EconomyFinancialAvianca will present a new business plan to the...

Avianca will present a new business plan to the US Court

The new president of the airline spoke with El Espectador about the airline’s new scheme, which includes smaller planes and an increase in seats and frequencies.

In the next 60 days, Avianca will deliver to the Bankruptcy Court of the Southern District of New York in the United States, within the framework of Chapter 11, a new business plan in which it shows that the company will be solvent in the long term by reducing of operating costs and increased demand.

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To recover from 2020, the “most complex year in the history of the industry”, and from the difficult financial situation it reached before the pandemic, the airline will begin to compete with its peers in the market with price and services, from agreement with Adrian Neuhauser, new president and CEO of Avianca.

What projections do you have for this 2021?

In the industry this year we are going to judge ourselves by our ability to manage cash rather than by accounting results. Avianca’s accounting results for this year are going to be complex because we are going to have part of Chapter 11, there is a reduction in debt that is exchanged for credits that are paid for shares in the company. This year’s pure accounting is a critical topic, we looked at it, but it is not the easy way to read the company’s recovery. We are going to measure success by our ability to consume little cash or generate cash and by the capital structure with which Avianca comes out: how many terms do we have to take care of the debt and what is the burden imposed on us annually to service that debt. We are looking for long-term structures, with low amortization and with lower interest rates so that the company is not in a situation like the current one of cash stress and has space. We are going to define a success, from a financial point of view, by our ability to fulfill a business plan in 3 or 5 years, which we will make public in 60 days.

How does the process work?

As one advances in Chapter 11 on the different fronts, one can extend that term and ask for more exclusivity. There is a period of exclusivity in which the company is the only one that has the right to present a reorganization plan, when that exclusivity expires, as the Court does not renew it, there could be other interested parties who say “I have a better idea.” But today we are in exclusivity and we hope to present a plan within the next 60 days. We are entering a final stretch of preparation of the plan, we have a period called solicitation that is to socialize that plan with the creditors and seek support, then there is a voting structure that is applied and we seek the approval of the Court after the plan and then we leave, we project that to be for the fourth quarter of this year according to the calendar we have.

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What will they include in the document?

In the financial projection we are very confident in our ability to reduce the operating cost of this company and, therefore, be able to provide a great service at a lower price and be more competitive with respect to the industry. Part of that cost reduction takes between 12 and 18 months to crystallize, but we are not going to wait that long to change our commercial strategy and be more competitive, in fact, you are seeing it today, if you go in and compare our prices with the low prices. cost in most cases we are the same, in some we are cheaper. Those numbers are part of the Chapter 11 process, presenting a reorganization plan to the Court, which has a legal part, but also a financial one because we have an obligation to show the Court why we believe that we are solvent in the long term.

What will the following years be like?

What you are going to see is a transition 2022, with lower margins because we are still reducing costs, but we have already changed the commercial strategy and already in 2023 we will see solid margins, very good results and a very attractive market share.

What does this new business model consist of?

Avianca is going to be smaller in number of planes, but in terms of flights and seats we are going to be 15% larger, we can offer more connectivity with a 15% smaller fleet. It is one of the great achievements of the network redesign. That translates into offering permanent competitive low cost prices while maintaining a differentiated service, with access to larger seats, miles for traditional Avianca customers, etc., but to the person who said “I can’t fly on Avianca”, let’s go to give a competitive price. There is going to be a bigger and cheaper Avianca, we are going to capture important market share.

How are Avianca’s finances one year after announcing the reorganization and financing process (DIP)?

Thanks to DIP we have substantial liquidity and the support of a group of more than 100 institutional investors who put money in and gambled for us in financing. But we do not have solved, in some way, the capital structure of exit. Chapter 11 is not just a matter of obtaining liquidity, it is a matter of redesigning your business model, negotiating historical debts and assets (which ones you need and which you don’t), rethinking important contracts with external providers and, in some way, proposing to creditors a sustainable company in the long term. We have been focused on that this year, liquidity has been the citrus portion, but not the most important; liquidity itself has the critical part that we have to refinance, but a DIP is the financing that you can use while you are in Chapter 11, to get out you have to look for long-term financing and pay that debt.

What’s Coming Forward?

Part of the work we have to do now is, with the same creditors or with new creditors, to give money to pay. That money stayed there, but it is not the entire obligation of the company, we will also have debt for the planes that we define are part of our new fleet, due to agreements we reached with active creditors and that debt has also accrued interest, but it is a critical part of the debt that we have to refinance to get out.

How far has the reactivation progressed?

Today we are in a 50% recovery in volume, we are flying about 300 daily flights and we are adding more significantly in what follows this quarter, but Avianca previously flew about 600 daily flights. We are seeing a solid recovery of greater demand, of greater clarity at the opening, which is giving us a clearer way to understand how this is going to evolve for the rest of the year versus the volatility that we have been experiencing and that gives us a lot of peace of mind. What we projected was a recovery of demand close to 60% at the end of the year and we believe that it will be fulfilled without problem.

Has the national strike hurt your recovery?

Aviation has also been affected. When mobility in the country is reduced for whatever reason, we are affected and unemployment has been a reduction in mobility, as has been the quarantine. We have managed it, our team has done an incredible job in maintaining service and connectivity, which is our commitment to the country, but it has been very complex, it is an additional reduction in demand. In Cali we have had difficulty for a few days to get personnel to the airport and we have supplied it with personnel who have flown from other bases.

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