders and preferred shareholders) will not receive any distribution. As a result of the foregoing, under the Chapter 11 plan, the value of the shares of the Company would be reduced to zero, due to the decrease in equity of the Company attributable to the Debtors’ liabilities to third parties and creditors, as well as the injection of capital by new investors pursuant to the Chapter 11 plan.

In addition to the filing described above, on August 31, 2021, the Company filed with the Court two additional exhibits to the disclosure statement that the Company has proposed to distribute to voting creditors in connection with its Chapter 11 plan of reorganization (the “Disclosure Statement”). These exhibits, customary for reorganization proceedings under Chapter 11, are Exhibit C and Exhibit D. The proposed Disclosure Statement was previously filed at Docket No. 1983. All filings in the Chapter 11 proceedings are available at https://www.kccllc.net/avianca/document/list/5155.

The next step in the Chapter 11 process will be a hearing for the Court to consider the approval of the Disclosure Statement and the solicitation of the Company’s Plan of Reorganization. This hearing is currently scheduled for September 14, 2021.

The Company is currently not soliciting votes on its Plan of Reorganization and will not solicit votes on its Plan of Reorganization until the Court approves the Disclosure Statement and the solicitation of the Company’s Plan of Reorganization. Any relevant information in the Chapter 11 process will be disclosed to the market in a timely manner.

Additional Information about the Company is available on Avianca Holdings’ website www.aviancaholdings.com.

The Medellín based bank, Colombia’s largest, offered 3 justifications for its decision:

1. United Airlines (NASDAQ:UAL) decided in the first quarter of this year, to write off its $456 million USD loan to BRW Aviation collateralized by Avianca stock.
2. Avianca’s net assets at the end of Q2 were negative $355 million USD,
3. Under Avianca’s presented DIP financing plan, the B Tranche financing of $700 million USD will be convertible into stock in 2022 diluting any residual value left to current shareholders.

Furthermore, the bank expressed doubts that the DIP financing and associated reorganization plan would even be successful, as it depends on authorizations from various entities that have not been obtained and is subject to restrictions.

Breaking News: Former Avianca Chairman Germán Efromovich Arrested On Corruption & Bribery Charges (click here)

2020’s economic conditions combined with the travel restrictions and COVID-19 Pandemic make it an uncertain time even for solvent airlines, so much more challenging for financially weak airlines such as Avianca.

“We consider that the likelihood that Avianca’s stock has any tangible value is significantly low.”—Bancolombia

Bancolombia makes the observations that according to Avianca’s DIP financing plan, the airline seeks to add an additional $1.2 billion USD, bringing the total debt to $1.989 billion. Most Avianca 2023 bondholders such as United Airlines & Kingsland Holdings have decided to cede the guarantees of their former debt to the new debt in order to encourage other investors to participate in the DIP financing.

Tranche A debt is targeted at $1.289 billion, with the Tranche B being $700 million convertible into stock in 2022.

Avianca has also negotiated a path to retake complete ownership of its Lifemiles loyalty program, part of which was sold off to raise capital three years ago under the airline’s previous management team, controlled by South American magnate Germán Efromovich.

Termination of coverage

“In conclusion, in view of the different shareholder market signals mentioned in investor considerations, the high risk of investing in a chapter 11 company the difficult conditions of the air sector, we have decided to finalize the fundamental coverage of Avianca which was (already) under review.”—Bancolombia

Above photo: Bancolombia’s Medellín headquarters buiding

Avianca Holdings S.A. Ownership Structure, May 31, 2020, 25 Largest Shareholders

Avianca is the trademark for the group of passenger airlines and cargo airlines under the holding company Avianca Holdings S.A. With a fleet of 158 aircraft, Avianca serves 76 destinations in 27 countries within the Americas and Europe. With roughly 21,000 employees, the airline earned $ 4.6 million in 2019 and carried 30.5 million passengers

Avianca confirms that, by means of a notice from the NYSE pursuant to Form 25-NSE, Avianca received notice that all the conditions precedent to delisting set forth under SEC Rule 12d2-2(b) have been satisfied, the Company’s ADSs were deregistered under Section 12 (b) of the Securities Exchange Act of 1934.

