Avianca isn’t the first – nor will it be the last – airline to file for Chapter 11 bankrupcy protection with the coronavirus pandemic.
The decision Sunday to put its future in a New York court comes after the carrier’s Colombian operations were grounded late March with the declaration of the National Health Emergency, and which resulted in the closure of all airports, including the gateway to the nation – Bogotá’s El Dorado.
A Chapter 11 filing deals a blow to the financial autonomy of a company that despite accumulating debt was continuing with expansion of domestic and international routes, connecting Colombians with direct services to major U.S cities as well as Munich, Madrid, and Barcelona in Europe and London’s Heathrow – all these without mentioning Avianca’s extensive Central and South American networks.
In a statement announcing “voluntary reorganization,” Avianca CEO Anko van der Werff writes that the bankruptcy is being assumed to “protect our company as we continue to confront the effects of the COVID-19 pandemic,” assuring clients that the Lifemiles loyalty program, upgrades, refunds, VIP salons will be respected as the airline awaits government directives to resume limited flights.
This is the second time in the airline’s 100-year history of flying that it has filed for Chapter 11. Van der Werff highlighted that in the last 15 years, American Airlines, Delta and United have had their assets protected under Chapter 11. “Most likely Avianca’s fleet will be much much smaller,” said the CEO regarding the future of the airline’s Airbus and Boeing configuration. “Demand and recovery will be very slow.”
Chapter 11 gives Avianca Holdings a year to present a restructuring plan that could include route cancellations and fleet-downsizing, but it also buys the Colombian government time to come up with bridging loans to salvage a carrier that last year moved 16 million passengers or 53.8% of the market share. And as far as connecting Colombians with the world, the airline transported in 2019, 7,3 million passengers, representing 46.9% of the total and competing against global carriers Air France-KLM, Lufthansa, Iberia, Air Europe, Latam, TAM, Copa, American, Delta and United among others.
In 2003, Avianca first filed for Chapter 11 after decades of mismanagement and a tarnished safety record that included the accident of a Boeing 747 near Madrid’s Barajas in 1983 killing 181 passengers and bombing of flight AV203 by the Medellín cartel shortly after take-off on a routine flight from Bogotá to Cali. In 1990, the crash of an Avianca Boeing 707 after it ran out of fuel near New York’s JFK, killing 73 of 158 passengers, marked the beginning of the end of the government-owned flagship. Emerging from Chapter 11 in 2004, Brazil’s Synergy Group owned by businessman Germán Efromovich purchased the majority stake in Avianca for US$63 million. With Efromovich at the helm, the airline ruddered a future towards integration with regional hubs across Brazil, Peru and Argentina to El Salvador.
In another fight for survival, Avianca’s immediate future depends not just on its financials and trimming a heavy corporate structure, but the critical timing of the government of President Iván Duque to re-start the engines of a nation that is increasingly in the grips by economic uncertainty.