Colombian airline Avianca and certain of its subsidiaries have filed voluntary petitions under Chapter 11 of the US Bankruptcy Code.
The Latin American carrier said that the filing was due to the COVID-19 pandemic, which saw Avianca’s scheduled passenger operations grounded since mid-March, reducing its consolidated revenue by over 80% and “placing significant pressure on its cash reserves”.
In the interim, Avianca 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.
Chapter 11 is an established and internationally recognised temporary legal process that allows a company to reorganise and complete a financial restructuring while continuing its operations.
Avianca underwent a Chapter 11 process in 2003 that allowed it to position itself for expansion in Latin America.
Through Chapter 11, Avianca intends to: “Protect and preserve operations so Avianca can continue to operate and serve customers with safe and reliable air travel, under the strictest biosafety protocols, as COVID-19 travel restrictions are gradually lifted.”
It also wants to”Ensure connectivity and drive investment and tourism by continuing as Colombia’s flagship airline, serving over 50% of the domestic market in Colombia and providing essential non-stop service across South America, North America and European markets as well as continuing cargo operations, playing a key role in the economic recovery of Colombia and the Company’s other core markets following the COVID-19 pandemic.”
Avianca is directly responsible for more than 21,000 jobs throughout Latin America, including more than 14,000 in Colombia, and working with more than 3,000 vendors.
The carrier wants to restructure its balance sheet and obligations to enable Avianca to “navigate the effects of the COVID-19 pandemic as well as comprehensively address liabilities, leases, aircraft orders and other commitments”.
Anko van der Werff, Chief Executive of Avianca, said that the airline is facing “the most challenging crisis in our 100-year history”.
Van der Werff added: “Despite the positive results yielded by our ‘Avianca 2021’ plan, we believe that, in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges.
“When government-mandated air travel restrictions are lifted and we are able to gradually resume our passenger flights, we look forward to welcoming back our furloughed employees and playing a leading role in restarting the economy in Colombia and our other key markets.”
Avianca – like many other airlines around the world, including in the US, the European Union, and Asia as well as in Latin America – is seeking financial support from the governments of the countries where it provides essential services.
Avianca “continues to be engaged in discussions with the government of Colombia, as well as those of its other key markets, regarding financing structures that would provide additional liquidity through the Chapter 11 process and play a vital role in ensuring that the Company emerges from its court-supervised reorganization as a highly competitive and successful carrier in the Americas.”
