On May 10th, Avianca Holdings, the parent company of Avianca, filed for Chapter 11 bankruptcy in the United States. These proceedings will protect it from creditors and allow the company to reorganize, preserving as much of Avianca's business as possible.
Avianca Holdings files for bankruptcy
Avianca announced that it had filed for Chapter 11 of the US Bankruptcy Code in the Southern District of New York. Chapter 11 will allow the company to reorganize and provide more time to pay its debt. It is, nevertheless, a major deal.
The airline was forced to announce this bankruptcy due to the wide-ranging effects of the COVID-19 pandemic. The closure of borders and shelter-in-place orders has severely restricted the airline's operations leading to significantly reduced activity.
Avianca plans on reorganizing through a court-supervised process. The plan for Avianca is to continue to offer air transport as it reorganizes. As one of the largest airlines in Latin America, it would be a major loss to the continent. The carrier has a significant market share, over 50% in Colombia alone, and flies a large number of long-haul services.
Avianca plans on maintaining essential services to South America, North America, and Europe– its primary destinations. The carrier also flies cargo routes.
As Colombia works on economic recovery, Avianca hopes to play a vital role once the COVID-19 pandemic is over.
Avianca employs more than 21,000 people– directly and indirectly. 14,000 of those are in Colombia. The airline also works with over 3,000 suppliers. Through these proceedings, Avianca will be able to preserve some of these jobs in South America.
One of the essential parts of the bankruptcy proceedings, however, is the restructuring of Avianca's balances and debts. Through this process, Avianca will also continue to seek financing assistance from the Colombian government.
It should be noted that the LifeMiles program is not part of these bankruptcy proceedings.
Avianca's history
Avianca is the second-largest airline in Latin America and a member of the Star Alliance. The carrier is the strongest in Colombia and El Salvador. In fact, it is one of the oldest operating airlines in the world, having been in operation since 1919. In 2009, Avianca and TACA announced their intention to merge– which created Avianca's El Salvador arm.
However, ever since this crisis started, Avianca's future has been unclear. Operations were near nonexistent and the airline was in default over certain obligations just a few weeks ago. This came on top of Avianca's difficult 2019 with extraordinary costs and the failure of Avianca Brasil.
What does this mean for the airline industry?
Avianca is one of the largest airlines in the world to enter bankruptcy reorganization procedures. If the airline does not make it through, it will represent one of the most significant aircraft failures in recent history and one of the most significant failures due to the COVID-19 pandemic.
It will take time to see how these proceedings play out. In all likelihood, Avianca will emerge as a smaller airline. Perhaps some more unprofitable long-haul routes will have to be cut. Meanwhile, some older and leased aircraft could make their way back to a lessor. Some subsidiaries may also be wound down. For example, Reuters reports that Avianca's Peru arm will be wound down per Peruvian law.
Avianca may in fact turn into a case study for the rest of the industry. Airlines that are currently examining bankruptcy proceedings may hit pause to see how it turns out for the Colombian flag carrier.
For fellow partner United Airlines, this could be a major loss. United has hundreds of millions of dollars in loans related to Avianca. And, losing out on this money would be a massive hit for the US carrier, which is already facing its own major losses.
What do you think Avianca's future will look like? Let us know in the comments!