In addition, as set forth in the airline’s filing information dated May 18, 2020, as of this date, Avianca says are unaware of any implication or effect that the NYSE’s decision could have on a Colombian investor, since all the mechanisms for negotiation in respect the Company’s preferred shares in the Colombia Securities Exchange, or BVC (Bolsa de Valores de Colombia) remain in place.

One of the motions the air carrier filed in connection with the commencement of its voluntary reorganization proceedings includes a list of its five largest creditors, that includes: the name of each creditor, an estimated amount of such creditor’s claim and a description of the collateral granted, shown below:

Other major creditors called out in the El Tiempo article include Citibank, IAE International Aero Engines AG, Banco Davivienda, General Electric & CFM International, SAP Colombia, Banco Agrícola de El Salvador, Terpel, Lufthansa Group, Banco Cuscatlán de El Salvador, Puma Energy, Microsoft, Chevron Petroleum & Bancolombia.

Fitch Downgrades Avianca’s Issuer Default Rating to ‘D’

Fitch Ratings has downgraded Avianca Holdings S.A.’s (Avianca) Foreign and Local Currency Issuer Default Ratings (IDRs) to ‘D’ from ‘C’. Fitch has affirmed Avianca’s senior unsecured bond issuance at ‘C’/RR6’ and the secured notes at ‘C’. Fitch revised the Recovery Rating of the secured notes to ‘RR6’ from ‘RR4’, reflecting the impact of the coronavirus on the sector and diminished recovery values of aircraft that were used as collateral for the secured bonds.

The downgrades to ‘D’ follow Avianca’s announcement that it has filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. This process will result in material changes in the terms and conditions of its debt. Once the airline exits the administration proceedings, Fitch will assess its new strategy and restructured financial profile and re-rate Avianca accordingly.

Key Ratings Drivers

Voluntary Reorganization Proceedings: Avianca announced on May 10, 2020 that it had filed for bankruptcy protection from its creditors due to liquidity pressure it faces from the Covid-19 pandemic. Avianca did not pay $67 million USD due on its outstanding unsecured bonds on May 10, 2020 and will not pay the coupon payment of its senior secured bonds due 2023.

Covid-19 Lockdown: Avianca has temporarily ceased to operate all regular passenger flight operations due to a decision by several governments to close airspace as of March 25, 2020. The return of operations is still uncertain. Avianca has offered a voluntary unpaid leave program, and around 14,000 employees have accepted this offer. This led to a decline in the company’s revenues by more than 80% and has squeezed its liquidity position. Avianca’s operating cash flow remains highly uncertain for 2020, as it is unknown when the company will be able to restart operations and what restrictions may be placed upon operations at that time.

Wilmington bank images from Twitter.

The low-cost carrier that flies an all-Airbus fleet has not canceled its planned deliveries of new planes on the way, equipped with highly efficient General Electric turbofan engines. The airline has new international and domestic routes in the pipeline and has not laid off any of its 800 employees (though 70% of them have taken voluntary temporary leaves of absence).

Colombian airline Viva Air is now carrying humanitarian aid in empty passenger seats as well as cargo holds of its aircraft to supply food and school supplies to famine-stricken La Guajira, Colombia

The airline has asked for a $60 million USD bridge loan from the Colombian government, roughly half the cost of a new Airbus A320 aircraft to assist with liquidity, and insists it does not need a “bailout.” Unlike Panamá based publicly traded Copa  Airlines (NYSE: CPA) which raised money in capital markets, Viva Air is still a private company backed by Irelandia Aviation, the same low-cost pioneer behind Europe’s Ryanair and Allegiant Airlines in the US. Legally named Fast Colombia S.A.S., Viva air actually is a Colombian company, while competitor LATAM (NYSE:LTM, IPSA: LTM) is Chilean and even Avianca is legally domiciled in Panamá as it goes through bankruptcy procedures in the US, home of its controlling shareholder United Airlines (NASDAQ: UAL).

