Avianca has filed for Chapter 11 bankruptcy protection in the USA and will shutter its Avianca Peru subsidiary as the shutdown of air travel amid the coronavirus pandemic obliterates revenues. "We believe that a reorganisation under Chapter 11 is the best path forward to protect the essential air travel and air transport services that we provide across Colombia and other markets throughout Latin America," says Avianca chief executive Anko van der Werff in a 10 May statement. The health crisis has hit the airline sector hard as governments implemented social-distancing orders which reduced demand for air travel or forbid it altogether, as in Colombia. "Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the Covid-19 pandemic," says van der Werff. "Despite the positive results yielded by our 'Avianca 2021' plan, we believe that, in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges." The Colombian carrier had recently concluded an out-of-court restructuring in which it reprofiled its debts and rationalised its network. The company, which is being advised by Seabury and FTI Consulting, has entered into bankruptcy protection without a debtor-in-possession loan. "Avianca continues to be engaged in discussions with the government of Colombia, as well as those of its other key markets, regarding financing structures that would provide additional liquidity through the Chapter 11 process and play a vital role in ensuring that the company emerges from its court-supervised reorganisation as a highly competitive and successful carrier in the Americas," the airline adds in the statement. As of 25 March, Avianca ceased all commercial flights and grounded its fleet following travel restriction orders by Colombia and other countries in which it operates. Of the total number of countries in which Avianca operates, 88% have total or partial passenger air transport restrictions, which the airline says has "forced [it to] take a series of extraordinary and structural measures". These have included employee furloughs, temporary wage reductions, reductions in non-essential capital expenditures and temporary deferred payments on long-term leases. The carrier continues to operate cargo flights, which represented less than 10% of its normal revenues. "Avianca has limited visibility as to when current travel restrictions will be lifted and, once such restrictions are lifted, it does not expect revenues to return to pre-pandemic levels in the short term as the effects on travel are expected to be long-lasting," the airline says in the statement. "These factors, coupled with Avianca's substantial financial obligations, made it necessary for Avianca to explore alternatives to reorganize its operations and restructure its debt." As carriers around the world turn to their governments for state support to weather the crisis, Avianca, too, had requested state aid in the form of debt rather than a grant. "These could be done in the form of convertible bonds or government endorsed loans," van der Werf said in an April video on the airline's YouTube channel. "Colombia needs its airlines because this country lacks a system of fast interurban trains and often even adequate roads. This country cannot risk losing its airlines," he argued. On 3 April, Fitch Ratings downgraded Avianca from "CCC-" to "C". Prior to the pandemic, the agency had upgraded the carrier's rating to "CCC+" from its previously distressed rating of "RD" after the company had completed its out-of-court restructuring programme "Avianca 2021" to reprofile debt. After several management changes in 2019, Avianca in January obtained a $250 million secured loan from stakeholders United Airlines and Kingsland International and completed a $484 million bond exchange, which allowed the Colombian airline to push its 2020 debt repayment to 2023. The carrier also raised an additional $125 million in convertible secured financing commitments from investment firm Citadel and private Latin American investors. In addition to reprofiling its debt, the company has cut costs by rationalising its route network: it has announced the removal of its Embraer 190 fleet from service and is eliminating unprofitable routes, mainly in Peru and in selected regional markets in Colombia, while focusing on its points of network strengths. "In terms of business profile, the company has a good asset base and is relatively well positioned to its regional peers based on its network, route diversification and important regional market position," Fitch had written in the December report. "Nevertheless, these factors are tempered by the company's higher gross adjusted leverage and refinancing risks, weaker liquidity and financial flexibility relative to peers." At 31 December, Avianca had $398 million in cash and $872 million of short-term obligations, $237 million of which is related to lease agreements.

Source: Cirium

Oneworld alliance carriers British Airways and American Airlines have offered slots at London Heathrow or Gatwick to address competition concerns on transatlantic services arising from their joint business arrangement. The measures have been put forward ahead of the expiry, after 10 years, of a binding commitment made in 2010 when the airlines – along with Oneworld partner Iberia – commenced their commercial co-operation on US-European services.
This partnership has expanded to five airlines, with the addition of Finnair and Aer Lingus, says the UK’s Competition & Markets Authority which opened a probe into the pact in October 2018. This probe reflected the UK’s planned departure from the European Union – meaning that the European Commission would no longer oversee competition issues – as well as the fact that most of the six routes on which the original commitments centered, had UK points of origin. It has identified “potential” competition concerns on routes between London and the US cities of Boston, Chicago, Dallas, Miami and Philadelphia. But the authority says British Airways and American Airlines have responded by proposing measures including release of slots at Heathrow or Gatwick to serve Boston, Dallas and Miami. The proposals also include efforts to support competing operations on these routes – as well as those to Chicago and Philadelphia – by offering preferential access to connecting traffic. These measures are being market tested, says the authority, adding that it is inviting comments on the proposals until 4 June. “We are acting now as the current commitments expire this year,” says the authority’s senior director for antitrust, Ann Pope. But given the disruption to the air transport sector resulting from the corona virus crisis, she says, the commitments allow for a possible review if competitive conditions change during and after the recovery period.

Source: Cirium

South Africa’s government is urgently trying to extend the period of operations for South African Airways after the carrier’s business-rescue practitioners warned that 8 May would amount to a “drop dead” day when all flights would cease. The country’s public enterprises minister, Pravin Gordhan, outlined to a parliamentary committee on 6 May that a new airline was in the planning stage – although he gave few details – but indicated friction between the government and unions on one side and the practitioners on the other. “We need to find some quick answers,” said Gordhan, referring particularly to a need to extend SAA’s operations. He told the committee that meetings over finances were due to take place in an effort to “give continuity” beyond 8 May. “We also want to indicate there should be no fire-sale of important assets of SAA or a move towards liquidation,” he added. If the practitioners pursue a wind-down process, said Gordhan, it would not achieve the original objective set by the government for a business rescue. This is a “matter of contention” between the government and the practitioners, he told the committee, adding that the government is also concerned about other issues with the rescue process, including access to consultants’ information and the size of fees. The Labour Court of South Africa in Johannesburg is due to hear a case brought by two unions – NUMSA and SACCA – that are attempting to have personnel retrenchment notices declared unlawful, and to suspend consultative processes until a business-rescue plan has been presented. SAA’s business-rescue practitioners state that they are intending to oppose the application. The case is set to be heard on 7 May. Gordhan told the committee that the department of public enterprises wants to engage constructively with the practitioners to see whether an “alternative transition” is possible, to discuss a “more consensual” approach to the retrenchment process, and explore the shape of a new airline “SAA has the potential to be restructured into something new, which is what the government wants,” he said, adding that a successor carrier would be viable and competitive, Free of the treasury, and open to appropriate strategic equity partners – while saving as many jobs as possible. “We’re receiving all sorts of offers [from possible partners],” he stated. “But some are suspect, some are vacuous, and some may be of substance.” Gordhan added: “I can’t tell you whether I’m optimistic or not. But I can certainly say every effort will be put in to make sure we move in the right kind of direction.”

Source: Cirium