Colombian Airline Avianca Files for Chapter 11

Daniel Fowler
May 12, 2020

Avianca isn't the first - nor will it be the last - airline to file for Chapter 11 bankrupcy protection with the coronavirus pandemic.

Columbian airline Avianca filed for bankruptcy after failing to meet a payment deadline, while its pleas for coronavirus aid from Columbian's government have so far been unsuccessful.

In a statement, Chief Executive Officer Anko Van Der Werff said, "Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the Covid-19 pandemic... We concluded that a re-organisation protected under Chapter 11 bankruptcy is the best path".

Some 20,000 employees have been placed on unpaid leave and more than 140 of the airline's planes have been grounded since Colombian President Ivan Duque shut down the country's airspace in mid-March as part of travel restrictions meant to curb the spread of the coronavirus.

Behind KLM, Avianca is the second-longest continually running airline in the world.

It already went through bankruptcy once in the early 2000s and in 2019 it racked up over $7 billion in debts. Last year, a holding company affiliated with United Airlines (UAL) bought a majority stake in Avianca.

While Avianca was already weak before the coronavirus outbreak, its bankruptcy filing highlights the challenges for airlines that can not count on state rescues or on such rescues coming fast enough. The airline said it would continue operations while it restructured its debts.

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With bond payment deadline looming and the government of President Ivan Duque possibly in a hard position to save more than 100-years-old airliner, the airliner filed for bankruptcy at a Florida court.

Reuters reported that Efromovich did not agree with the airline's decision to file for bankruptcy and that he had no involvement in the proceedings.

The filing was necessitated after the airline failed to make a $65 million bond payment on Sunday.

The management that took over after Efromovich's ousting was already focused on a cost-cutting reorganization dubbed "Avianca 2021".

The Colombian airline and Star Alliance member said last month there was "substantial doubt" about its ability to stay in business due to the coronavirus crisis. S&P downgraded the airline to CCC- status in the days leading up to that payment.

Since the beginning of the pandemic, Mr van der Werff has been campaigning for Columbian government help, saying that the airline only needs a loan to help them get through the crisis.

"The Company intends to pay vendors and suppliers, as well as travel agency partners in the ordinary course for goods and services provided on or after the filing date during its Chapter 11 process". "Most likely Avianca's fleet will be much much smaller", said the CEO regarding the future of the airline's Airbus and Boeing configuration. "In this time, we do not have liquidity to sustain a loss-making operation", Silvia Mosquera, Avianca's chief commercial officer, said about the Peru division.

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