Yesterday, Avianca filed for Chapter 11 Bankruptcy in the United States. This is the second time in Avianca’s history that the Colombian airline has filed for Chapter 11. But what does it mean for the airline? What does it mean for the passengers? What does it mean for Colombia, and how did we come to this? Let’s investigate further.
The airline has not gone bust
First and foremost: Avianca will continue to fly. As Anko van der Werff, Avianca’s CEO, said “this is not an insolvency proceeding. Avianca operations will continue during and after [Chapter 11].” The airline launched a new website called aviancawillkeeponflying.com
The procedure is one of the most used by airlines in the US. American Airlines did it in 2011; Air Canada filed for it in 2003. Delta Air Lines and United Airlines also used Chapter 11 during the current century. All of these airlines have come back stronger than ever after filing for it.
And what is Chapter 11? It is a legal procedure that allows a company to reorganize and complete a financial restructuring under the supervision of the justice system in the US. At the same time, the company continues its operation.
“We are sure that Chapter 11 will allow us to execute our “Avianca 2021” plan. We will optimize our capital structure and our fleet, and, with the Government support, we will emerge as a better and more efficient airline that will operate for many more years,” said Anko van der Werff.
If you’re a passenger, what now?
Don’t panic. Avianca will continue flying, once the airspaces in South America are open again. As of 10 May, 88% of the countries to which Avianca flies had partial or total restrictions on commercial aviation.
Although Avianca will cancel some routes in the near future, it is too soon to know which ones. Van der Werff added that the second phase of this Chapter 11 includes the redesign of the company and its route map.
What we know for sure is that the airline will reduce its operation in Peru. Avianca had already decided this previous to yesterday’s announcement. It will allow it to focus on its main markets, the airline said.
Meanwhile, Avianca will continue its operations in Colombia, mainly from its hub in Bogota. It has a share of over 50% of the domestic market in Colombia. Additionally, it provides jobs to over 14,000 people in the country.
How did we get here?
In 2019, Avianca got new management. Consequently, the carrier got rid of its former owner, German Efromovich, and brought a new light under the support of United Airlines. Avianca presented its “Avianca 2021” plan and let go of some of its older aircraft.
At the same time, it launched a new regional carrier, increased its frequencies to several destinations including Brazil, and signed a new codeshare with TAP Air Portugal.
But all this movement had a cost. In 2019, Avianca had one-off costs of $894 million. It saw a 5.50% decrease in its earnings, and the number of investors came to an all-decade low. According to La Republica, in December 2010, the number of stakeholders was 47,554, while in December 2019, it was 9,373.
As the carrier stated, the plan was going well. But then the current crisis hit and shook Avianca to its core. As the oldest airline in Latin America and the second most important after LATAM, the region cannot lose Avianca. If it did, it would be a significant blow to commercial aviation in Latin America.
What do you think will happen with Avianca? Let us know in the comments.