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News Article

Avianca Files for Bankruptcy

Mon, 05/11/2020 - 11:08

The COVID-19 outbreak has brought the aviation industry to lows not seen in years, putting many airlines in trouble as demand and cashflows plummet. Colombia’s flagship airline Avianca succumbed to COVID-19 and filed for bankruptcy protection in a US court.

The airline was hurt as countries in Latin America either closed their borders and/or severely restricted travel. Headquartered in Bogota, the airline has 187 destinations spread in 27 countries and has three hubs in Latin America located in Colombia, El Salvador and Peru. It also connects Mexico City and Cancun to the rest of Latin America. Of its destinations, about 88 percent had total or partial travel restrictions, which cut its revenue by 80 percent.

Avianca is the second oldest airline in the world and the second largest in Latin America. Filing for bankruptcy protection in a US court will allow the airline to postpone some obligations to creditors.  “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,” said Anko van der Werff, CEO of Avianca. In a press release announcing the decision, Avianca stated that Chapter 11 will allow it to protect its operations, preserve jobs and “restructure the company's balance sheet and obligations to enable Avianca to navigate the effects of the COVID-19 pandemic, as well as comprehensively address liabilities, leases, aircraft orders and other commitments.”

For the aviation industry, the effects of the outbreak have been severe and widespread. The International Air Transport Association (IATA) warned that the industry would see losses of US$314 billion in lost revenue during 2020 as a growing number of people avoided travel to escape the virus. Just during March, revenue passenger kilometers (RPK) saw the sharpest decline in recent history with a 52.9 percent drop, with Latin America falling by 45.9 percent. IATA estimated that the region was on its way to lose US$18 billion during the pandemic.

The outbreak has put Latin American and Caribbean airlines against the ropes. Just during March, the region lost 40 million passengers and over US$700 million, according to the Latin American & Caribbean branch of Airports Council International (ACI-LAC). "Right now the traffic at airports in the region is practically zero, the drop in traffic in the last week of March was 91 percent and if we exclude Brazil, Mexico and Chile, which are the only countries with some activity on domestic flights, the drop was 97 percent,” said Rafael Echevarne, Director General of ACI-LAC. Mexican airlines have also been hurt by the outbreak as domestic and international travel has fallen over the last two months, with the International Civil Aviation Association (ICAO) warning that by the end of April, airport operations had fallen by 87.2 percent in the country.