Avianca Runs Into More Trouble With Its State Loan

The Colombian Court of Cundinamarca is still blocking the US$370 million State loan to Avianca. The South American carrier hasn’t convinced the court that it needs that money, despite claiming that it is intrinsical for its survival. Let’s investigate further.

Avianca is looking for US$370 million in state loans. Photo: Daniel Martínez Garbuno/Simple Flying.

A little bit of context

Last month Jonatan Ruíz Tobón, a Colombian citizen, filed a claim against the State loan to Avianca. He said that the loan was an “irresponsible use of public resources, which jeopardizes administrative morality, the public patrimony, and social security.”

The court in the Colombian province of Cundinamarca approved the claim and blocked the state loan. Then, Avianca gave five arguments as to why it should receive the US$370 million loan from Colombia. In a nutshell, Avianca said that the money was part of the DIP Financing of its Chapter 11 reorganization. It also claimed that if it didn’t receive the State money, it would jeopardize Avianca’s future and millions of jobs across South America.

The airline said,

“If (the Court) prohibits the National Government to give the loan, it would affect the DIP Financing structure. Avianca would not receive new resources, and its liquidity would suffer a bigger reduction, which would deem (Avianca’s) operation unviable.”

Nevertheless, the Court wasn’t convinced.

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Currently, Avianca is under a Chapter 11 reorganization in the US. Photo: Getty Images

Why is the Court blocking the money?

Even after Avianca and the Colombian government’s appeal, the Court of Cundinamarca still blocked the loan. The Court said that the loan didn’t fulfill the law’s requirements during the current COVID-19 pandemic.

Moreover, the court claimed that the current financial situation of Avianca Holdings is a concern and that the guarantees provided by the Colombian Government could prove unuseful.

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Avianca filed a motion to receive approval in US$2 billion of DIP Financing. Photo: Getty Images.

How much money is Avianca looking for?

Even before the COVID-19 pandemic, Avianca was in financial troubles. That’s why in 2019, the management ousted the former owner German Efromovich and brought new faces to the Colombian carrier. Under the new CEO, Anko van der Werff, Avianca was going in the right direction when COVID struck Latin America. In the first quarter of 2020 alone, Avianca lost US$121 million.

In that sense, Avianca became the first carrier in Latin America to file for a Chapter 11 bankruptcy. Soon, LATAM and Aeromexico followed. In September, it filed a motion to receive approval in US$2 billion of debtor-in-possession (DIP) financing.

This financing is divided into two tranches. One of them opens up the possibility for Latin American governments to participate in the funding. As we know, Avianca is a historic Colombian company that has branches across Latin America in places like Panama, Peru, Ecuador, the US, and more.

Tranche A is a US$1.27 billion senior loan. More than 100 lenders, including governments, are participating in the Tranche A, according to the airline.

Meanwhile, the second tranche consists of a US$722 million subordinated loan. Kingsland Holdings S.A., third party investors, and other lenders, including United Airlines, will participate on Tranche B. About the large number of lenders, Anko van der Werff said,

“We are extremely pleased with the support received from a large number of third-party institutional investors and our existing lenders. We believe this demonstrates the market’s confidence in Avianca’s future as a strong, competitive, and profitable airline.”

What do you think of Avianca’s legal debate with the Cundinamarca Court? Let us know in the comments.