Avianca Open To Partial Colombian Government Ownership

Avianca’s CFO, Adrián Neuhauser, said that the airline needs an investment from the Colombian Government to survive the current crisis. He added that the airline is willing to make the Government a shareholder if that’s what it takes to survive. Let’s investigate further.

Avianca is open to make the Colombian government a stakeholder. Photo: Daniel Martínez Garbuno/Simple Flying.

Avianca lost 90% of its earnings

Currently, the South American airline is losing 90% of its regular earnings. At the same time, Avianca still has the majority of its fixed costs, said Neuhauser, during an interview with Portafolio

Last week, Avianca stated that it is in default under certain obligations. This information led to the raising of “substantial doubts” over Avianca’s future. The Colombian carrier delayed the publication of its Annual Report due on 30 April until 14 June. 

Then, Avianca’s management added that its independent auditors, KPMG, will include an explanatory paragraph. In this paragraph, KPMG will indicate its substantial doubts “as to [its] ability to continue as a going concern.”

Avianca has grounded its entire commercial fleet, and is just operating a few cargo flights. The three countries in which it mainly operates, Colombia, Peru, and El Salvador, closed their borders since last month and may reopen them in May. Neuhauser believes that there will be a small commercial operation starting next month. 

Avianca is not asking for a donation. It needs investment. Photo: Daniel Martínez Garbuno/Simple Flying.

What is Avianca proposing?

Anko van der Werff is the current CEO of Avianca. During the interview, he stated that he is frustrated because last year the new management restructured the airline. “We did it so well, and January and February were really good,” he said. Even though Avianca had $894 million in one-off costs last year, it was for the greater good. But then, the coronavirus arrived. 

Van der Werff proposed,

“What we have in mind is something commercial. We are willing to pay back, for example, a loan. The point is that we need liquidity, as all the airlines that have dealt with their governments.” 

Neuhauser added that without the State’s funding, Avianca has no way to pay what it owes. So the airline is asking for an investment, not a donation, he clarified. 

“This investment must have an adequate return, composed of a combination of us paying back the debt and the Government becoming a shareholder. We are not against the Government having stakes in the airline,” the CFO said. 

IATA asked a credit line of US$ 1.200 billion for the entire air industry in Colombia. Photo:
JTOcchialini via Flickr.

IATA asks for over a billion USD

At the moment, Avianca is not disclosing how much money it needs. But it is giving an estimate based on the information provided by the International Air Transport Association (IATA). 

Recently IATA asked a credit line of US$ 1.200 billion for the entire air industry in Colombia, said Neuhauser. Besides Avianca, other airlines that are flying domestically in Colombia are Wingo, SATENA, LATAM, and Viva Air Colombia. 

As of April 2020, Colombia has announced several relief measures to help the air industry. For example, it established a credit line of US$80 million for companies affected by the drop in travel demand, tourism, and transport. 

The country also gave a zero-rate parking fee for its airlines. Additionally, it deferred the tourism tax until 30 October 2020. Moreover, it reduced the taxes on tickets and fuel from 19% down to 5% until December 2021.

Finally, Anko van der Werff said that the negotiation with the Colombian Government is going smoothly. But he is worried that there’s no deal even when other governments have already helped their airlines. “We still have no final answer. This is already impacting us because we don’t have that much time. Every day that goes by and we are grounded, the hit gets bigger.”

What do you think about Colombia becoming a stakeholder in Avianca? Let us know in the comments.