Colombian airline Avianca stated today that it is currently in default under certain obligations, leading to uncertainty about the future of the carrier. This poses some difficult questions for the airline. Primarily: "How serious is this for Avianca?" Let’s investigate further.

Avianca unable tofile its 2019 Annual Report

In a form published by Avianca to the United States Securities and Exchange Commission, the airline said that it was unable to file its Annual Report for the fiscal year ended on 31 December 2019. 

The airline says that the current coronavirus pandemic has resulted in unprecedented challenges. “Starting in early March 2020, Avianca’s management has been solely focused on overcoming the unique complexities that the pandemic has created,” it said. 

Currently, Avianca is not flying at all due to the closure of Colombian, Peruvian, and Salvadoran airspaces. A month ago, the airline had only ten remaining aircraft in the skies. Anko van der Werff, Avianca’s CEO, said this was undoubtedly the hardest crisis in the aviation industry’s history. 

Consequently, this situation resulted in a delay in the preparation of Avianca’s Annual Report, the company stated. The report was due to be published on 30 April, but now it is delayed until 14 June. 

Avianca Express ATR
In 2019, Avianca had over US$800 million in "one-off costs". Photo: Avianca

The second-largest airline in Latin America in danger

Since March, Avianca has cut all non-essential capital expenditures. It also temporarily deferred payments on long-term leases and certain loan obligations. Additionally, the airline has put half of its workforce on unpaid leave and is seeking government assistance. 

As a result of this crisis the airline says, “we are currently in default under certain outstanding indebtedness and other obligations.”

Furthermore, the airline warned of further measures to preserve the business and cash position, if the crisis drags on.

Also, its independent auditors, KPMG, will include an explanatory paragraph in the Annual Report indicating substantial doubts “as to [its] ability to continue as a going concern.” 

Avianca has faced several years of financial instability. Just in 2019, the airline had one-off costs of US$894 million. Avianca changed its management last year and welcomed Anko van der Werff as its CEO. It also sold 10 Airbus A318s, four A320s, and 10 Embraer E190s. 

The company said the costs were undesirable but necessary. Avianca hoped to have a great 2020 with its new Avianca 2021 plan, which was intended to see the airline thrive for another 100 years. 

Avianca Getty
Avianca recently got approval for its DIP Financing for US$2 billion. Photo: Getty Images.

Could Colombia save Avianca?

If there’s one thing going on for Avianca right now, it's the Colombian government. The International Air Transport Association (IATA) sees the Colombian government as a role model in the region at the moment. 

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

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

That being said, there’s no further news of more Colombian government efforts save Avianca. We don’t think it would let Avianca go under, as it is essential for the air connectivity in the country. 

Do you think Avianca will survive this crisis? Let us know in the comments.