South American airline Avianca Holdings filed for Chapter 11 at a court in New York South to restructure its debts and subsidiaries, the airline announced on May 10. It has appointed a group of advisors like Seabury Securities and FTI Consulting to assist the airline, while Kurtzman Carlson Consultants will oversee claims and act as noticing agent for debtors.

The step follows on the difficult situation in which Avianca finds itself since it been forced to ground all operations on March 25 after 88 percent of its markets imposed Covid-19 travel and restrictions. No date for resuming of services been set as some restrictions in for example Argentina will last until September. Even when flights will resume, Avianca expects both the domestic and international market to change for a prolonged period.

“Despite the positive results yielded by our ‘Avianca 2021’ plan, we believe that in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges”, CEO Anko van der Werff said. The holding presented numerous motions to the New York court that will be decided on during a first hearing later on Monday. After that, a reorganization plan will be formulated that needs consulting with all interested parties.

Avianca is still in negotiations with the government of Colombia and other countries about state aid to bolster liquidity. This would help it through the Chapter 11-restructuring phase and allow the airline group to emerge of it leaner and meaner. It intends to pay its 21.000 staff (placed in furlough), vendors, suppliers, and travel agency parties. Under the Avianca 2021 plan, the airline was in the midst of a restructuring plan to redesign its network to 76 destinations, refinance its debts and raise $375 million in new financing. Avianca posted $3.9 billion in revenues in 2019 and an EBITDAR of $787 million. Its cash position been carved out quickly in recent weeks.

Avianca stresses that it is not going out of but opted for Chapter 11 as it is a widely-known instrument that has helped many airlines in the past. Avianca has been there before in 2003. However, in the first step of its restructuring plan, Avianca will wind down Avianca Peru.

One of the court petitions covers the request to reject payment of aircraft leases and abandon aircraft. Avianca a fleet of 143 passenger aircraft, 13 cargo aircraft, and 15 turboprops, mostly Airbus. A list of excess aircraft includes two A330-300s, two A321s, seven A320s, two A319s, and one Boeing 787-8 sourced from various lessors and investors.
In 2019, Avianca already sold ten A138s, A320s, and ten Embraer E190s for $100 million. The sale of two A330s, two A319s, and sale and lease of fifteen A320s were announced at the Q4-results presentation.

Avianca has five A320neo’s and A321neo’s, with deliveries of 35 more deferred to 2025 last year. Back then, the airline canceled orders for seventeen neo’s to reduce Capex by $2.6 billion. The airline signed the MoU in 2015 for 92 A320neo’s, fifteen A321neo’s, and twenty A319neo’s, but the order for the smallest neo-version was subsequently canceled.

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