Colombia’s flagship airline, Avianca, is marking its 100th anniversary, and as the world’s second oldest airline, it’s a year for celebration. However, for its investors, Avianca’s parent company Avianca Holdings S.A. appears to be flying into credit turbulence with refinancing US$550 million in senior debt, which according to risk agency Standard and Poor’s (S&P), is taking longer than expected.

The most recent sign of Avianca Holdings’ cash crunch was announced May 13 when S&P Global Ratings lowered its credit rating of the Bogotá-based airline from B to CCC+ as well as lowering the frequent flyer mileage and points program LifeMiles LTD to B from BB-. “All ratings for the airline were placed on CreditWatch with negative implications,” stated S&P in its press release, and given uncertainty regarding the company’s timeline to meet its debt obligations by May 2020. According to S&P, “if end-market demand deteriorates or financial markets weaken, we believe Avianca would face difficulties securing new financing.”

Avianca’s financial woes began in November 2018 when the airline unveiled a joint venture agreement with United Airlines. In order for the alliance to advance, Avianca’s main shareholders BRW Aviation, secured a loan of US$456 million from the U.S carrier, backed by equity and 516 million shares in Avianca stock. But Avianca’s majority stakeholder, Brazilian billionaire Germán Efromovich, was running into operational difficulties with Synergy, the company that operates Oceanair Linhas Aereas S.A and trademark Avianca Brasil. A month after the United Airlines – Avianca planned merger was revealed, Ocean Air filed for bankruptcy protection, and move that resulted in a breach of the United Airlines covenant.

While Avianca Brazil and Avianca Colombia operate as separate airlines, by having a common brand, the Colombian airline’s share price and reputation were negatively impacted, and all future plans to merge Avianca Colombia with its Brazilian namesake, suspended. Synergy’s Argentine airline, Avianca Argentina, is also facing financial troubles.

A 50-day strike by Avianca Colombia pilots in 2017 revealed to the air traveling public the profound rift between the airline’s crew and ground maintenance unions with management. Even though the courts ruled in favor of the airline – and ordered striking pilots back to work – Avianca took a hit with its operational profit for 2018 at US$232 million – down 21% from US$293 million in 2017.

With a fleet of 196 aircraft, including the fuel-efficient Dreamliner and Airbus A321, Avianca in 2018 transported 30 million passengers and its loyalty program LifeMiles counts with 8,9 million frequent travelers. The departure of Avianca CEO Hernan Rincón last month now opens a new chapter in the airline’s 100-year history and corporate governance. Despite current realities of risk exposure, as Standard and Poor’s noted, the country’s leading carrier maintains “relatively solid bank relationships in Colombia and internationally” to weather the financial storm.

But will Avianca be able to ride-out the short-term corporate turbulence if United Airlines digs in for a bitter take-over and causes a shareholders revolt? The days  of majority shareholder Germán Efromovich as CEO of Avianca may be numbered, but for an airline celebrating 100-years, time now is also of the essence.