Coronavirus causes world’s second-oldest airline to go into bankruptcy

Avianca, the second-largest airline in Latin America and the second-oldest in the world, has been forced to file for bankruptcy protection “due to the unpredictable impact” of the coronavirus pandemic.

In a statement issued in Bogota, Avianca said that along with “some of its subsidiaries and affiliates,” it had asked to “voluntarily file for Chapter 11 of the Bankruptcy Code” in a New York court.

The process allows financially struggling companies to reorganise and restructure their debt. According to Reuters, pleas for coronavirus aid from Colombia’s government have so far been unsuccessful.

The airline’s operations “have been dramatically affected by the COVID-19 pandemic,” as well as federal air travel restrictions.

The company “continues to have high fixed costs,” the statement said. Avianca temporarily suspended all passenger operations in late March, following Colombian President Ivan Duque’s decision to close the country’s airspace as the number of confirmed coronavirus cases rose.

The decision, which grounded 142 aircraft, “has reduced consolidated income by more than 80 per cent and has put significant pressure on liquidity,” according to the statement.

It added that 12,000 of the airline’s more than 20,000 employees would take unpaid leave.

According to Reuters, if the airline fails to come out of bankruptcy, the Bogota-based airline would be one of the first major carriers worldwide to go under as a result of the pandemic.

“Avianca is facing the most challenging crisis in our 100-year history,” Avianca Chief Executive Anko van der Werff said in a news release.

The company asked the New York court for “authorisation to fulfil work commitments” prior to the bankruptcy protection request and “maintain the compensation scheme applicable to its employees”. The coronavirus pandemic has dealt a crushing blow to the global aviation industry, which has been directly affected by confinement measures and travel restrictions.

According to the International Air Transport Association (IATA), Latin American airlines will lose US$15 billion in revenue this year, the worst crisis in the industry’s history.

Avianca, which had already filed for Chapter 11 bankruptcy in the US in 2003, recorded a net loss of $894 million in 2019, against a $1.1 million profit the year before.

Avianca Holdings — which carried 30.5 million passengers in 2019 — is currently comprised of the Colombian airlines Avianca and Tampa Cargo, the Ecuadorean airline Aerogal and the companies of the Taca International Airline Group, which has offices in Central America and Peru.

But despite the airline’s hardships, chief economist at Casa de Bolsa brokerage in Bogota said filing for bankruptcy for the airline came as no surprise.

“The company was heavily indebted despite the fact it tried to restructure its debt last year.”

It is understood that management for the airline were already focusing on cost-cutting measures prior to the COVID-19 pandemic.

Roberto Kriete, president of Avianca’s board, said last year in a meeting with employees that the airline was “broke.”

According to Reuters, Avianca was facing a $65 million bond payment due on Sunday that analysts did not think the airline was in a position to meet and that the airline’s accounting firm, KPMG, had “substantial doubts” about the carrier’s ability to exist a year from now.

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