Sources told Chilean daily El Mercurio that private equity firm Caoba Capital, backing both Sky and Avianca that it was “obvious” the shareholders would seek synergies between the two South American airlines, and Elliot Management has is also backing both airlines along with Caoba. Local and industry journals report that Sky Airlines President and shareholder Holger Paulmann would lead the merged company, becoming the alpha lead in the binational partnership.

In response to all the buzz, Avianca filed a Form 6-K with the United States Securities and Exchange Commission on October 4^th, reminding interested parties that current shareholders will be wiped out by the proposed reorganization plan in favor of DIP creditors, who will become the new shareholders; but the firm also said that Avianca has not participated in any negotiations with Sky.

According to Colombian daily La República, Caoba Capital and Elliot Management are set to control 70% of Avianca & 40% of Sky.

However, Avianca company management is not necessarily privy to negotiations or decisions taken by outside shareholders, and it would behoove those DIP (Debtor In Possession) shareholders to keep preliminary negotiations outside of the company. Were the company management at this stage directly involved in any merger talks, it could complicate bankruptcy proceedings, but shareholders are free to do and say as they wish.

Avianca denied company-to-company negotiations but did not flatly deny talks.

“Avianca has no knowledge of any future decisions the Tranche B investors may take, as potential controlling shareholders of the Company, once the Plan is confirmed,” the company said in its 6-K filing, going on to clarify:

“Avianca has no knowledge of any investment of its Tranche B investors in Sky, nor the terms and conditions of any negotiation that any of the Tranche B investors may have pursued with Sky or its shareholders.”

Current shareholders, likely to be wiped out by any agreement, have until October 19 to object to the reorganization plan, and votes may be submitted to approve or reject the reorganization plan up until October 15, both 4pm Eastern time. The court will hold a hearing October 26 at 10am to consider approval of the reorganization plan.

Court filings and other documents related to the Chapter 11 process in the US are available at www.kccllc.net/avianca.

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.

S&P Global Ratings has downgraded Avianca from “CCC-” to “D”

The NYSE also told Avianca that it will apply to the SEC to delist the ADSs once any applicable procedures are completed, including any appeal by Avianca of the NYSE decision.

The Colombian Stock Exchange, the Bolsa de Valores de Colombia (BVC) has also notified Avianca that the Company’s preferred shares continue to trade on the BVC but the airline’s preferred shares continue to be ineligible for repo transactions and are inadmissible as collateral for margin calls in other types of transactions, and as of yesterday, no futures or options contracts in respect of Avianca’s preferred shares may be entered into.

Avianca has created an information site, aviancawillkeeponflying.com to provide the company’s position on the bankruptcy filing.

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

See also: Avianca Downgraded To CCC By Standard & Poor, Credit Watch Negative

“Avianca is actively seeking mutually satisfactory agreements with its key suppliers, strategic lenders and other creditors to address the current scenario. As this situation unfolds, Avianca will continue to provide updates on other measures undertaken to protect its cash position to the extent possible,” said the company in a statement.

The airline’s annual meeting was held last Friday, March 27 where shareholders approved the decision not to deliver annual dividends for 2019.

At the meeting, shareholders also elected the following persons as directors of the Company for the period between March 2020—March 2021:

Non-Independent Directors

• José Gurdian *
• Roberto Kriete **

Independent Directors

• Oscar Dario Morales *
• Richard Schifter *
• Sergio Michelsen *
• Jairo Burgos De la Espriella *
• Fabio Villegas *
• Roberto Zamora *
• James P. Leshaw **
• Álvaro Jaramillo *** Consensus Director
• Rodrigo Salcedo *** Consensus Director

* Nominated by BRW Aviation LLC (controlled by United Airlines)

** Nominated by Kingsland Holdings Limited (controlled by Roberto Kriete)

*** Jointly nominated by BRW Aviation LLC and Kingsland Holdings Limited.

According to the airline, the search and seizure of information by the national prosecutor’s office is related to allegations and cover-up of Avianca’s potentially improper bribery by senior executives and members of the board of directors of government officials with airline tickets, upgrades and discounts; which could, under the law of some countries where Avianca operates, be against the law.