Finance Colombia’s executive editor Loren Moss was able to catch up with Viva Air’s CEO for an update on the airline’s plans and status during Colombia’s national curfew, and to present the question countless Finance Colombia readers have asked: “When will the skies open to travel again?” The exclusive in-depth interview follows:

Finance Colombia: Thank you for your time. I know that you are extremely busy. I saw that for example, today you published on LinkedIn an open letter to the passenger public, because everyone is still asking when we return to the air. I do know Copa Airlines in Panamá said: “that they think that by June they are going to fly,” but, what do you think about that?

Felix Antelo: Loren with dates, we are, as a group of airlines, through ATAC (Association of Colombian Air Transport), we are talking with the Ministry of Transportation and with Aerocivil, about restarting operations, always talking about national domestic operations. It takes a lot more for the international operations. So, for national operations, what is being talked about without any definite or fixed date is June, the beginning of June, but there’s where complexities appear. Once we start we are not going to be able to fly through all the airports, we are going to be able to fly to 5 or 6 airports that are the largest ones, most likely, there are going to be hourly operational restrictions, so when you could normally fly in an airport 30 or 40 times per hour, we will operate between 5 and 6 times, obviously there is the whole issue of biosafety protocols that we are discussing, which is going to happen; the issue of an empty middle seat, then all of that adds complexity Loren, and also the biggest situation: the country situation with the pandemic.

“YES in capital letters! We are going to be able to expand our service on international routes and domestic routes and why? Because we have the most efficient structure, the most efficient aircraft operating in Colombia…”-Viva Air CEO Felix Antelo

Colombia so far has tried to control it and they have done a good job, but it all depends on when the country is ready and the government wants to reopen the country, all that obviously adds complexity to establishing a fixed date. And I also add Loren, that the airlines need at least three weeks to go out to promote and sell the capacity we have to sell. I mean, then they can’t tell me on May 28 or May 30 they begin to fly on June 1, we need some time to be clear about which itineraries we publish and which itineraries we are going to sell. So I am, sorry I can’t answer your question with something more specific, but I estimate that it will be June sometime and until that moment we are waiting for the authority to say when we can do it.

Finance Colombia: I understand, and aviation is always a sector with a lot of competition, with very small margins, but you are in the process if I understand well, of negotiating with the government, possibly a bridge loan of up to $60 million dollars and that is a very small amount. For example, Copa just issued short term bonds for $350 million dollars in the private markets. I understand it is a bigger airline; the other airline here in Colombia is in need of billions of dollars, so my question is: $60 million? Does that demonstrate your strength? Because, that’s relatively small, that would be enough for you to endure this pandemic, this recession that we are facing?

Félix: It’s a good point Loren, and indeed if you look at other companies as well, , in the conversations we’re having, it is a bridge loan as you well mention, of less than $60 million dollars, I mean in the market it’s being said that Colombian airlines need between $1 and $1.2 billion dollars, right?. In the case of Viva Air, as I mentioned in (Colombian business daily) La Republica, it’s less than 5% of that total amount, an amount close to $50 million dollars, it is a low amount for aviation, but for commercial aviation, like you, you are a person who the understands the market, you know that this is a very small amount, very reasonable for a government, it is an amount that for Viva, with the cost structure that we have, effectively helps us to go through this pandemic and get ahead, which is what we need.

Finance Colombia: Yes.

Felix Antelo: We entered this crisis with in a good way, let’s say a good first quarter until March 20, with a profitable position, the costs are very controlled as you know, and indeed it is an amount that sounds very reasonable for the state and that  satisfies the needs that Viva has and meets the needs that Viva has to survive and to continue growing in the future.

