Avianca’s Chapter 11 Restructure Approved By The US Courts

The Colombian carrier Avianca is now one step closer to emerging from its restructuring process under the Chapter 11 in the United States. Yesterday, the Southern District Court of New York confirmed Avianca’s Plan of Reorganization.

Avianca is close to emerging from its Chapter 11 process. Photo: Getty Images

Avianca is ready to fly high

The last three years have been a financial struggle for Avianca. In 2019, the airline had to restructure, which required a shift in the business model for the airline. The carrier changed its management and introduced its Avianca 2021 plan to fly for the next one hundred years.

Nevertheless, the COVID-19 pandemic put Avianca in a tough spot again; the carrier had to file for a Chapter 11 bankruptcy process in the United States.

Adrián Neuhauser, president and CEO of Avianca spoke briefly about the subject while participating in ALTA’s Airline Leaders Forum last week in Bogota, Colombia. He stated,

“First of all, our two main hubs (in Bogota and San Salvador) closed their airspaces. During five months, we had our whole fleet grounded. We were benefitting just from humanitarian and cargo flights, which contributed greatly. That crisis combined with our issues from 2019, when we executed an out-of-court reorganization that had used all the assets we had. The biggest challenge we faced was how to raise financing when we had just financed the whole company.”

Nonetheless, among the three Latin American carriers currently in Chapter 11, Avianca is the first to get the approval of its Plan of Reorganization. Aeromexico could follow swiftly. Meanwhile, LATAM is facing setbacks and hasn’t presented its Plan yet. Avianca could exit its Chapter 11 process before the year ends.

Avianca’s Chapter 11 Restructure Approved By The US Courts
Aeromexico could follow Avianca in emerging from its Chapter 11 process. Photo: Daniel Martínez Garbuno | Simple Flying.

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The new Avianca

During the last year and a half, Avianca’s management has created resiliency in the airline’s structure, Neuhauser said. Avianca had to enforce some difficult choices like dealing with new leasing contracts and furloughing personnel. The main goal was to give flexibility to the fixed cost structure, added the CEO.

Additionally, Avianca has strengthened its map route, announcing new international and domestic destinations. It has also renegotiated its aircraft orders with Airbus and Boeing. Avianca has also begun a fleet reconfiguration process that will increase the number of seats onboard its A320 fleet. We wrote exclusively about it in Simple Flying en Español.

Upon emergence, the airline will have over US$1 billion in liquidity and significantly reduced debt.

Nevertheless, the airline still has to execute its reorganization plan. The objective is to compete better against low-cost carriers like Viva, Volaris, JetSmart, and others but remain a legacy-type of an airline. Avianca stated,

“Avianca will keep the airline’s differentiating and competitive assets, which include a robust network​, one of the best loyalty programs, VIP Lounges, signature services, and one of the most competitive cargo solutions in the region.”

Avianca 787
The Colombian carrier Avianca will simplify its fleet. For example, it will only use Boeing 787 aircraft on long-haul routes. Photo: Daniel Martínez Garbuno | Simple Flying.

What’s next for Avianca?

Avianca expects to reach its pre-pandemic capacity by April next year. Moreover, between 2021 and 2022, Avianca will launch 23 new point-to-point routes in strategic markets like Colombia, El Salvador, Guatemala, and Costa Rica. The goal is to launch 100 new routes in the next three years.

Regarding its fleet, Avianca is increasing the capacity onboard its domestic A320 planes. It will also simplify its long-haul fleet by using only Boeing 787 aircraft. Avianca will modify some of its remaining Airbus A330 and turn them into freighters.

Like Neuhauser said,

“Looking ahead, with a stronger financial foundation, Avianca will be better positioned to capture recovering travel demand with a compelling value proposition to meet the needs of today’s clients across Latin America and beyond.”

Do you think Avianca will be able to do a complete turnaround of its business model going forward? Let us know in the comments below.