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Law360 (May 11, 2020, 11:09 AM EDT) -- Avianca, Latin America's second-largest airline, has asked a New York bankruptcy court for Chapter 11 protection, saying its revenues have plunged 80% since the COVID-19 pandemic grounded global air travel.
In court filings late Sunday the century-old airline said it was on the rebound from loan defaults in 2019 after overexpanding its capacity when the COVID-19 shutdowns hit, sending it into a bankruptcy in which it hopes a number of Latin American governments will play a "key role."
"We believe that a 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," CEO Anko van der Werff said in a statement Monday.
Founded in 1919, Avianca is the largest airline in Columbia and the second-largest in Latin America as a whole, with about 5,379 weekly flights to destinations in 27 countries, according to its Chapter 11 declaration. It has more than 21,000 employees, two-thirds of them in Columbia, it said.
According to the declaration, as of the filing date the company had just under $5.3 billion in secured debt, with about $3.7 billion of that secured by aircraft and aircraft engines.
In the declaration, CFO Adrian Neuhauser said that, in prior years, the company had incurred substantial debt, expanding its passenger capacity beyond market demand, culminating in loan defaults in early 2019.
In response, the company refinanced about $4.5 billion in debt, raised $375 million in new financing and launched a multiyear plan to improve profitability through measures that included shutting down unprofitable routes while expanding its Bogotá hub, Neuhauser said.
Neuhauser added the plan had begun to show results, with the company's first-quarter 2020 numbers in line with expectations, when the government of Columbia, alongside many other governments, closed its airspace in March in response to the COVID-19 pandemic.
In Monday's announcement the company said about 88% of the countries it flies to have enacted total or partial flight restrictions, forcing it to reduce wages and furlough employees.
In the declaration, Neuhauser said the company expects the government of Colombia to be a "key stakeholder" in the bankruptcy and that it also expects the governments of El Salvador, Ecuador and possibly Peru to play important roles.
In the announcement, Avianca said it was in discussions with Colombia and other governments on "financing structures" to provide it with liquidity through the Chapter 11.
"In the interim, while these discussions are ongoing, the company intends to utilize its cash on hand, combined with funds generated from its ongoing operations (such as cargo), to support the business during the court-supervised reorganization process," it said.
Neuhauser said the company plans to use Chapter 11 to "right-size" its aircraft fleet to reflect the reduced travel demand and depressed global economy it is expecting post-COVID-19.
"After the initial demand shock and slow return to service, the debtors anticipate air travel demand will stabilize at 20-30% below pre-COVID-19 levels. As a result, a significant number of the debtors' aircraft will be surplus to the business need," he said.
The announcement said the company also plans to begin winding down its Peruvian operations in order to focus on its core markets after emerging from Chapter 11.
The airline industry as a whole has been hard-hit by the pandemic and accompanying travel restrictions. Last month European airline Norwegian Air moved four affiliates into bankruptcy and a regional Alaskan airline operator filed for Chapter 11 protection.
The company has retained Seabury Securities LLC and FTI Consulting as financial advisers and Willis Towers Watson as compensation consultant.
Avianca is represented by Dennis F. Dunne, Evan R. Fleck and Gregory Bray of Milbank LLP.
The case is In re: Avianca Holdings SA, case number 20-11133, in the U.S. Bankruptcy Court for the Southern District of New York.
--Additional reporting by Vince Sullivan. Editing by Alyssa Miller.
Update: This story has been updated with more details from the company's announcement.
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