Finance Colombia: But that’s even less than just half the cost of a single Airbus aircraft that you fly.

Felix Antelo: Yes, it is.

Finance Colombia: We can see the drama happening around the globe even before the crisis like the struggles of Avianca or South African Airways, even before the Coronavirus COVID-19 Pandemic they were already in a bad state…speaking of which, nobody hopes for misfortune upon their competition but what opportunities are there for Viva? Will there be opportunities for those airlines that are in a growth stage such as Viva? Will VIVA be able to take advantage of, or serve any excess demand here in Colombia or in the broader region for example more routes between Colombia and Peru?

Felix Antelo: The short answer Loren is “YES” in capital letters! We are going to be able to expand our service on international routes and domestic routes and why? Because we have the most efficient structure, the most efficient aircraft operating in Colombia is the Airbus A320. It also has a very efficient configuration due to the number of seats we have and, as you well know, they consume less fuel, they have more reliability, they fly more hours (between maintenance), so for the unit cost of Viva the answer is: We do believe that there are going to be more opportunities in the market and business opportunities as well because the market is going to be reconfigured, and we have to be vigilant and agile to take advantage of those market opportunities, and as I repeat, it is going to involve national and international routes too, so that’s what I predict.

Good things to come

Finance Colombia: I know that you were already about to launch new routes in places like the United States, the Caribbean and Ecuador, but do you still have these plans or did you have to postpone that for months or years? What is the status of those new routes?

Felix Antelo: Well, indeed, as you mentioned, we were days, days literally, not even weeks of announcing and luckily we were able to adjust our plans before announcing, but the answer is Loren, that the plans have not been canceled, they have been postponed. I would tell you that we think of retaking those plans, but it will depend a lot on how demand evolves, surely it will not be a launch with four routes at the same time, but rather it will be somewhat more phased in, with some routes launched before others, and also seeing a lot of how international demand is evolving. What we are seeing around the world is that domestic traffic will be the first to fly for various reasons, and the people feel safer flying inside their own country.

Second because people also feel, from the issue of feeling close to home, being covered by a health plan, a third issue the cost system is cheaper to fly domestic flights than international ones; due to these factors the first traffic that will fly will be domestic traffic so seeing how the domestic scenario will evolve first and then the international one…we are going to take these international routes, but I would say that it will surely be, let’s say from the original date of when they were going to fly that we were going to start flying them from July to September of this year. On average, everything will be shifted I would say between 9 and 12 months.

Viva Air CEO Felix Antelo welcomes passengers on the airline’s inaugural flight from Medellín to Cali

Finance Colombia: You will be pleased to know that the number one question I have from the readers of Finance Colombia is “when can we fly to Colombia?” So many people: executives, tourists, yes, I see the demand.

Felix Antelo: International or domestic flights?

Finance Colombia: Internationals, there are people who, even tourists, who have unfinished business, deals to do here. There are people who have pending matters, meetings, or private matters, but the demand is there contrary to what a lot of people fear. I think that there are many who say that there is no demand but people need to see family, to do business. I hear from them.

Felix Antelo: Hopefully. I hope Loren, I hope you are right and that demand is stronger than we all anticipate, I would tell you that international flights—and this is not a formal or official date, my estimate is that they will be for Colombia I would tell you between the end of July and the end of August, it will be around that time. I hope I am wrong and it is sooner, but I estimate that it will be for the end of July or between July and another time in August.

Finance Colombia: With Avianca’s departure in Peru, is Viva’s strategy changing or how are things going there in Peru?

