Why Avianca was Driven into Bankruptcy
Latin America’s second-largest Airline, ‘Avianca,’ has filed for bankruptcy. Due to the COVID–19 pandemic spread around the world, the Airline has filed a plea for Coronavirus aid from the Colombia government, which was unsuccessful. The Airline was unsuccessful in meeting a bond payment deadline, and after an unsuccessful plea request, the Airline was declared bankrupt.
However, if the Airline fails to come out of bankruptcy, the Bogota based Avianca will be the first carrier to suffer as a result of the pandemic. Since March 2020, Avianca has not flown a regularly scheduled passenger flight. Even the employees of the company are suffering a lot. It has been known that around 20,000 employees of Avianca have gone without pay through the pandemic period.
The chief executive of the company, Anko van der Werff, said: “the company is facing the high amount of crises in comparing to the last 100 years”. Another statement from the chief economist has also given a depressing statement in a news release. He said, “despite restructuring its debt in last year, the company has been debited with large no. of debts during this year.”
Aviana had declared a debt total of $7.3 billion in 2019. The Airline filed Chapter 11 bankruptcy in New York and announced that it would remain operational. In 2000, Avianca airlines was on the verge of bankruptcy when it was undertaken by Bolivian born – oil Businessman, ‘German Efromovich.’ The United States is going to lose up to $700 million in loans related to Avianca.
Reason for Bankruptcy
The management of the company told that it was focused on a cost-cutting reorganization dubbed ‘Avianca 2021’ before the crises. Even the accounting firm of Avianca, i.e., KPMG, said, ‘it doubts that the company could survive a year more.’ The share price of Avianca closed at 88 Cents in New York, from a high of more than $18 hit in 2014.
On Sunday, the company was facing a $65 million bond payment due. The analyst thought that the company is not in the position to pay off the debt. S&P downgraded the Airline to CCC status. Airline executives have also confirmed that they had not paid the due amount. They also highlighted that due to the pandemic outbreak, the company is under its worst period.
To secure emergency aid for the Colombia government, Van Der Werff had also mounted a public relations campaign. But till Sunday, none of them has been materialized. Due to the fight against Coronavirus, Avianca’s main hub – Colombia, El Salvador, and Peru have already shut down their traffic. It is the reason the Avianca airline had no fixed date to resume operations.
The company got into a tough situation after it had to cancel all its plane bookings for May. As the lockdown was increased in Colombia, the only option left with the Airline was to refund the money. Airline Avianca Brasil and Avianca Argentina also marked their exit in 2019. Avianca Colombia is the 3rd Efromovich’s Airline to shut their operations.
