Monday, 11 May 2020

Avianca files for bankruptcy

The number 2 airline in Latin America, Avianca has filed for bankruptcy on Sunday, as the airline has struggled to cope with the downturn in business and travel bans before of the ongoing coronavirus COVID-19 pandemic. The airline has vowed to continue to operate and serve its customers during the process. 



The airline has filed for Chapter 11 bankruptcy protection for some of its subsidiaries and affiliates.  The carrier says the filing was necessitated by the unforeseeable impact of the COVID-19 pandemic, which has resulted in a 90% decline in global passenger traffic and is expected to reduce industry revenues worldwide by $314 billion, according to the International Air Transport Association.

In parallel to its Chapter 11 filing in the U.S., Avianca intends to commence a wind-down of its operations in Peru pursuant to local laws. This decision supports essential right-sizing efforts and will
allow Avianca to renew its focus on core markets upon emergence from its court-supervised reorganization




Throughout the court-supervised process, Avianca intends to:

Protect and preserve operations so Avianca can continue to operate and serve customers with safe and reliable air travel and high-quality service, under the strictest biosafety protocols, as COVID-19 travel restrictions are gradually lifted;

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;

Preserve jobs in Colombia and other markets where the Company operates, with Avianca 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; and

Restructure the Company’s 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.


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.

“Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic,” said Anko van der Werff, Chief Executive Officer of Avianca. “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. We greatly appreciate the dedication of our employees to Avianca and to serving the more than 30 million passengers that fly our airline each year. We remain committed to our purpose to connect people, families and businesses. Our customers can be confident that they can continue to depend on Avianca for safe, reliable and high-quality service, and our valued LifeMiles™ members can expect to accrue and redeem miles as normal,”  Mr. Van der Werff continued. 



“Avianca 2021” Plan and COVID-19 Impact


Last year, Avianca successfully launched the “Avianca 2021” plan, and throughout 2019 and in the first two months of 2020, the Company had achieved significant positive results from this plan. Through the plan, the Company redesigned its network with 130 routes to 76 destinations in 27 countries, adding to the launch of a new pricing model ”branded fares” in domestic markets in Ecuador and Colombia, including flights to and from Europe. These initiatives, along with customer-centric programs, had resulted in improved operational indicators, with a passenger-itinerary-completion rate of 98.7 percent and a 6-point increase in customer satisfaction. Consistent with the plan, in early 2020 the Company concluded a successful out-of-court reprofiling of its financial debt and lease obligations and raised $375 million in new financing.




However, just as is the case with other airlines around the world, Avianca’s operations have been dramatically impacted by the COVID-19 pandemic and resulting government-mandated air travel restrictions, while the Company continues to have high fixed costs. Of the total number of countries in which Avianca operates, 88 percent have total or partial passenger air transport restrictions, forcing the airline to take a series of extraordinary and structural measures. These have included employee furloughs, temporary wage reductions, reductions in non-essential capital expenditures and temporary
deferred payments on long-term leases. Avianca has limited visibility as to when current travel restrictions will be lifted and, once such restrictions are lifted, it does not expect revenues to return to pre-pandemic levels in the short-term as the effects on travel are expected to be long-lasting. These factors, coupled with Avianca’s substantial financial obligations, made it necessary for Avianca to explore alternatives to reorganize its operations and restructure its debt. 


LifeMiles continues 
Avianca customers will continue to accrue miles when they fly with Avianca and can continue to redeem miles earned through LifeMiles™ to purchase tickets with Avianca during this process. Additional frequent flyer benefits remain active, including access to VIP Lounges, priority check-in, upgrades and other benefits. Avianca also expects to continue to issue ticket refunds and honour travel coupons and payments or credits associated with baggage or service claims in adherence with the current policies. 

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