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AVH - Avianca Holdings SA News Story

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Last Trade - 08/05/20

Micro Cap
Market Cap £n/a
Enterprise Value £n/a
Revenue £2.56bn
Position in Universe th / 6850

ANALYSIS-Latin America's airlines pray for bailouts to avoid Avianca's fate

Wed 13th May, 2020 12:00pm
By Marcelo Rochabrun
    SAO PAULO, May 13 (Reuters) - Avianca Holdings had known
since late March that the Colombian airline's cash pile would
only cover a few months of expenses while its entire fleet sat
grounded because of aggressive anti-coronavirus lockdowns.
    In those conditions, Sunday's bankruptcy filing was hardly a
surprise. What was surprising was the absence of one key
stakeholder: the Colombian government.
    That stands in stark contrast to countries like France,
Germany and the United States, which made protecting their
airline industries an early priority of the crisis. At stake for
Avianca, the world's second-oldest airline, are 20,000 jobs,
mostly in Colombia.
    But Bogota's mostly hands-off approach is hardly an
exception among the Latin American governments, which have
largely ignored the industry's clamor for bailouts.
    In public, LATAM Airlines Group  LTM.SN , Gol Linhas Aereas
Inteligentes  GOLL4.SA , Aeromexico  AEROMEX.MX  and Avianca
 AVT_p.CN , among others, say they are actively negotiating
government rescue packages. But behind the scenes there is
growing concern about when results may materialize and if it
will not be too little too late.
    "It is not coming fast enough," said one airline source, who
requested anonymity to not affect his carrier's negotiations. 
    Avianca's own numbers paint a grim picture for a carrier
that recently showed enough promise to draw interest from United
Airlines  UAL.O , which sought a close business partnership. At
the start of the year, Avianca was worth $470 million - it is
now worth $17 million, two pennies a share.  
    By the end of March, after a week on the ground, Avianca had
$304 million in available cash with almost no money coming in
and mounting expenses. By May, it would have used more than half
of that just to make two months of payroll and settle a debt
    As the debt deadline approached, its chief executive Anko
van der Werff publicized Avianca's need. It was to no avail. 
    "In Latin America we have not seen as much (government) help
as in other regions," said Gonzalo Yelpo, legal director at
ALTA, a regional airline industry group.
    Analysts warn that the crisis could be particularly
hazardous for carriers in the region, who lost money in recent
years while most others basked in profits. ALTA has warned of a
"bankruptcy pandemic."
    "The starting point is worse for Latin American airlines,"
said Maurício França, of L.E.K Consulting, which estimates
Brazil's airlines lost 11 billion reais ($1.89 billion) between
2014 and late 2019. 
    Avianca's bankruptcy could start to turn the tide, but it's
unclear how fast.
    On Monday, Colombia said it would consider rescue loans for
    On Tuesday, Peru said it was considering helping carriers,
including foreign airlines. But that comes too late for Avianca,
which is shutting down its Peru operation and laying off 1,000
employees there.
    In Brazil, airlines have been deadlocked on loan
negotiations for weeks. Chile said "direct aid" was not on the
table for LATAM, its largest carrier.
    In Argentina and Mexico, left-wing governments have
suggested they will not rescue big companies, although taxpayers
directly own Aerolineas Argentinas, complicating the politics.  

    Avianca faced a perfect storm with its home base in Colombia
and hubs in El Salvador, Ecuador and Peru. 
    Those four countries shut down all commercial air travel to
protect their fragile healthcare systems. But it left Avianca
    Avianca's closest rival, LATAM, did not suffer to the same
extent because it can still fly in Chile and Brazil, its main
    Now Avianca, which had agreed to buy more than 100 Airbus
jets before 2029, faces an uphill path to recovery. It agrees it
neither needs nor can afford those aircraft.
    In the short-term, Avianca says it expects spending to
significantly outpace its revenue, signaling that it "may
eventually need a substantial new infusion of capital."
    Panama's Copa Holdings SA  CPA.N , similarly grounded with
nowhere to fly, is about a third smaller than Avianca and has
said it was burning through $85 million a month.
    Even at that rate, Avianca would have cash for less than
four months. Almost two months have already gone by.
    Making things worse, the coronavirus pandemic is at an
earlier stage in Latin America than in the United States, Europe
or Asia, pushing back any likely economic reopening.
    "The shutdown in Latin America was in a way tighter and
stronger," said an industry source. "And now there's bigger
reluctance there on reopening the markets." 

($1 = 5.8172 reais)

 (Reporting by Marcelo Rochabrun in Sao Paulo; Additional
reporting by Marco Aquino in Lima, Carlos Vargas in Bogota and
Anthony Esposito in Mexico City; Editing by Christian Plumb and
Sam Holmes)
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