Avianca Holdings SA, one of the biggest carriers in Latin America, filed for Chapter 11 bankruptcy after travel bans across the region forced the Colombian airline to ground its fleet.
Avianca, which counts United Airlines Holdings Inc. and Kingsland Holdings as stakeholders, filed for protection from its creditors in the Southern District of New York, according to court papers. It listed as much as $10 billion in liabilities and the same amount in assets. The company said it will not make bond payments due Monday.
“Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the Covid-19 pandemic,” Chief Executive Officer Anko Van Der Werff said in the statement. “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.”
Quick and Orderly
In late March, the company deferred lessor payments, canceled planned investments and offered unpaid leave to the majority of its 21,000 employees to cut costs. The company also delayed filing its annual report until June and said it will include a warning that there’s substantial doubt about Avianca’s ability to stay in business.
By filing for protection in New York, the company laid out a clearer path for its creditors, said Roger Horn, a senior emerging markets strategist at SMBC Nikko Securities America in New York.
“Unlike with so many messy Latin American bankruptcy situations, at least a U.S. filing is quick and orderly and allows for debtor-in-possession financing,” he said. “Avianca could have a chance of coming out of this crisis actually operating as an airline.”
The bankruptcy will be felt widely in the rest of the struggling airline industry, with providers of aircraft, jet engines and maintenance services among Avianca’s biggest unsecured creditors. The documents show more than $30 million each is owed to IAE International Aero Engines AG and General Electric & CMF International. Over $28 million of obligations are listed for Rolls Royce Plc.
Lufthansa Group is owed $4.44 million, a unit of Boeing Co. is due $3.66 million and Airbus claims total $2.83 million.
Skipped Payments
Avianca will not pay a $65.6 million bond maturity or make a coupon on bonds due in 2023, Chief Financial Officer Adrian Neuhauser said in an online briefing Sunday evening. The payments are due Monday and the company decided to keep as much liquidity as possible during the restructuring, he said.
The company requested authority to continue paying wages and honoring employee benefit programs, as well as pay vendors and suppliers, it said in the statement. It intends to “wind-down” operations in Peru “to renew its focus on core markets upon emergence from its court-supervised reorganization.” Peru represents about 5% of operations, the company said.
Its loyalty program, LifeMiles, which is a separate business, was not affected by the filing, the company said in a statement.
Avianca said it remains in discussions with government officials in Colombia and in other countries to provide financial support during the reorganization. Neuhauser said those discussions involve debtor-in-possession financing, which can often last months.
“While these discussions are ongoing, the company intends to utilize its cash on hand, combined with funds generated from its ongoing operations (such as cargo), to support the business during the court-supervised reorganization process,” Van Der Werff said in the statement.
Van der Werff has been in charge only since June 2019, when Avianca’s finances were already shaky. The company is getting financial advice from Seabury Securities LLC and FTI Consulting, with legal help from Milbank LLP, Smith, Gambrell & Russell, LLP, Gómez-Pinzón Abogados and Urdaneta, Vélez, Pearl & Abdallah Abogados.
The case is Avianca Inc., 20-11132, U.S. Bankruptcy Court for the Southern District of New York
