Mon 05/11/2020 11:43 AM
Relevant Documents:
Voluntary Petition
First Day Declaration
Case Management Procedures
First Day Hearing Agenda
Press Release

Colombian airline Avianca Holdings, Latin America’s second-largest airline carrier, and several affiliates filed chapter 11 petitions on Sunday, May 10, in the Bankruptcy Court for the Southern District of New York, reporting about $7.27 billion in assets and $7.26 billion in liabilities. The company attributes the filing primarily to the Covid-19 pandemic, stating in a press release that the “speed and scale” of the “unforeseeable impact of the Covid-19 pandemic,” together with the grounding of all of Avianca’s scheduled passenger operations since mid-March, has reduced its consolidated revenue by over 80% and placed significant pressure on its cash reserves. Additionally, the debtors faced a May 10 maturity of their $65.6 million holdout notes.

Avianca reported $473.6 million of cash and cash equivalents as of March 31, with $169.5 million in control accounts or otherwise unavailable. The debtors intend to fund the chapter 11 cases in the near term and are not seeking approval of any debtor-in-possession financing. However, Avianca’s cash burn is projected to be “significant,” and the debtors say they may need a “substantial infusion” of new capital, whether in the form of debtor-in-possession financing and/or exit financing, and are exploring various liquidity opportunities to fund the plan and the ultimate emergence (emphasis added).

According to the first day declaration of Adrian Neuhauser, Avianca Holdings’ CFO, upon lifting of the flight restrictions imposed as a result of Covid-19, the company expects its flight operations to resume on a relatively modest basis, with an initial focus on Colombian domestic markets. Subsequent rebuilding stages will likely include the use of narrow-body aircraft for flights within South and Central America, followed by a broader flying pattern in the United States and Europe, as well as the implementation of wide-body planes, the declaration says.

Neuhauser indicates that as a result, the debtors are likely to have a “significant surplus” of owned and leased aircraft and will seek to reject numerous aircraft leases at the outset of the case while also entering into negotiations with certain aircraft lenders and lessors vis-a-vis other aircraft that may not be suitable retention candidates (emphasis added). Further, Neuhauser states that absent a successful renegotiation process Avianca will seek to reject additional aircraft leases and/or turn over certain aircraft to their secure lending parties (emphasis added).

A list of aircraft Avianca is seeking to reject can be found in the debtors’ aircraft lease rejection motion, described below.

The debtors anticipate that while the airline industry will eventually recover, the process will be slow. Air travel demand is expected to stabilize at 20% to 30% below pre-Covid 19 levels.

The first day hearing has been scheduled for today, May 11, at 2 p.m. ET, with Judge Martin Glenn presiding.

The company’s prepetition capital structure includes:
  • Secured debt: $5.272 billion.
  • Unsecured debt: $107.7 million (excluding $275 million unsecured trade payables, over $1.4 billion aircraft lease obligations with $765.9 million payable over the next three years, and over $2.3 billion financed aircraft obligations with $1.024 billion payable over the next three years).
  • Equity: Negative shareholder equity of $116.8 million.
A capital structure is shown below:
Avianca Holdings
EBITDA Multiple
(USD in Millions)
Bank Loans, ECA Guarantees (Finance Leases - Aircraft Debt)
Kingsland, United Stakeholder Loan 1
Additional Secured Convertible Loans 2
Citadel Notes 1
LatAm Bridge Loan 1
Additional Secured Debt
9.000% Senior Secured Notes
Total Secured Debt
Holdout 2020 Notes
Unsecured Credit Lines
Total Unsecured Debt
Total Debt
Less: Cash and Equivalents
Plus: Restricted Cash
Net Debt
Plus: Market Capitalization
Enterprise Value
Operating Metrics
Plus: Cash and Equivalents
Less: Restricted Cash
Total Liquidity
Credit Metrics
Gross Leverage
Net Leverage

Capital structure based on May 10 first day declaration; EBITDA as of FYE 2019
1. Coupon is PIK
2. Coupon is PIK; additional syndicated loans secured by credit card receivables ($237.9 million); revolving credit facility secured by airport slots, cargo receivables, and one aircraft ($100 million); Credit Agricole loan secured by spare engine parts ($58.7 million); Banco do Bogota loan secured by real property in Colombia ($25.7 million); Nord LB loans ($64.8 million)

Avianca says that to the best of the debtors’ knowledge, prior to petition date there were no committees formed to participate in the ongoing restructuring efforts.