Felix Antelo: Look Loren, Avianca had shrunk a lot in Peru, especially from the year 2000, let’s say until the middle of 2018 and the beginning of 2019 It had been left with only one route to Cuzco with two or three flights daily. Viva had five flights daily. Avianca had already shrunk in the domestic market, and they had practically disappeared in late 2018 and early 2019, so in that sense it does not change much, and the other thing Loren, it is like what happens with the international routes that Avianca flew directly with its Peruvian subsidiary? if those routes were Miami, Buenos Aires, Bolivia, Brazil, it’s not yet clear how it is, so I believe that other opportunities may also arise in the international routes, but it is not clear yet Loren, I would tell you that in the domestic there will be no changes since Avianca was practically no longer flying domestic routes. On international routes there may be new opportunities, but it is not yet clear how that market will evolve.

Finance Colombia: Viva is based here in Medellín at José María Córdova International Airport outside the city in Rionegro. Bogotá has been a victim of its own success and El Dorado International Airport is super-congested and out of capacity. Viva is in growth mode. Can Medellin with its very small international airport (less than 20 gates) still serve your needs as a home-base hub into the future?

Félix: Well that’s a good question, the Rionegro Airport, let’s say it is a good airport, but surely given the growth of Viva, what we estimate for the future…this Pandemic obviously changes all, because traffic is going to be reduced strongly in the first stage, but when it returns to normal and we return to the Pre-COVID levels, if you are talking to the Rionegro airport for an expansion of a first stage of the part of the growth that will have to come, I’d say it would have to happen within the next two or three years so that Medellin does not collapse like Bogotá, we were in those conversations before COVID hit, so I told you now the time, I think that in the next 12 months the traffic is going to have a decrease now, I believe that at the end of this year it is going to start to recover stronger, so this kind of moves everything and delays between one or two years; it delays everything, which gives us a little more time, but going to your point, we have to work together between Viva, the (municipal) airport of Medellin, the Airport of Rionegro and the cities of Medellín and Rionegro to have an airport at the level of (international) expectations that is needed. If we want to continue increasing passenger levels for the next 5 to 10 years within 20 or 30% per year, the greatest growth of that will not all be in Medellin because you know, we operate in many other airports, but if our main base is here and the main airport for Viva is Medellin in Rionegro, then we need the airport to join us in this expansion plan.

Finance Colombia: Yes that fascinates me because they finished, they just finished this growth project, the good thing is that it shows the vitality and energy of the city, Medellin is a city that is progressing, which is increasingly in demand in the area, one thing that fascinates me about the airport is that I was talking to my wife the other day and I reminded her: “You know that it costs more to go from Medellin to Rio Negro in the taxi than the cost of the flight with Viva Air? I pay more for the white cars (dedicated airport taxis) than I pay for VIVA and it fascinates me!

Felix Antelo: Another thing Loren, a thought: either the taxi is very expensive or the ticket is very cheap.

Finance Colombia: (Laughs)

Felix Antelo: Either one, the truth is that the taxi is expensive, and our tickets are very accessible too, they have very low prices.

Finance Colombia: I remember how six years ago I paid about $70,000 pesos for an overnight bus from the north bus terminal of Medellín to Bogotá, but VIVA costs less than the bus and if I am concerned about my health, I can spend 30 minutes on a plane or 12 hours on a bus and buses do not have HEPA filters!

Felix Antelo: Yes that too, exactly then Loren, a final reflection of mine that you just told me, there are few closed spaces safer and healthier than inside a plane, so you just said, you are talking about a modern plane, an A320 plane, HEPA filters keep 99.9% of the air constantly cleaned, free of bacteria and particles, there must be few more closed places, I do not know any place, after being outdoors, that is safer than a plane.

See Also: What might happen to Avianca? Will Copa purchase the Airline? (click)

Felix Antelo is CEO of Viva Air Group, based outside Medellín, Colombia

Unlike Avianca, which appears to be hopeful for a government takeover, privately held Viva Air insists that it is simply seeking temporary liquidity.

