Avianca Holdings Obtains US$50m Loan From Stakeholder

Avianca Holdings SA has secured a US$50m loan from one of its largest stakeholders, Kingsland Holdings. The move comes as the holding company looks to strengthen its financial and operational performance under the “Avianca 2021” plan. Here, we examine the group structure, the challenges facing the holding company, and the capital injection.

Avianca A319
Avianca Holdings SA is set to receive a US$50m short-term loan from one of its stakeholders. Photo: JTOcchialini / Wikimedia Commons

Avianca Holdings SA explained

Avianca Holdings SA came into existence through the marriage of Avianca of Colombia and TACA Airlines from El Salvador.

The Panama registered company describes itself as a “multi-Latam company that holds investments primarily in passenger airlines, cargo airlines, its LifeMiles™ loyalty program and related activities“.

Indeed, through its subsidiaries, the group operates domestic and international flights from Colombia, Ecuador, Costa Rica, Nicaragua, Peru and El Salvador.

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Avianca 787
The group operates international and regional flights with its Boeing 787 aircraft. Photo: ERIC SALARD / Wikimedia Commons

As for Avianca Holdings SA, it is majority-owned by a Brazilian conglomerate, Synergy Group Corp. through a Delaware based limited liability company, BRW aviation. Another major minority shareholder is the El Salvadoran businessman Roberto Kriete, through Kingsland Holdings.

Moreover, United Airlines holds a singular share thanks to a loan and shareholding agreement, while 15.6% of shares are owned by individual investors as of June 30th, 2019.

Challenging times and restructuring plans

Although the holding group holds a prominent position in the Latin American market, the company has also faced numerous challenges. Financially, the airline announced a $36 million operating loss in the second quarter of 2019.

The group blamed decreasing revenues, declining fares, and a one-time write off of $220.9m associated with the sale of aircraft.

Avianca El Salvador
The Star Alliance member has faced financial difficulties recently. Photo: Venkat Mangudi / Wikimedia Commons

Unfortunately for the group, the quarterly loss was not in itself a one-time occurrence. The carrier previously announced a $68m loss in the first quarter, and modest profitability in the fourth quarter of 2018. Most analysts recommend holding the stock.

In addition to financial woes, Avianca Holdings SA has also seen grueling flights over governance between the major shareholders, BRW and Kingsland.

Avianca ATR 72-600
The carrier has sought to harmonize the fleet though, it still operates ATR aircraft. Photo: Oscar Elvir Vasquez / Wikimedia Commons

Most recently, Latin American business tycoons entered a legal duel over a deal between Avianca and United Airlines. One commentator even remarked that “unlike most corporate governance cases, the New York court lawsuit […] reads like a John Grisham novel.”

As reported by the Wall Street Journal, the airline group has also notified the U.S. Justice Department of engaging in potentially illegal bribery-related activities.

Kingsland loan

Amid these challenging times, Kingsland Holdings announced in a press release on Friday that it had committed to extending a short-term loan of $50m to the holding company. Per the press-release, the temporary loan is set to reinforce Kingsland’s commitment to Avianca and United Airlines, as the latter acts as an independent third party.

Avianca A321
The short-term loan should strengthen the company’s financial position, allowing it to restructure and repay some of its debts. Photo: Tomás Del Coro / Wikimedia Commons

For his part, Avianca’s new CEO, Anko van der Werff, said that the loan “will strengthen the working capital position of the Company while we execute the company’s debt reprofiling”.

Kingsland and United have also committed up to $250 million in long-term financing to Avianca Holdings. However, the investors have indicated that such injections would only be provided once existing financial obligations have been re-profiled or taken care of.

Avianca A330
The carrier is the largest Star Alliance member in South America and is not to be confused with Avianca Brazil, who recently left the alliance following financial difficulties. Photo: Nathan Coats / Wikimedia Commons

Simple Flying requested a comment from Avianca Holdings SA but did not receive a response by the time of publication.

What do you think of the loan? Does the future look bright for Latin American Holding Company? How do you think the airline compares to its largest competitors? Let us know in the comments.

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Paul Spindler

The company has been treated as a personal investment vehicle for a falling Brazilian business, with other shareholders involved it’s possible to turn it around if control can be taken from Synergy Group