After about two months into the aviation lockdown brought by the COVID-19 pandemic, world’s second oldest airline – second largest carrier in Latin America – and Columbia’s national airline, ‘Avianca’ has filed for bankruptcy protection. Avianca has had its fleet completely grounded since March 2020, and revenues have plummeted more than 80% since, as the carrier is struggling with high fixed costs. If Avianca fails to stay afloat, it shall be the first major airline to be busted in these challenging times.
The airline filed for bankruptcy after failing to meet a $65mn bond payment deadline, while its pleas for the pandemic aid from Colombian government have so far been unsuccessful.
Avianca stated that it has filed for ‘Chapter 11 bankruptcy protection’ in a court in New York. This process postpones a company’s obligations to its creditors and to those it owes, thereby, giving the entity some breathing space to reorganise its debts or sell parts of the business, as and when required.
Since March 2020, most of the 20000 employees of Avianca have been put on unpaid leave and more than 140 aircraft have been grounded. Chapter 11 bankruptcy protection filing shall give Avianca a chance to protect and preserve operations so that it can carry on regular business after the government restrictions are lifted, thereby, allowing for revenues to pour in. On these lines, Mr. Anko van der Werff, Chief Executive of the airline stated:
‘When government-mandated air travel restrictions are lifted and we are able to gradually resume our passenger flights, we look forward to welcoming back our furloughed employees and playing a leading role in restarting the economy in Colombia and our other key markets.’
Unlike other national carriers globally, Avianca has not received much government aid. In current circumstances, that makes it almost impossible to sustain operations (and hence, business). However, the current situation at the airline does not really come as a surprise, given the fact, that the company was heavily indebted, having $7.3bn in debts in 2019.
Avianca has once gone through bankruptcy process in the early 2000s. Back then, it was rescued by a Bolivian businessman, German Efromovich. Even though he rescued the carrier, Efromovich later grew Avianca aggressively and saddled it with substantial debt. He was then ousted from the airline last year in a boardroom coup led by United Airlines Holdings, who as well, had loaned Avianca $700mn. Thus, one can say that the pandemic especially hit Avianca hard at a time when the carrier was undergoing a restructuring programme, thereby, further making things difficult for the airline.
When the COVID-19 pandemic began, aviation experts had predicted that most airlines will go bankrupt by May 2020, if they do not receive any aid from respective governments. They certainly weren’t wrong. As Avianca files for bankruptcy, one cannot help but wonder, who will be the next?