According to Neuhauser, the obligations of Avianca Holdings and the obligors under the stakeholder facilities are secured by pledge agreements in respect of Avianca Holdings’ equity interest in certain subsidiaries, including LifeMiles, Avianca’s mileage program. The loans from Latin American investors have substantially the same terms as the stakeholder loan.

The debtors’ first day declaration highlights Avianca’s importance to Colombian domestic air travel and anticipates that the Republic of Colombia may be a key stakeholder in Avianca’s restructuring efforts, with El Salvador and Ecuador and potentially Peru playing roles as well.

According to the company’s press release, in parallel to its chapter 11 filing in the United States, Avianca also intends to “commence a wind-down of its operations in Peru pursuant to local laws.” The debtors say that this decision “supports essential right-sizing efforts and will allow Avianca to renew its focus on core markets” upon emergence from bankruptcy.

Avianca started reducing flights within Peru's domestic aviation market in February 2019.

For the 30-day period following petition date, Avianca said it expects $111.9 million of cash receipts and $117 million of cash disbursements.

The debtors’ five largest secured creditors are listed below:

The debtors have appointed Milbank as general bankruptcy counsel, Urdaneta, Velez, Pearl & Abdallah Abogados as Colombian restructuring counsel, Gómez-Pinzón Abogados SAS as Colombian corporate counsel, Smith Gambrell and Russell LLP as aviation counsel, and Seabury Securities LLC as financial restructuring advisor and investment banker. Further, FTI Consulting Inc., as financial advisor, will execute appropriate retention agreements and pay appropriate retainers. KCC is the claims agent.


Avianca is the second-largest airline group in Latin America, established in 1919, and provides air travel and cargo services in the LatAm market and around the globe. Avianca is a member of the world’s largest global airline alliance, the Star Alliance, and is also a “code-share” partner of United Airlines, the first day declaration says. The first day declaration explains that Avianca had to file chapter 11 for “one principal reason” - because of the Covid-19 pandemic, which has resulted in the grounding of about 70% of the world’s passenger fleet.

According to Neuhauser, “Avianca has been able to establish itself as a combined network of several Air Operator Certificates (AOCs) operating what is in effect numerous airlines, under a single brand.” Further, the declaration says, Avianca’s separate businesses are confined to independent corporate entities, most of which are debtors. The debtors operate an “extensive network of routes” from their primary hubs in Bogotá and San Salvador (in addition to other focus markets) and “offer passenger services on more than 5,350 weekly flights to more than 76 destinations in 27 countries,” Neuhauser states. The company has about 21,556 employees worldwide, 22.5% of which are unionized in Colombia, while outside of Colombia employees are represented by six unions.

The first day declaration explains that on March 20, Colombia announced it would close its airspace. On March 24, the debtors announced that they were suspending all passenger flights until at least the end of April. The situation has been extended and is ongoing. No date has been established for the resumption of flights, but Neuhauser says that the debtors expect to “proceed with deliberate caution to avoid ramping up flight operations in a manner that may significantly exceed possible passenger revenues.”

However, the beleaguered airline’s troubles began before the Covid-19 crisis. The first day declaration explains that under previous management, the debtors and their controlling stakeholders incurred significant debt to increase capacity, which ultimately outpaced demand in Colombia and other principal markets and resulted in an unsustainable level of debt service.

In the first half of 2019, Avianca defaulted under loan agreements that the then-controlling shareholders had with United Airlines, triggering cross-defaults under other obligations in mid-May 2019. United initiated an enforcement action, seeking to take control of 78.1% of Avianca Holdings’ common shares. Then, United Airlines appointed Kingsland Holdings Ltd. as manager of Avianca’s then-controlling shareholder, BRW Aviation, and BRW lost the right to direct the manner in which BRW voted its shares, pursuant to the share pledge.

In July 2019, Avianca launched a debt reprofiling, extending the maturity on the 2020 bonds and securing $375 million of long-term financing from stakeholders and other financing parties in addition to deferrals or other consents or waivers from creditors holding about $4.5 billion of debt and lease obligations. Further, Avianca raised $159 million of cash over the first quarter of 2020 from sale-leaseback transactions.

