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Avianca In Trouble: Board Shakeup, United Forces Control

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Avianca In Trouble: Board Shakeup, United Forces Control

Photo: Alan Wilson

Avianca In Trouble: Board Shakeup, United Forces Control
May 24
18:13 2019

MIAMI — The 99-year-old Latin American airline giant, Avianca, is facing one of the most challenging times in its history.

German Efromovich, known to be the airline’s savior, has been removed from his position of Chairman of the Board of Avianca Holdings SA following a loan breach that gave his voting powers to United Airlines.

The US carrier has found itself in control of an odd situation in Bogota, Colombia, where Efromovich, Avianca’s boss, defaulted on the repayment of a $456 million loan that was signed in November 2018.

Last year, Avianca, United and Copa Airlines reached a significant milestone by signing a joint venture that would see the three Star Alliance carriers cooperate on flights between the US and Latin America, trying to compete against American Airlines’ growing presence in this particular market.

The joint venture lists flights between United’s massive US network and over 19 countries in Central and South America, excluding Brazil.

At the time of this transaction, United’s President, Scott Kirby, said that the agreement “represents the next chapter in US-Latin American air travel,” adding that United, Copa, and Avianca will provide “a better overall experience for business and leisure customers traveling across the Western Hemisphere.”

United Airlines – N851UA -Airbus A319 – San Francisco International Airport

But on top of this Joint Venture agreement, United Airlines loaned $456 million to Avianca’s majority shareholder, Synergy Group, led by Avianca’s Chairman of the Board, German Efromovich.

Last Friday, as reported by Bloomberg, United took legal action against Efromovich for defaulting on the loan it signed six months prior, allowing the US carrier to take over the collateral 51.5% stake and 516 million shares of common stock that Efromovich’s group has on Avianca Holdings.

With this execution, Efromovich’s seat and voting rights were immediately surrendered to the American carrier. However, looking to avoid breaching United’s own agreements with its pilot’s unions, these powers were transferred to Avianca’s second-largest shareholder, Kingsland Holdings.

In an interesting turn of events, Roberto Kriete, Kingsland’s chief, and former Chairman, and CEO of Grupo Taca, has now been appointed by United as the new Chairman of the Board of Avianca Holdings.

Photo: Oscar Elvir Vasquez

Kriete, who participated in the Avianca/TACA merger in 2010, has clashed on numerous occasions against Efromovich. He seemed somewhat relieved for these recent unfoldings.

“This is an important day. It is the right time to build a promising future for the company,” he told El Tiempo, a renowned Colombian news agency.

“Turning around the company will be a difficult challenge,” he asserted. “My role is not to be the hero of this drama. My role is to assemble a world-class team who have the skills to lead the transformation of Avianca.”

The crisis in the Avianca C-Suite intensified in April, following the unexpected resignation of its CEO, Hernan Rincon.

Rincon notified the board of directors that he’d be retiring on April 30, 2019, after three years in command of the Colombian carrier. At the time, Avianca said in a statement that Rincon’s announcement “is aligned with the Company’s ongoing long-term strategic and organizational development program, as part of a planned transition.”

Amid the uncertainty, Colombian media believe that with Rincon’s resignation, all of Avianca’s powers will pass on to Roberto Kriete.

“I hope I’m clear enough when I say this. My responsibility is to carry out this process and choose a world-class board of directors for Avianca Holdings, which has all the necessary characteristics to turn it into a successful company,” Kriete told El Tiempo.

Kriete also mentioned that the new Avianca CEO should be elected soon. “I would hope this is one of the crucial decisions the new board of directors will be making,” he said.

And responding to allegations that place United as the new Avianca controller, Kriete said that “they do not control, nor will ever control Avianca. We’re proud to be independent.”

As things stand, Avianca will have to deal with a missing CEO, an uncertain future with its board of directors, and a dire financial state that saw its most significant quarterly loss since 2015.

Photo: Oliver Holzbauer

Both United and Kingsland are looking to provide Avianca up to $250 million, if certain conditions are met by financial stakeholders, according to Bloomberg. Of these, United would be contributing up to $150 million.

Today, Avianca will no longer be in control of German Efromovich, the man who saved the airline from going bust in 2004. Since then, Efromovich turned the airline from a complete failure into the continent’s second-largest carrier.

As the Colombian carrier readies up to reach its centennial, German Efromovich is likely to not participate in any of the celebrations.

After having purchased the airline for $64 million, rising it from Chapter 11, doubling it in size, merging it with TACA Airlines, becoming the second-largest Latin American carrier, and taking delivery of brand-new airplanes, his impeccable track in the aviation sector is rapidly coming to an end.

And to make things worse, the National Civil Aviation Agency of Brazil (ANAC) has suspended the Air Operator Certificate (AOC) of Avianca Brasil, one of Efromovich’s subsidiaries.

Photo: Rafael Luiz Canossa

All of Avianca Brasil flights will remain suspended until the airline demonstrates the ability to secure operations safely. The decision was made based on the information provided by ANAC’s safety department.

The suspension of the airline’s operations will undoubtedly create uncertainty on its plans to auction their assets to pay outstanding debts.

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About Author

Enrique Perrella

Enrique Perrella

Commercial Pilot and Embry-Riddle Aeronautical University Graduate. Aviation MBA, Av-Gas Addict, Spotter, Globetrotter, Airplane Collector, Cook, AS Roma fan, and on my free time, I fly the Airways Ship. Favorite airline, airport and aircraft: Viasa, Tokyo-Haneda, and MD-11. Love to Fly, Fly to Love.

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