MIAMI – Avianca (AV) has filed for Chapter 11 bankruptcy protection in the United States to allow time for the Airline to restructure the business in preparation for a post-COVID-19 world.
As reported numerous times, the negative impact of COVID-19 has been astronomical for the Aviation Industry. In AV’s case, its scheduled operations were grounded in Mid-March, causing its revenue to fall by over 80%, resulting in a massive strain on its cash reserves.
“Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic,” said Anko van der Werff, Chief Executive Officer of Avianca.
The CEO added, “Despite the positive results yielded by our ‘Avianca 2021’ plan, we believe that in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges.”
Avianca has laid out their core intentions during the reorganization:
- Protect and preserve operations so Avianca can continue to operate and serve customers with safe and reliable air travel, under the strictest biosafety protocols, as COVID-19 travel restrictions gradually get lifted;
- Ensure connectivity and drive investment and tourism by continuing as Colombia’s flagship airline, serving over 50% of the domestic market in Colombia and providing essential non-stop service across South America, North America and European markets as well as continuing cargo operations, playing a pivotal role in the economic recovery of Colombia and the Company’s other core markets following the COVID-19 pandemic;
- Preserve jobs in Colombia and other markets where the Company operates, with Avianca directly responsible for more than 21,000 jobs throughout Latin America, including more than 14,000 in Colombia, and working with more than 3,000 vendors; and
- Restructure the Company’s balance sheet and obligations to enable Avianca to navigate the effects of the COVID-19 pandemic as well as comprehensively address liabilities, leases, aircraft orders and other commitments.
The CEO said, “When government-mandated air travel restrictions are lifted and we are able to gradually resume our passenger flights, we look forward to welcoming back our furloughed employees and playing a leading role in restarting the economy in Colombia and our other key markets.”
“We greatly appreciate the dedication of our employees to Avianca and to serving the more than 30 million passengers that fly our Airline each year. We remain committed to our purpose to connect people, families and businesses.”
“Our customers can be confident that they can continue to depend on Avianca for safe, reliable, and high-quality service, and our valued LifeMiles™ members can expect to accrue and redeem miles as normal,” Mr. Van der Werff continued.
Reorganization under Chapter 11 as the best path
Alongside the vast majority of other airlines (in their respective countries), AV is in talks with the government of Columbia, amongst others where its service is also essential, to secure additional funds through the Chapter 11 process.
These funds would assist AV in ending up as a successful carrier in the Americas. While the talks go on, AV is using its cash reserves and cash generated from its remaining operations to support the Airline.
Mr Van der Werff added, “We believe that a reorganization under Chapter 11 is the best path forward to protect the essential air travel and air transport services that we provide across Colombia and other markets throughout Latin America.
“Avianca has operated for more than 100 years – only the second Airline in the world to achieve this milestone. We are confident that through this process we can continue to execute our ‘Avianca 2021’ plan, optimize our capital structure and fleet of aircraft and – with government support – emerge as a better, more efficient airline that operates for many more years.”
To protect its workforce, AV has been requested to continue to pay a certain amount of employee wages and compensations. Alongside this, it has been asked to continue to honor employee benefit programs.
The outcomes of these requests and others should arrive imminently. The Airline says it expects to continue to pay its vendors and suppliers.
In 2019, AV unveiled its “Avianca 2021” plan. The initial results of the program have been very positive. The Airline redesigned its network with 130 routes to 76 destinations in 27 countries, adding to the launch of a new pricing model” branded fares” in domestic markets in Ecuador and Colombia, including flights to and from Europe.
In line with the plan, in early 2020 the Airline concluded out-of-court reprofiling of its financial debt and lease obligations and raised US$375m in new financing.
In February of this year, Avianca and TAP Air Portugal (TP) signed a codeshare agreement in February 2020. The deal’s goal was to provide seamless connectivity to passengers traveling between Colombia and Portugal.
The partnership would also connect passengers to both carrier’s networks.
However, on March 23, AV suspended all its international schedule and reduced flights within Colombia, as several countries began to established travel restrictions due to the COVID-19 epidemic.
Alongside the Chapter 11 filing, AV will commence a winding down of its operation in Peru in line with local laws. The change will allow AV to entirely focus upon core markets when they emerge from the reorganization.
A pre-COVID-19 centennial celebration
Back in February, after 100 years of service, AV celebrated its centennial with a global birthday tour across its major hubs in the Americas. The airline touched down in Miami to extend the jubilation and honor AV’s 74-year history with the city.
The event took place at the renowned Rusty Pelican Restaurant on Key Biscayne, with the Miami skyline resting in the backdrop. In attendance were airline executives, diplomats, and other distinguished professionals that attested to the impact the carrier has had on commercial aviation history.
Airways was granted valuable time with Avianca’s new CEO prior to the event, who highlighted the struggles the airline has faced, including bankruptcy, and the measures that have been taken to rectify its path.
Avianca, founded in 1919, is the second oldest airline in the world after KLM.