The airline expects to exit the Chapter 11 process of the Bankruptcy Code, which began a year ago in the United States, at the end of this 2021.
In the next two months Avianca plans to deliver to the Bankruptcy Court of New York in the United States a new five-year business plan in which it shows that the company will be solvent in the long term, the first step to overcome the reorganization process and funding that COVID-19 brought them to.
Read the full interview with the president of Avianca here.
This time, the key to surviving the insolvency process, better known as Chapter 11, is to achieve a significant reduction in operating costs and increase demand, according to Adrian Neuhauser, new president and CEO of Avianca. In fact, the airline resorted to the same procedure in 2003 and, according to the firm said, it came out stronger.
“Presenting a reorganization plan to the Court has a legal part, but also a financial one, because we have an obligation to show the Court with numbers why we believe that we are solvent in the long term,” explained Neuhauser.
The reduction in operating costs, which will take between 12 and 18 months, will be based on a redesign of the network with a fleet of aircraft 15% smaller that, at the same time, allows them to increase the offer of seats by 15%. “We are going to change to a more point-to-point strategy that offers direct international service from other cities, which means more options to connect to the world for people who do not live in Bogotá,” said the president.
For the recovery of the clientele, they will fight the low-cost airlines with the same or even lower prices permanently, without subtracting benefits in differentiated service, larger seats and accumulation of miles, to name a few. They even aspire to attract those who believed they could not fly on Avianca. Both should translate into competitiveness.
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When Avianca announced that it would file for Chapter 11 it was emphatic that this decision did not indicate that it was bankrupt, but it did have financial difficulties to pay its obligations and found in the mechanism a way to reorganize its liabilities, restructure its debts, rethink some contracts and meet your creditors while continuing to operate.
Although 2020 was the most critical year in the history of the aviation industry, the airline of Colombian origin already had a deteriorated financial situation, mainly due to the strike of the pilots of the Colombian Association of Civil Aviators (Acdac) at the end of 2017. He even resorted to a loan with United Airlines in 2019, which he could not pay, which ended up reducing his ability to react.
Follow the news of El Espectador on Google NewsThe balance sheets began to fill with figures in red three years ago and could remain so until at least 2022. According to the most recent results, released last May, corresponding to the period January-March 2021, Avianca’s net loss exceeds the US $ 311 million. According to Neuhauser, Avianca’s accounting for this year will continue to be critical, but next year the transition will begin and in 2023 the effect of the new commercial strategy will be felt, “there will be solid margins, very good results and a share of very attractive market, ”he said.
In addition, Avianca has another reading of the current situation. According to Neuhauser, “It is very difficult to see what is really happening with our accounting loss, because all the Chapter 11 debts and costs are brought to that level.” The new president, who until a month ago served as financial vice president, prefers to measure the success of the management results with consumption or cash generation, where he says they are “very much in line with what was projected.”
The capital structure with which Avianca comes out of Chapter 11 will also be crucial, “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 interests so that the company is not in a situation like the current one of cash stress and has space ”.
Although obtaining US $ 1,200 million in financing, contributed by a group of more than 100 institutional investors, allowed Avianca a substantial liquidity to go through the restructuring, the new president acknowledges that they have not solved the exit capital structure and that They remain focused on redesigning the business model to make the company sustainable: “Liquidity has been the citrus portion, but not the most important. A DIP ( Debtor In Possession ) is the financing that you can use while you are in Chapter 11, to get out you have to find how to pay that long-term debt, refinance ”.
After all, as Neuhauser explains, those US $ 1,200 million are not the entire obligation of the company, “we are also going to have debt for the aircraft in our new fleet, for agreements we reached with active creditors and for accrued interest.”
In the reactivation of Avianca, which today operates at half its capacity, the new routes and the increase in seats on some of them will be key, especially from Central America and Colombia to the United States, where they have identified an interesting recovery. The domestic market is also beginning to gain momentum. All this would allow them to end 2021 with a recovery in demand close to 60%.
While the market recovers, Avianca enters the final stretch of Chapter 11, “we have a period called solicitation , which is to socialize that plan with creditors and seek support. Then there is a voting structure that is applied and we seek the approval of the Court. With that we left ”, concluded the president.