“In our particular case, and on this it is very important to emphasize, unlike what may be happening with other airlines in Colombia and the world, we are not asking for or requiring financial subsidies or bailouts; What we are looking to obtain is a bridge loan with a reasonable period of time, which can be between five and six years, and a grace period of between two and three years, given that our problem is only one of liquidity, given that we have more than a month without flying and, as the president recently said, this restriction will most likely extend into June. In this way, we will guarantee the sustainability of the business, the activation of operations once the emergency is over, as well as air inclusion in Colombia,” said Félix Antelo, CEO of the Viva Air Group.

Viva Air is controlled by Irelandia Aviation, the parent company of Ryanair in Europe, Allegiant in the United States, and Viva Aerobus in Mexico.

International carrier Copa Airlines (NYSE:CPA) in neighboring Panamá just closed on a $350 million USD private debt placement paying 4.5%, and due in 2025. Avianca recently restructured a significant amount of its debt in December, paying double the interest at 9%. Still, the money losing airline has defaulted on payments of debt and expenses and says it is on the verge of being unable to pay wages.

Last Thursday, Avianca sent an email with the subject “#AviancaSeguiráVolando por Colombia en Mayo” or “Avianca continues to fly for Colombia in May” to passengers in their database announcing “Fly for Colombia from May 11!” The airline announced ticket sales for flights from May 11^th between Bogotá, Medellín, Cartagena, Cali, Barranquilla, Santa Marta & Cali. The airline also announced safety measures, such as social distancing and enhanced disinfection. “Buy now” the email said.

“Cool your jets…”

Apparently annoyed at the United Airlines (NASDAQ: UAL)-controlled carrier, Colombia’s President Ivan Duque took to the airwaves on May 1^st, a holiday in Colombia, to chasten the airline, where his own sister is a high-level executive, in a televised rebuke.

“I want to give a very clear message about a theme. I was advised yesterday, at the end of the afternoon—actually it was at night—that ‘some airlines’ were beginning to sell tickets starting May 11. I want to be very clear: No airline is authorized to sell tickets in Colombia after May 11,” said Duque. “We have been very clear that who determines the moment when air traffic proceeds will be the national government.”

Avianca, under pressure to find cash and with scarce revenues to pay wages, selling tickets was one way to bring in revenues, even though they were unauthorized. The airline has been appealing to the Colombian government for a bailout, but faces public opposition as the airline has infuriated passengers with operational issues in recent years, faces multiple legal scandals, is legally based in Panamá, and entirely foreign controlled.

“Buy now” the email said.

Regañado (chastened) as is said in Spanish, Avianca sent out a corrective email last Saturday and removed the offer from its website.

By order of the Transportation Superintendency, AVIANCA rectifies its advertising

AVIANCA S.A. regrets the confusion that the offer published on April 30, 2020 called Colombia #SeguiráVolando” (Will Continue Flying) and/or “Vuela por Colombia” (fly for Colombia) as of May 11 and/or “#AviancaSeguiráVolando por Colombia en Mayo” (Avianca Will Continue Flying For Colombia In May), has been able to generate and rectify said advertising informing users and consumers of the following:

On April 30, 2020, through publications made through commercial emails sent to customers and its website, AVIANCA S.A. announced the availability of seven domestic routes, from May 11 to 31, 2020, and in which a 5% VAT would be paid.

Although the information published by AVIANCA S.A. was based on an understanding of the regulations in force, the offer sought to inform customers that the company was ready to operate and offer its customers flights as soon as the suspension of domestic operation provided for in decree 593 of 2020 still in force expired.

Following the instructions given by the National Government according to which “the operation of domestic flights is not yet authorized, therefore, there is no certainty regarding the date when it will be allowed to operate again and consequently resume flights”, AVIANCA S.A. has proceeded to cancel all flights advertised in said advertisement.

On April 30, 2020, through publications made through commercial emails sent to customers and its website, AVIANCA S.A. announced the availability of seven domestic routes, from May 11 to 31, 2020, and in which a 5% VAT would be paid.