“Today, the Office of the Attorney General of Colombia served Avianca with a search warrant of its offices with the objective of collecting information related to this investigation.”

Avianca admits that the business practice was discovered in 2017 by internal auditors, but was not disclosed until the autumn of 2019, well after the former CEO and members of the previous board were dismissed and replaced.

The law firm of Ropes & Gray, contracted by the airline to investigate its role in the Airbus bribery scandal, is also conducting an investigation on behalf of the airline into these potential legal violations. Apparently, Avianca will also need to retain criminal counsel. In addition to these legal complications in Colombia, the potential bribery has also been reported by the airline to the U.S. Department of Justice and the US Securities and Exchange Commission (SEC).

Avianca, in a statement shared with Finance Colombia said: “As has been its practice, Avianca has cooperated and will continue to cooperate with all pertinent authorities. Avianca will provide the information being requested to the Office of the Attorney General of Colombia, while exercising its legal rights to ensure that its confidential and privileged information remains protected.”

European aircraft manufacturer Airbus (AIR.PA) has already admitted guilt and accepted deferred prosecution agreements (similar to “probation”) with prosecutors from the US, UK and France. Airbus has agreed to accept culpability and pay over $3.9 billion USD in penalties.

Larger than Odebrecht: According to the US Department of Justice, this is the largest bribery resolution in history.

According to the approved judgement in the United Kingdom’s Crown Court at Southwark, case number U20200108, The SFO’s (UK’s Serious Fraud Office) investigation related to bribery offenses in Malaysia, Sri Lanka, Taiwan, Indonesia and Ghana. The PNF’s (Parquet National Financier of France) investigation related to bribery and corruption offenses in China, Colombia, Nepal, South Korea, the United Arab Emirates, Saudi Arabia (Arabsat), Taiwan and Russia. The JIT (Joint Investigation Team) investigation into Airbus’ conduct in Colombia was led by the SFO but the SFO agreed that this conduct should be included in the French CJIP (Judicial Public Interest Agreement) to reflect French primacy in the JIT investigation. The DOJ investigation relates to bribery and corruption offenses in China and violations of parts 126.1, 129 and 130 of the US International Traffic in Arms Regulations (ITAR) concerning a number of jurisdictions. The DOS’s investigation relates to civil violations of ITAR concerning various jurisdictions.

The French CJIP is the potentially most damning document against Airbus regarding Avianca. In it, starting on page 18, it goes into detail on Airbus’ clandestine arrangements with an Avianca executive, and then controlling shareholder Synergy Group, controlled by Germán Efromovich.

(Translated from French): Aerovias del Continente Americano S.A. Avianca (“Avianca”) is the national airline of Colombia. It was part of Synergy Group, a South American conglomerate, which owns several other airlines operating mainly in South America. Avianca Holding SA (“Avianca Holdings”) is the parent company of Avianca.

Between 2006 and 2014, Airbus concluded several consultant contracts with an intermediary salesperson operating through a company headquartered in Colombia to assist it in its campaigns with Avianca and the companies of the Synergy group. Some of these contracts provided in particular for the payment of a performance commission to the intermediary, representing either a lump sum per aircraft sold or per campaign, or a percentage of the price of aircraft sold. Part of the total compensation due to this intermediary for services rendered in campaigns with Avianca and Synergy was to be paid through these consultant agreements and another part through investment projects.

The investigation revealed that from the end of 2014, it was envisaged that part of the remuneration due the commercial intermediary, which was then the subject of a global renegotiation, be secretly transferred to an executive of Avianca Holdings. This person was an interlocutor for Airbus, and key in the ongoing commercial negotiations between Avianca and Airbus on the sale of the Airbus A320neo aircraft that Avianca purchased.

