Colombian low cost carrier Viva, known formally as Fast Colombia SAS last night suspended air operations citing a financial emergency and a lack of a decision from Colombian regulators on the airline’s pending merger with rival Avianca. The shutdown comes after Viva staff from both the José Maria Córdova International Airport and the airline’s corporate offices in Medellín and Rionegro took to the streets Friday in a massive street protest outside the airport in support of their employer and demanding that government regulators allow a deal to proceed to save up to 5,000 direct and indirect jobs (above video). The protest backed up traffic for miles and temporarily closed eastbound traffic in the tunnel connecting Medellín with the airport and eastern suburbs.
Yesterday, Colombia’s primary civil aviation regulatory authority, Aerocivil, which is a unit under the country’s Ministry of Transportation, announced that it would not act on the pending merger between Viva and Avianca until it fully considers the rival proposals to acquire the low cost carrier by Chilean airlines Latam and Jetsmart, and also challenges to the merger by competing airlines Ultra Air (founded by Viva co-founder William Shaw), Aerolineas Argentinas, Copa Airlines’ low-cost subsidiary Wingo, and by Jorge Enrique Sanchez Medina, a law professor specializing in commercial competition.
“After delays of more than seven months by Aerocivil, Viva has presented abundant evidence to the Colombian government to show that Viva is in critical financial distress and that the only way it can continue to fly is for Aerocivil to allow Viva to become part of a larger, stronger and well capitalized airline group. Instead, today’s decision by Aerocivil puts into question the future of low-cost air service in Colombia and endangers the jobs of more than 5,000 Colombians, who directly and indirectly depend on Viva,” said Viva in a written statement.
“While operations are suspended, Viva will continue to pursue negotiations with creditors under its decree 560 PRE proceedings and work to preserve its ability to restart operations at a future date once Aerocivil approves the pending transaction,” the airline continued.
The challenges are based on the large concentration of domestic airport slots and routes the combined Viva and Avianca would control, which opponents say would lead to pre-2016 conditions when Avianca dominated domestic aviation in Colombia with no competition from low-cost carriers until Viva came along. Avianca proposes that it would maintain Viva as a separate company, and cede a significant number of slots to competitors, while pledging not to coordinate with Viva to reduce competition on routes both airlines fly.
Chilean legacy carrier Latam, and low-cost airline Jetsmart have issued competing offers for Viva, but as Avianca shareholders have already taken an economic stake in Viva, they are loath to see the airline acquired by a competitor.
Aerocivil has until the 19th of April to issue a final ruling, while Viva says that it is out of time and out of money. The airline entered a voluntary 90-day reorganization process created under Colombian law, but nevertheless, aircraft lessors demanded the grounding of five aircraft last week, leaving the airline to accommodate passengers and reschedule routes. Viva says that these aircraft lessors have also met with the Colombian government to push for a speedy decision on behalf of the airline, warning that they will wait no longer for payment before taking action regarding the leased planes.
Aerocivil’s admittance of the competing airlines and the law professor as interested parties gives them a formal role in influencing a final decision by Aerocivil. Not only does this mean that Aerocivil will take more time to issue a decision, but a final ruling might not go in favor of Avianca.
For Avianca’s part, the airline issued a statement saying: “From the moment that the low cost [carrier’s] crisis materialized, Avianca publicly offered help and solicited the authority (Aerocivil) to fix mechanisms to effectively protect, under the applicable norms, the passengers, and the communities that would be affected by the loss of planes and the cancellation of Viva routes. To this date, Aerocivil has not emitted public directives for those air lines to offer said protection to passengers in a manner that secures compliance with applicable aviation and tributary law.”
The airline continues: “One more time, Avianca reiterates its total disposition to find, together with the national government, viable and urgent alternatives that would facilitate objective scenarios to be part of the solution. The low-cost model is at risk in Colombia, thousands of job positions, hundreds of thousands of airline tickets, a dynamic aviation market, benefits for communities through the services and direct and indirect connections, the democratization of tourism, the loss of significant government resources because of the around $20 million USD in debt guaranteed by the Colombian state to Viva, and most importantly, the continued connectivity of regions that see in Aviation, a hope for development and social wellbeing.”
CEO resigns, COO promoted
Last week, days before operations suspended, Felix Antelo, who held the post of President and CEO resigned his post, and the board of directors promoted vice president and COO Francisco Lalinde to serve as interim CEO of Viva. Antelo announced his resignation in an internal letter to staff citing both personal reasons such as his health and the current conditions the airline is facing.
“In the name of the more than 1,000 Viva collaborators, we thank Félix for his leadership, vision, and above all, for being a clear example of the #VivaAttitude which is what makes us unique as an airline, company and team,” said Lalinde. “In my new role I will continue to do what Félix did in our name during the last five years: maintain open communications with our team, and assure that we give our all for Viva.”