The agency noted that Avianca Holdings’ liquidity represented only 9.1% of its revenues in 2016, while it will have to confront nearly $800 million USD in debt maturities in 2017 and 2018. Overall, its cash and equivalents at the end of 2016 were just $375 million USD, down from $479 million USD at the end of 2015.

While Fitch expects Avianca Holdings to cover its capital expenditures and debt maturities over the next two years “with a combination of its own cash flow generation and further borrowing,” the agency continues to have concerns given the carrier’s liquidity ratio.

“Fitch views the company’s liquidity as low,” said the agency in a statement. It added that “Avianca Holdings’ pending debt maturities and scheduled capital expenditure levels are viewed as high with respect to its liquidity and expected free cash flow generation during 2017-2018.”

It also noted that the airline’s “cash flow generation to fuel price variations” could become vulnerable on top of the expected risks in the challenging airline industry and the possibility that Avianca could fail to maintain operational margins as the market leader in Colombia and Central America.

On the positive side, Avianca’s 2016 margin (adjusted EBIT) increased last year to 7.2%, improving from 5.7% in 2015. Fitch Ratings is projecting a dip over the next two years, but only slightly to 6.8%, given the likelihood of the carrier still only managing to realize single-digit passenger growth, among other concerns.

Avianca Holdings also cut its on-balance-sheet debt by some $200 million USD last year, improving its financial leverage (total adjusted debt/EBITDAR) to 6.2x at the end of 2016 compared to 7.1x at the close of 2015. This will improve even further in 2017, Fitch has forecasted, to around 6x by the end of December.

The totality of the analysis comes with one large caveat, however: Fitch Ratings has not factored in the potential of Avianca Holdings aligning with strategic partner. The airline has been seeking to join forces with another global airline for much of the past year and announced earlier this year that it was negotiating with United Continental Holdings on a deal. Though that arrangement has been thrown into question amid legal challenges from Avianca minority shareholder Kingsland Holding Ltd., an agreement with United or another carrier could still come to fruition.

The analysis also does not provide for the possibility of Avianca otherwise receiving an equity injection or finalizing a “merger and acquisition activity-related operations” in the Brazilian market.

“Fitch considers there to be limited visibility at this point as to final outcomes and timing of each of these events, but that in general the incorporation of a global carrier as a strategic partner could be a positive development,” said the agency. “The move would allow Avianca Holdings to strengthen key areas such as market position and corporate governance.”

In its ratings assessment, Fitch Ratings also included ratings for Avianca Holdings subsidiaries.

Avianca Holdings S.A. (Avianca Holdings)

Long-Term Issuer Default Rating (IDR): B

Long-Term Local Currency Issuer Default Rating (IDR): B

$550 million USD unsecured notes due in 2020: B-/RR5

Aerovias del Continente Americano S.A. (Avianca)

Long-Term Issuer Default Rating (IDR): B

Long-Term Local Currency Issuer Default Rating (IDR): B

Grupo Taca Holdings Limited (Grupo Taca)

Long-Term Issuer Default Rating (IDR): B

Photo Credit: Avianca

Kingland’s suit, filed in New York state, alleges that German Efromovich, the controlling shareholder in Avianca, initiated negotiations with United for personal gains and passed over proposals from two other airlines that more highly valued Colombia’s largest carrier.

“The United transaction diverts the vast majority of the consideration United is paying for a partnership with Avianca — a valuable asset that may provide United with an estimated annual profit in excess of $75 million USD — to Efromovich’s financially shaky affiliates,” states the lawsuit, according to Bloomberg. “He torpedoed the strategic process by clandestinely negotiating a transaction with United.”

Though other airlines may not be specifically mentioned in the suit, both Delta Air Lines and Copa Airlines were rumored throughout 2016 to be interested in forming a partnership with Avianca.

According to Colombian business publication Portafolio, Kingsland has controlled 21.9% of the carrier since a 2010 merger between Avianca and Central American airline Taca. Efromovich holds the remaining 78% through his holding company Synergy Aerospace Corp.

Both Avianca and United have said that they have yet to be officially served with the lawsuit. “Avianca Holdings S.A., informs that it has come to its knowledge by news published in different media, that one of its minority shareholders, Kingsland Holdings Ltd., has filed a lawsuit in New York state court against the company, the majority shareholder, Synergy Aerospace Corp., two of Synergy’s principals, and United Airlines,” said Avianca in a statement.

“Avianca Holdings S.A., informs that it has not yet been officially served with such complaint,” added the Bogtotá-based carrier. “If the company is served, it will assess with its lawyers the terms of the complaint and respond in the normal legal course of action. As it corresponds, the company will vigorously defend its interests.”

“Avianca’s board of directors have authorized Avianca to implement all necessary analysis and other steps required in connection with the proposed strategic-commercial alliance with United Airlines,” said Avianca in a statement.

While the still-unknown specifics will be key to judging the agreement, Medellín-based financial services company Bancolombia suggested that the move may hurt Avianca’s stock immediately but should prove beneficial over the long term.

“After months of speculation Avianca finally announced their roadmap and the speculators are unlikely to encouraged,” said the bank in a note to investors. It added that, “whilst the stock has eased back somewhat over recent weeks, we may see more pressure short term as the option for a change of control appears to be receding, although long term these appear solid moves.”

United was among several suitors who had reportedly submitted bids for a partnership last fall. Delta Air Lines and Copa Airlines were also engaged in talks with Avianca, per numerous media reports.

Scott Kirby, president of United Airlines, said his company is looking forward to increasing cooperation with the Colombian airline. “Deepening our relationship allows us to expand on our existing Star Alliance and strategic partnerships in the region as we continue building a great network in Latin America,” said Kirby.

Colombia’s largest airline also announced that its controlling shareholder, Synergy Aerospace Corp, intends to make a capital contribution to Avianca of up to $200 million USD. The capitalization remains subject to regulatory and corporate approvals. “Synergy intends that all of Avianca’s shareholders, including its preferred shareholders, should have the opportunity to participate in such capitalization on a pro-rata basis,” stated Avianca.

Synergy is also seeking to push forward a merger between Avianca Holdings and Avianca Brazil, which is formally known as Oceanair Linhas Aéreas S.A. and controlled by Synergy.

“Avianca’s improved quarterly operating metrics which were recently published, coupled with the proposed capitalization and long-term strategic-commercial alliance with a world-class international airline, all reflect execution of Avianca’s strategy and set the stage for its success in years to come” said Hernan Rincón, CEO of Avianca.