Although the information published by AVIANCA S.A. was based on an understanding of the regulations in force, the offer sought to inform customers that the company was ready to operate and offer its customers flights as soon as the suspension of domestic operation provided for in decree 593 of 2020 still in force expired.

We will work hand in hand with the authorities to define and communicate the dates of restarting operations and to continue fulfilling our mission to connect the country and our passengers. Since the health emergency generated by the Covid-19 began, at Avianca we have continuously adjusted our itineraries to be prepared to fly when the suspension of flights is lifted, always under the strictest biosafety protocols.

The company in a 6-K filing with the US SEC (Securities & Exchange Commission) stated the following:

Given the impact of the COVID-19 pandemic on the airline sector and the correspondingly increased levels of uncertainty regarding the airline industry’s prospects, Avianca today cannot readily access private sector funding sources in sufficient amounts to fulfill its needs. Avianca has therefore engaged in discussions with the different governments where it conducts operations, including, among others, the Colombian government. In the course of such discussions, Avianca has proposed different support structures which it believes would provide these governments with adequate protections, while ensuring that Avianca will be able to continue operations in such markets and maintain connectivity and employment throughout the region. Discussions with governments are continuing, and Avianca has not received formal responses nor has it reached agreement on terms on which eventual support could be provided.

There can be no assurance that such agreements will be reached. Avianca will inform the market in a timely manner when negotiations conclude.

On the other hand, there is growing indignation in the Colombian public at the suggestion that the government, which will already face tremendous economic damage due to the Coronavirus COVID-19 Pandemic would bail out the airline, which is majority controlled by US based aviation giant United Airlines (NASDAQ: UAL) through BRW Aviation (51.43%), and the next largest shareholder being controlled by El Salvador business magnate Roberto Kriete (14.46). Another 20% is traded on the New York Stock Exchange through ADRs (American Depository Receipts) leaving a small minority of shares owned or traded publicly through Colombia’s BVC stock exchange (Bolsa de Valores de Colombia).

See Also: What might happen to Avianca? Will Copa purchase the Airline? (click)

Colombia, like the US taxes residents and companies on worldwide income, so Avianca Holdings has opted to legally be a Panamanian company. According to their SEC filing, the “Address of principal executive office” is:

Edificio P.H. ARIFA, Pisos 9 y 10, Boulevard Oeste

Santa María Business District

Panama City, Republic of Panama

(+507) 205-7000

Colombians seem to have noticed the fact that a Colombian government bailout would be of a foreign majority-owned, foreign domiciled company, even though the firm does employ approximately 11,000 Colombians. No matter what happens with Avianca, thousands are likely to permanently lose their positions with the company as the sector contracts due to the reduced demand in travel amidst the Coronavirus COVID-19 Pandemic. An Avianca bailout would also prioritize Avianca jobs over the thousands of other Colombian employees and entrepreneurs embroiled in this crisis who don’t receive a politically connected bailout.

Bogotá politician Luis Ernesto Gómez tweets that “When they speak of saving Avianca, they are in reality talking about saving United Airlines and Kingsland Holdings.

Cuando hablan de salvar Avianca, están en realidad hablando de salvar a United Airlines y a Kingsland H.

Los recursos de endeduamiento soberano que pagaremos todos por años con nuestros impuestos deben ir a salvar las micro, pequeñas y medianas empresas no a empresas extranjeras pic.twitter.com/yb8Qf5phMU

— Luis Ernesto Gómez? (@LuisErnestoGL) April 29, 2020

Green party congressman Inti Asprilla tweeted “WTF is going on in this country?? People living beside Doña Juana live in an apocalyptic situation right now, while @IvanDuque and the media are talking about saving AVIANCA. INDIGNANT, SHAMELESS AND INDOLENT.” Doña Juana is a large landfill, over 1,000 acres on the outside of Bogotá that suffered a landslide of between 80,000 and 100,000 tons of garbage on April 28^th, sickening and endangering the poor nearby residents in addition to the environmental damage.