According to an email from an Airbus employee sent in November 2013, company officials were instructed to provide “AAA treatment because we are campaigning with Avianca / Synergy”.

In October 2014, an Airbus manager thus sent an email to an SMO International employee to ask him if he had been able to speak to the manager of Avianca Holdings. This employee has confirmed, during the internal investigation conducted by Airbus, that the manager of Avianca Holdings had requested a commission for the role he had played to support the sales campaign of the Airbus A320neo to Avianca, already in progress.

On November 17, 2014, the employee of SMO International sent an email to two executives, leaders of SMO International, informing them that discussions with the commercial intermediary with regards the fees still due. He was progressing and that he had proposed to the intermediary a “Global negotiation for the past and the future”. This email also mentioned that the Aforementioned Airbus official had agreed to this negotiation.

On November 25, 2014, the same Airbus manager sent an email to two employees of SMO International in which he indicated: “What (X) said is that, for the past, instead of 20 we do 15, including 5 å (Y). And, for the new contract, 4 for (Y) and 2 for the other 6.” 6 X here designates a senior executive of Airbus commercial. and Y designates the executive officer of Avianca Holdings.

According to paragraph 18 of the UK judgement, SMO International (Strategy & Marketing Organization) was set up by Airbus back when it was still EADS France SAS for “Business Partner appointments and International Market Development projects.”

Avianca lawyers up

Finance Colombia immediately reached out to contacts within Avianca for a response. The airline shared a written statement that reads as follows (verbatim):

Subsequent to the recently announced settlement between Airbus SE (“Airbus”) and authorities in France, the UK, and the United States regarding corrupt business practices at Airbus, Avianca announced today that it has retained the services of Ropes & Gray, a leading international law firm, to conduct an independent internal investigation into its relationship with Airbus and whether it has been the victim of wrongdoing.

Avianca will take all legal actions necessary to defend the interests of the Company and its shareholders, and will fully collaborate with all of the relevant authorities in France, the United States, the United Kingdom and other countries as appropriate.

“Airbus’s disclosure contains deeply concerning information regarding alleged actions by an individual at Avianca in the period prior to March 2016. Our current management team strongly rejects any conduct that does not reflect integrity and transparency in business in general, and in particular towards Avianca. We will take all steps necessary to defend the Company’s interests, working together with the relevant authorities,” emphasized Anko van der Werff, President and CEO of Avianca Holdings.

It should be noted that if the allegations are true, Avianca would actually be a victim of the scandal, and not a perpetrator. The legal documents appear to implicate at least one high level Avianca and/or Synergy Group executive taking actions for personal again and against the interests of the airline.

“Airbus SE, the second largest Aerospace company world-wide, engaged in a systematic and deliberate conspiracy, that knowingly and willfully violated U.S. fraud and export laws,” said Special Agent in Charge Peter C. Fitzhugh of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) New York.  “Airbus’s fraud and bribery in commercial aircraft transactions strengthened corrupt airlines and bad actors worldwide, at the expense of straightforward enterprises.  Additionally, the bribery of government officials, specifically those involved in the procurement of U.S. military technology, posed a national security threat to both the U.S. and its allies.”

According to admissions and court documents, beginning in at least 2008 and continuing until at least 2015, Airbus engaged in and facilitated a scheme to offer and pay bribes to decision makers and other influencers, including to foreign officials, in order to obtain improper business advantages and to win business from both privately owned enterprises and entities that were state-owned and state-controlled.  In furtherance of the corrupt bribery scheme, Airbus employees and agents, among other things, sent emails while located in the United States and participated in and provided luxury travel to foreign officials within the United States.

