Avianca flies into bankruptcy, but says LifeMiles are safe

Avianca, one of the biggest carriers in Latin America, applied for Chapter 11 bankruptcy overnight after travel bans across the region forced the Colombian airline to ground its fleet.

The Colombian airline and Star Alliance member said last month there was "substantial doubt" about its ability to stay in business due to the coronavirus crisis.

The bankruptcy filing listed as much as US$10 billion in liabilities, and the same amount in assets, with providers of aircraft, jet engines and maintenance services among Avianca’s biggest unsecured creditors.

More than US$88 million each is owed to engine manufacturers including General Electric & CMF International and Rolls Royce, with a unit of Boeing due US$3.66 million and Airbus claiming US$2.83 million.

Avianca's loyalty program LifeMiles is a separate business from the airline and not affected by the bankruptcy application, the company said in a statement, describing it as "well capitalized and insulated from Avianca's reorganization process."

The carrier grounded planes in late March after governments across Latin America sealed borders to curb the spread of the COVID-19 pandemic.

Avianca had just emerged from a tumultuous year in which it restructured debt and embarked on a business turnaround plan aimed at restoring profitability by focusing on flights through its Bogota hub. It cited the impact of the pandemic in a statement Sunday, adding that it intends to keep flying during the reorganization.

“Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the Covid-19 pandemic,” CEO Anko Van Der Werff said in the statement. “We believe that a reorganization 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.”

In late March, the company deferred lessor payments, canceled planned investments and offered unpaid leave to the majority of its 21,000 employees to cut costs. The company also delayed filing its annual report until June and said it will include a warning that there’s substantial doubt about Avianca’s ability to stay in business.

The company requested authority to continue paying wages and honoring employee benefit programs, as well as pay vendors and suppliers, it said in the statement. It intends to wind down operations in Peru "to renew its focus on core markets upon emergence from its court-supervised reorganization."

Additional reporting by David Flynn

David Flynn

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.