Avianca files for US bankruptcy: Clarification

Clarifies that UMB Bank is a collateral agent, not a creditor.

Avianca filed for bankruptcy protection in the US as the Colombian government considers acquiring a share in the airline.

The carrier, the second-largest in Latin America after Chile's Latam, defaulted yesterday on $65.6mn in bond principle and $2mn in interest.

Chief executive Anko van der Werff said he does not expect Avianca's flight volumes to recover "anywhere close" to its pre-coronavirus levels for 12-18 months.

The company requested Chapter 11 protection in a New York court because of the"unforeseeable impact of the Covid-19 pandemic" and the grounding of 140 Avianca passenger jets since mid-March.

Avianca said the bankruptcy filing aims to protect 21,000 jobs throughout Latin America, including more than 14,000 in Colombia, and protects and preserve operations.

Avianca recorded total debt of $4.85bn at the end of 2019. The company's main creditors are Wilmington Savings Fund Society with $484mn. Other large creditors include Wells Fargo Bank Northwest with $271mn, ING Capital with $124mn and Banco de Bogota with $107mn, according to the brokerage unit of Colombia's Davivienda bank.

UMB Bank, initially reported as another creditor, is a collateral agent for $325mn in long-term credit that Avianca has issued. "As collateral agent, we are the creditor in name only and act on behalf of the actual long-term credit holders. Therefore, the credit does not represent a debt owed to UMB in its individual or corporate capacity," the bank told Argus today.

Colombia's finance minister Alberto Carrasquilla confirmed last week that the Colombian government is weighing the possibility of acquiring part of the distressed company.

Avianca is seeking a government loan in exchange for a stake in the company to survive the grounding of nearly all commercial flights. Avianca is also asking other governments where it has operations, including in Central America, for a rescue package.

In a newspaper column yesterday, influential former vice president German Vargas discouraged the government from "teaming up with bankrupt company" by purchasing a stake in Avianca.

A potential bailout for Avianca has sparked criticism because the airline is controlled by US firms United Airlines and Kingsland Holdings. United said "The COVID-19 outbreak has been the worst crisis to hit the airline industry in its existence, and has put massive strains on all airlines across the globe - including Avianca. During these historic times, we wish them well through their restructuring and look forward to a continued strong commercial relationship once we get through this unprecedented crisis."

Colombia's former deputy labor minister Luis Ernesto Gómez said "the sovereign debt resources that we will pay every year with our taxes must go to save micro, small and medium-sized companies, not foreign companies."

Avianca attributed a 2019 net loss of $894mn to volatile jet fuel prices and competition from low-cost airlines.

In 2003, Avianca also requested Chapter 11 protection. It was later acquired by Brazilian businessman German Efromovich, the former owner of the company.

Avianca Holding's new request for bankruptcy protection comes after sister airline Avianca Brasil filed for bankruptcy in December 2018. Avianca Brasil was controlled by Oceanair and was Brazil's fourth-biggest domestic carrier at the time. Avianca Brasil lost all of its aircraft and its licenses to operate in Brazil in May 2019.

By Diana Delgado