For its part, Denis Ranque, Chairman of the Board of Directors of Airbus, stated: “The settlements we have reached today turn the page on unacceptable business practices from the past. The strengthening of our compliance programs at Airbus is designed to ensure that such misconduct cannot happen again. The agreements also reflect that the decision to voluntarily report and cooperate with the authorities was the right one. The commitment from the Board, and its Ethics and Compliance Committee, to provide full support to the investigation and the implementation of globally recognized compliance standards have paved the way to today’s agreements.”

• The US Deferred Prosecution Agreement can be viewed here.
• The US Charging document can be viewed here.
• Avianca’s 6-K filing in response to the US Securities & Exchange Commission can be viewed here.
• The UK judgement against Airbus can be viewed here.
• The French Anticorruption Agency CJIP mentioning Avianca can be viewed here.

Photo credit: Loren Moss

Eligible holders of existing notes who tender existing notes prior to 11:59 p.m. New York City time, on August 27, 2019  will be eligible to receive, for each $1,000 principal amount of existing notes tendered, $1,000 principal amount of exchange notes, which includes the “ Early Participation Premium ” of $50 in principal amount of exchange notes per $1,000 principal amount of existing notes. Eligible holders who validly tender existing notes after the early participation deadline will not be eligible to receive the early participation premium. The exchange offer and consent solicitation will expire at 11:59 p.m. New York City time, on September 11, 2019, unless extended or earlier terminated.

The exchange notes will be secured by a pledge, mortgage or assignment of:

1. The Avianca brand and certain other intellectual property
2. Certain unencumbered aircraft which are currently owned by certain subsidiaries of Avianca
3. The residual interest in substantially all aircraft which are owned and financed now or in the future by Avianca and its subsidiaries, except for aircraft currently expected to be sold and aircraft subject to third party leases.

The aggregate value of the collateral aircraft (calculated according to multiple desktop valuations using the half-life method), net of the aggregate amount of outstanding indebtedness under financing arrangements with respect to such aircraft, is approximately $1.0 billion USD.

The exchange notes will be issued by the company and will be guaranteed by all of the guarantors and the co-issuers of the existing notes and will additionally be guaranteed by various subsidiaries which do not guarantee the existing notes.

The exchange notes will have the same maturity and other terms as the existing notes, except that:

1. The exchange notes will be secured
2. The exchange notes will have additional guarantors
3. A cross-acceleration provision will be substituted for the cross-default provision
4. United Airlines, Inc. and Kingsland Holdings Limited (Controlled by current Avianca chairman Roberto Kriete) will be designated as the permitted holders under the change of control provisions
5. The exchange notes will be subject to the Mandatory Exchange, described below

The exchange notes will automatically be exchanged (the “ Mandatory Exchange ”) for an equivalent principal amount of 9.00% Senior Secured Notes due 2023 (the “ New Notes ” and, collectively with the exchange notes, the “ Secured Notes ”) on December 31, 2019 upon the certification by Avianca to the trustee of the closing of an investment of not less than $250 million of new equity or convertible debt in the Company from United, Kingsland and one or more financial institutions, of which at least $200 million will be made by United and Kingsland (the “ Stakeholder Investment ”) and the receipt of such funds prior to December 31, 2019.

The new notes will have terms that are identical to the terms of the exchange notes, except that:

1. The coupon on the New Notes will be 9.00% per annum
2. The maturity date of the New Notes will be May 10, 2023
3. The new notes will be redeemable as further described in the offering memorandum
4. The collateral for the new notes will be subject to release upon the new notes achieving certain ratings.

The exchange offer and consent solicitation will be conditioned on there being validly tendered and not withdrawn at least 50.1% of the aggregate principal amount of the existing notes. However, United and Kingsland have informed Avianca that participation of 50.1% in the exchange offer will not be sufficient for them to consummate the stakeholder investment.

The full 6-K filing to the Securities and Exchange Commission of the US can be seen here.

