Avianca execs get US$7.2 million in bonuses as airline faced insolvency


Avianca is after a lot of liquidity – US$2 billion to be precise – by securing debtor-in-possession (DIP) commitments to reorganize under Chapter 11. The announcement that Avianca Holdings SA, parent company of the Colombian registered airline, has access to sufficient capital to pay creditors, and possibly within a year clear bankruptcy, is welcome news for an airline that during six months had much of its commercial fleet grounded with the declaration of the coronavirus health emergency.

The closure of Avianca’s busiest hub – Bogotá’s El Dorado airport – led to drastic measures by the employer of some 12,000 local staff (24,000 regionally), to slash salaries. With flight crews and ground personnel contributing to the airline’s welfare by taking up to 80% pay cuts, early retirement packages or furloughed as Colombian skies remained closed to all domestic and international flights, a report by the Investigative Journalism Agency (API), claims that as the airline was filing for Chapter 11 in May, senior executives received a sum total of US$7.2 million in bonuses, of which, US$3.7 million were destined to CEO Anko van der Werff, and US$2.7 million to CFO Adrian Neuhauser, among others.

The controversy surrounding the hand-out was justified in a statement by Avianca, claiming the Board of Directors approved the 2019 obligations “as part of the ordinary course of business,” and considered “best practices for companies in the Chapter 11 process […] developed with the assistance of an independent compensation consultant.” In 2019, the airline defaulted on a US$450 million loan to a strategic partner United Airlines.

While Colombians were unaware that Avianca executives had received million-dollar bonuses and concerned over the future of their only flagship that services the largest network of direct routes to international destinations (76 in 27 countries), the airline received a loan approval from the national government’s Emergency Mitigation Fund (FOME) for up to US$370 million to secure its survival in the industry. The loan raised the ire of politicians, including Bogotá Mayor Claudia López, who claimed it “bordered corruption,” given that Avianca SA is no longer a Colombian airline (it is registered in Panama), and that many small and medium-sized companies have petitioned the government for financial assistance during the pandemic, without response.

On September 11, the Administrative Court of Cundinamarca proceeded to temporarily block the loan after a lawsuit was filed by citizen Jonathan Ruíz Tobón, arguing it “threatens and violates collective rights to administrative morality and public patrimony.” Avianca has appealed to the court, stating that without new resources, “liquidity would suffer a bigger reduction, which would deem (Avianca’s) operation unviable.” The citizen’s blockage was motivated after left-wing politicians, among them Senators for the Colombia Humana coalition Gustavo Petro and Gustavo Bolívar, referenced on social media family ties that exist between President Iván Duque Marquéz and Avianca’s VP for Strategic Relations, María Paula Duque Samper.

The Avianca loan has fueled social discord against Latin America’s second-largest airline and part of a slate of grievances by the National Strike Committee to justify a return to mass anti-government protests. And the bonus controversy doesn’t forward the airline’s cause to regain the trust of Colombians, even after CEO van der Werff celebrated the DIP financing package from third-party institutional investors as proof of “the market’s confidence in Avianca’s future as a strong, competitive and profitable airline.”

But while Avianca’s corporate statements effuse “forward looking” confidence, the airline appears to be puddle-jumping from one public relations crisis to another, and 10 months after it celebrated a well-deserved 100-year milestone. A similar scandal involving bonuses during the coronavirus pandemic led to the recent resignation of IAG’s CEO Willie Walsh. IAG (British Airways, Iberia, Aer Lingus) objected to Walsh’s annual bonus of £833,000 (US$1.3 million) raising his 2019 salary to £3.2million (US$ 4 million).

In a show of solidarity with their staff, senior executives at Austrian Airlines, subsidiary of Germany’s Lufthansa, turned down their bonuses last month, after the group received a bailout.

The Dutch-born CEO, who replaced Hernán Rincón in 2019 after a corporate rebellion between Avianca’s leading shareholders Roberto Kreite of El Salvador-based Kingsland Holdings SA and Germán Efromovich of Synergy, highlighted that operations have resumed with plans to add more domestic and international destinations late September. “We remain focused on refining our reorganization plan to fully address the current industry landscape and the effects of COVID-19, enabling our team to continue driving efficiency and margin expansion and positioning Avianca to successfully serve Latin America’s air travel needs for many years to come,” said van der Werff.



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