Que carajos pasa en este país??
La gente al lado de DOÑA JUANA vive una situación apocalíptica en este momento, mientras tanto @IvanDuque y muchos medios nos hablan es de salvar a AVIANCA.
INDIGNOS, SINVERGÜENZAS E INDOLENTES

— Inti Asprilla (@intiasprilla) April 29, 2020

Colombians have also taken note that the sister of President Ivan Duque is a top Avianca executive.

¿Y si la hermana de Duque pasa la hoja de vida a Satena y yá?

— katy ? (@katy_666) April 29, 2020

One person tweeted: “Why don’t we save our health workers and applaud Avianca?” in response to the manifestations of support across Colombia and other countries for healthcare workers through rounds of public applause?”

#SalvemosAvianca esta propuesta me encanta ???? pic.twitter.com/Y0tiEc6zrK

— JuanG Lopez (@lopez_juang) April 30, 2020

One of Colombia’s most influential presenters, Vicky Dávila weighed in, saying “#SaveTheRich is not acceptable. Even though they call it populist, now we have to save the poorest and middle class, at those nobody looks at. And furthermore, if they are going to help an enterprise, let it be Colombian, and a small or medium business…and get mad if you want!

#SalvarALosRicosEs inaceptable. Aunque digan que es populista, Ahora hay que salvar a los más pobres y a los de clase media, a los que nadie mira. Y además, si van a ayudar a alguna empresa que sea a las colombianas y a las pequeñas y medianas… y pónganse bravos si quieren!

— Vicky Dávila (@VickyDavilaH) April 29, 2020

Should Avianca be saved by the Colombian government? Feel free to speak out below.

The full statement on page 3 of the SEC form 6-K reads as follows:

“Our independent auditors, KPMG S.A.S. (“KPMG”), have informed our Audit Committee that, in the absence of further information in support of our ability to meet our obligations as they become due and to comply with our debt covenants, KPMG’s auditors’ report on our consolidated financial statements as of and for the period ended December 31, 2019, will include an explanatory paragraph indicating that substantial doubt exists as to our ability to continue as a going concern.”

Avianca has faced worsening financial and operational difficulties over the past 3 years, and the Coronavirus COVID-19 Pandemic may have pushed the airline over an existential cliff. Even before governments ordered closures of airspace, Avianca had scarce cash on hand to cover current liabilities, and had just completed a debt restructuring and closed on additional financing. Now the airline has more debt, less revenues, and has fallen behind on payments of leases and financing.

See Also: What might happen to Avianca? Will Copa purchase the Airline? (click)

At an 81% load capacity in previous conditions, the airline announced that it was retooling its aircraft to add even more seats, but passenger demand is unlikely to recover in the coming months once travel is permitted again.

Avianca’s North American patron, United Airlines (NASDAQ: UAL) is not optimistic either. In their own SEC form 8-K filing, they stated “Our significant investments in AVH and its affiliates, and the commercial relationships that we have with Avianca may not produce the returns or results we expect.”

United Airlines admitted in the filing that their stake in Avianca may turn out to be worthless, stating:

“As a consequence, we may not realize a satisfactory (or any) return on our invested or loaned funds with respect to AVH and its affiliates.”

United went on to discuss the operational impact an Avianca collapse could have, since it relies on connections with Avianca and Copa Airlines to complete its route network in Central & South America.

“Further, these investments may not generate the revenue or operational synergies we expect, and they may distract management focus from our operations or other strategic options. Finally, our reliance on Avianca in the region in which it operates may negatively impact our global operations and results if AVH does not successfully recover from its debt restructuring or the COVID-19 pandemic, or is otherwise impacted by general business risks or performs below our expectations or needs. Any one or more of these events could have a material adverse effect on our operating results or financial condition.”

See Also: Interview: Will Avianca & LATAM Airlines Survive? Standard & Poor’s Analysts Weigh In

Photo credit: Loren Moss