Still, when contacted by Finance Colombia regarding the personnel change, Avianca shared their official 6-K filing with the United States Securities & Exchange Commission (SEC). The 6-K filing, filed June 12 reads as follows:

“With respect to the news recently published in the media where names of different industry executives were mentioned as possible candidates to assume as President of Avianca Holdings S.A., the Company informs that the selection process being carried out by a prestigious international executive selection is still ongoing and that the Board of Directors will evaluate the final candidates and shall make the final decision. In the meeting held yesterday, the Board of Directors did not appoint a new President of Avianca Holdings S.A.”

Update: Avianca board appoints Van Der Werff as new CEO – read more here

As a publicly traded company, it would be illegal to mislead the SEC. It seems then settled that Avianca has not in fact appointed Van Der Werff or anyone else as CEO so far, though the board may end up actually appointing Mr. Van Der Werf. The timing seems more than coincidental that Van Der Werff resigned from Aeromexico with no other career announcements made while Avianca is conducting its search after former CEO Hernan Rincón resigned abruptly to among other things, “study astronomy.” 

The purchase agreement was formally filed by the U.S. healthcare firm with the Securities and Exchange Commission (SEC) in December for a reported price of $2.8 billion USD, or 2,150 Chilean pesos per share.

As part of the deal for the company, which provides health benefits and services to millions of people in the region, UnitedHealth now owns the Colombian EPS health market companies Aliansalud and Colmédica Medicina Prepagada as well as clinics Clinica del Country, Clinica La Colina, and Portoazul.

In an interview with Colombian magazine Portafolio, Molly Joseph of UnitedHealthcare said that customer and patients will see no immediate changes in their coverage or care plans. The biggest changes in the future, she says, will include an increasing investment in technology and medical systems management to make processes more efficient.

Data analytics, increased digitization of records, and biometric innovations are likely to be among the advances down the road.

“We want to bring to Chile, Colombia, and Peru our experience in helping to improve access to health of the population — with better quality and lower costs — taking advantage of the technology and information we have,” Joseph told Portafolio. “The combination with Banmédica creates a much stronger organization with greater capacity to offer more services and of better quality.”

(Photo credit: 2012 Pop Culture Geek)

This comes on the heels of former LAN CEO Ignacio Cueto Plaza settling a case for his role in the affair for $75,000 USD in February. According to the SEC, the CEO approved a $1.2 million USD payment, wired through a Virginia-based brokerage account, to a consultant in Argentina who negotiated on the airline’s behalf against labor unions.

The funds were routed through a third party under a “sham contract” involving a phony study, says the watchdog, and LAN knew that some of the money would be funneled on to labor unions in order to entice a favorable agreement in its wage disputes with workers.

“LAN used a sham consulting agreement to make its financial reporting appear as though the company was funding a study rather than steering money to settle labor disputes,” said Kara Brockmeyer, head of the SEC’s FCPA unit. “This settlement, along with our prior case against the CEO, shows that public companies and their executives must be truthful and forthcoming about its overseas consulting agreements or otherwise pay the consequences.”

Though the corruption charges stem from LAN’s actions alone, predating its 2012 merger with Brazil-based TAM, the timing of the scandal creates an embarrassing black eye for Latin America’s largest carrier at the same time it is pushing for a larger global presence. Less than two weeks ago, LATAM Group CEO Enrique Cueto was quoted in a Forbes profile boasting of his company’s ability to compete against anyone in the friendly skies.

“Until relatively recently … there was no Latin American airline with a regional presence that could compete at a global level,” Cueto told Forbes. “That is why it was long our ambition to bring LAN and TAM together and create an airline group in Latin America capable of playing in the aviation big leagues.”

The combined airlines waited until mid-2015 to unify their brands, now operating under the LATAM name. LAN Colombia became Colombia’s second largest airline, after Avianca, when it completed a 2010 purchase of the domestic carrier Aires, which at the time had a 22% market share. It has since flown to nearly two dozen different destinations in the Andean country, making Colombia one of its largest markets.

Photo Credit: Bobo888