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Airline updates: Avianca, world’s second oldest airline, files for bankruptcy

written by Dylan Nicholson | May 12, 2020

The world’s second-oldest airline and the second-largest in Latin America, Avianca, has filed for bankruptcy after failing to meet a bond payment.

The airline was forced to announce this bankruptcy due to the wide-ranging effects of the COVID-19 pandemic. The closure of borders and shelter-in-place orders has severely restricted the airline’s operations, leading to significantly reduced activity.

The airline had sought government assistance from the Colombian government but when this was rejected Avianca was left with no choice but to file bankruptcy.

The airline filed for Chapter 11 bankruptcy in New York and said it would continue operations while it restructured its debts.

Avianca has not flown a regularly scheduled passenger flight since late March and most of its 20,000 employees have gone without pay through the crisis.

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

Speaking with Al Jazeera,  Juan David Ballen, chief economist at Casa de Bolsa brokerage in Bogota, said,”This isn’t a surprise at all. The company was heavily indebted despite the fact it tried to restructure its debt last year.”

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Avianca, founded in 1919, the second-oldest continually operating airline in the world after KLM, had US$7.3 billion in debts in 2019.

Avianca already went through bankruptcy in the early 2000s, from which it was rescued by a Bolivian-born oil businessman, German Efromovich.

Efromovich grew Avianca aggressively but also saddled the carrier with significant debt until he was removed from the airline last year in a boardroom coup led by United Airlines Holdings. He still owns a majority stake in the carrier.

United stands to lose up to US$700 million in loans related to Avianca.

In other airline news:

  • Korean Air is planning on reopening flights to various international destinations around the world. The airline announced on 7 May that it would be resuming service to destinations in North America, Europe and Asia that had once been suspended.
  • Israel’s El Al has secured $400 million in funding from the Israeli government. But it’s not money for nothing. The funds will be forthcoming only if El Al meets certain conditions. The government wants changes at Israel’s national airline, arguing problems at El Al predate those caused by the pandemic.
  • Nepal Airlines is seeking government funding to finance a new fleet of aircraft for its domestic operations. The airline currently has a fleet of nine short-haul aircraft, however many of these planes have been beset with problems.
  • Flybe’s assets have been valued by accounting firm EY at ÂŁ139 million. While most of this money will go to finance companies whose debts were secured on aircraft, it looks like Connect Airways will benefit too. Virgin Atlantic, Stobart, and Cyrus Capital look to get back around 30 per cent of their initial investment.
  • From 26 June, leisure airline Corendon will offer “corona-free” holidays to a limited number of destinations in Turkey from Amsterdam. The trips, operated by sister carrier Corendon Dutch Airlines, will begin with passengers being tested for coronavirus at a facility near Schiphol airport. Travellers will then be kept in a COVID-free bubble throughout their holiday until they return home.
  • Qatar Airways is planning for a ramp-up of operations and is looking at around 80 destinations by the end of June. However, the airline’s CEO Akbar al-Baker believes that travel demand will remain stunted for at least three years, and as such, is planning to operate a reduced fleet. In a telephone interview, he said that as many as 25 per cent of the airline’s aircraft would remain grounded, and some could even be returned to lessors.
  • South American carrier LATAM is rolling out a new and innovative way to raise some quick cash to sustain itself through this pandemic. Unveiled recently, the program is called #TravelAgain, and it puts forward an exciting proposition: buy a travel voucher now, and the longer you wait to redeem it, the more it will be worth.

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