Government Loan To Avianca Blocked By Colombian Court

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The saga surrounding Colombia’s national airline continues as a legal order blocking the government’s loan to rescue the airline has been filed. Just two weeks ago, the Colombian government confirmed it would be providing Avianca Airlines with a $370 million loan. However, on Friday, the Administrative Court of Cundinamarca in Bogata issued an emergency injunction temporarily blocking the loan. The move is the result of a citizen’s lawsuit, and we’ve got all the details.

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The Colombian courts have blocked Avianca’s lifeline loan from the government. Photo: Getty Images

Avianca filed for bankruptcy under Chapter 11 in the US, something which made sense at the time, but it is now adding complications. This gave it the freedom to financial restructure as it looks at how to improve its revenues. No one was surprised when the Colombian government said it was planning to provide a loan to help keep the airline going as it completed the restructuring. After all, Avianca is the second-largest airline in South America, after LATAM.

However, it seems as if someone doesn’t agree with the government’s move. According to Finance Colombia, a citizen named Jonathan Ruíz Tobon filed a lawsuit saying that the government’s loan was an irresponsible use of public resources. He also claims that the government is acting hastily by giving a loan to a business undergoing financial restructuring in another country. Filing in the US is suddenly causing problems.

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One of Avianca’s senior managers is the sister of the Colombian President. This has raised a few eyebrows from other airlines. Photo: Getty Images.

Details of the lawsuit

At the moment, very little is known about the person behind the lawsuit, other than his name. What is known is that a panel of three judges saw enough evidence in the case to block the loan. As well as the irresponsible use of public money, the lawsuit claims that there may be a conflict of interest. The president of Colombia, Ivan Duque, who ordered the loan, happens to be the brother of Avianca’s Senior Vice President of Strategic Relations and Customer Experience.

The court has said that the loan is blocked but denied the conflict of interest. The court also stopped the request for the Ministry of Finance and Public Credit to provide information on the process of approving the loan. The lawsuit asked for more details on the process to prove due diligence before deciding to grant the loan. Mr. Tobon’s case claims that this is impossible. The firm hired to provide an independent consultation on the loan was hired the night before it was announced. If this is true, that’s some speedy due diligence indeed.

Next steps

The problem this raises for Avianca is that it is fast running out of cash. The airline was in a difficult situation financially before the global downturn. Now, with demand low and international travel restrictions still prevalent, the airline will continue to struggle. The financial restructuring in the US is ongoing, and technically, Avianca isn’t bankrupt.

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Avianca has already said it will restructure to become a smaller operation. Without the loan, it may be even smaller than planned. Photo: Boeing

Avianca will now wait and see if the loan will come through. In terms of what happens next, either the airline, the Colombian government, or both will likely file an appeal against the new ruling. Even if the court ruling stands and Avianca doesn’t get the loan, it will still restructure. It could always come out of this stronger than before.

What do you think of Avianca’s chances? Do you think the loan is make or break for the airline? Let us know your thoughts in the comments.

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