In November 2019, the debtors carried out an exchange of about 88% of the total outstanding on its 2020 notes and a subsequent mandatory automatic exchange for new 9% senior secured notes due 2023. The exchange resulted in about $65.6 million in holdout notes, which matured on the petition date.

As of Dec. 31, 2019, Avianca operated 156 aircraft comprising 143 jet passenger aircraft and 13 cargo aircraft, excluding 15 turboprop planes. The first day declaration says Avianca’s passenger fleet is one of the youngest among Latin American airlines, with an average age of 7.3 years.

The debtors’ business also includes the LifeMiles loyalty program, which is one of the largest in Latin America, according to the first day declaration. LifeMiles had 9.7 million members as of Dec. 31, 2019, and 586 active commercial partners. LifeMiles operates as a separate entity and is not a debtor in the chapter 11 cases.

Avianca adopted the “Avianca 2021” plan to improve its business commercially and operationally. The plan eliminated unprofitable flying, increased the Bogota hub, expanded international operations, implemented branded fares and the sale of ancillary products, and accelerated the growth of the LifeMiles program.

Avianca operates over 768 daily flights to 76 destinations in North America, Central America, South America and Europe. The company provides its passengers with access to flights to about 140 destinations and 216 additional routes through code share arrangements with Aeroméxico, All Nippon Airways, Air China, Air India, Air Canada, Azul, COPA, Etihad, EVA Airways, Gol Linhas Aereas, Iberia, Lufthansa, Silver Airways, Singapore Airlines, Turkish Airlines and United Airlines.

A distribution of passenger revenue is below:

Avianca’s cargo business is operated by Tampa Cargo SAS, which does business as Avianca Cargo in Colombia. Avianca Cargo represented the largest cargo carrier in gross tons in Colombia, with a 40.1% market share. Cargo sales accounted for 11.4% of 2019 revenue.

The company’s contractual deliveries for its fleet plan is below:

Avianca has already reduced firm commitments with Airbus to 88 A320neo aircraft from 108, and canceled or deferred A320neo deliveries in 2020 through 2024. Further, the company entered into 12-year operating leases with 10 firm A320neo aircraft deliveries with BOC Aviation, and during December 2019 Avianca reached a mutually beneficial agreement with Boeing regarding outstanding 787-9 deliveries. Avianca said additional fleet rationalization is being considered.

The debtors’ corporate organizational chart is below:
(Click HERE to enlarge.)

The debtors' largest unsecured creditors are listed below:
10 Largest Unsecured Creditors
Creditor Location Claim Type Claim Amount
Wilmington Savings Fund
Society FSB
Wilmington, Del. Bond Unliquidated
Citibank NA Bogota, Colombia Loan Unliquidated
Banco de Bogota Bogota, Colombia Loan Unliquidated
Wilmington Savings Fund
Society FSB
Wilmington, Del. Bond 65,581,000
IAE International Aero
Engines AG
East Hartford, Conn. Maintenance 36,088,520
Banco Davivienda Bogota, Colombia Loan 33,433,678
General Electric & CFM
Cincinnati Maintenance 33,427,319
Rolls Royce PLC London Maintenance 28,301,046
SMBC Aviation Capital Dublin Lessor 10,989,992
SAP Colombia SAS Bogota, Colombia IT Systems
and Services

The case representatives are as follows:
Role Name Firm Location
Debtors' Counsel Dennis F. Dunne Milbank New York
Evan R. Fleck
Gregory Bray Los Angeles
Debtors' Colombian
Restructuring Counsel
N/A Urdaneta,
Velez, Pearl
& Abdallah
Debtors' Colombian
Corporate Counsel
N/A Gómez-Pinzón
Abogados SAS
Debtors' Aviation
N/A Smith
and Russell
Debtors' Investment
N/A Seabury
Debtors' Financial
Debtors' Claims Agent Robert Jordan KCC New York

Motion to Reject Certain Aircraft Leases

The debtors seek to reject leases in connection with certain aircraft and abandon certain other owned aircraft that they have determined are not in the best interests of their estates. The debtors contend that the owned aircraft they seek to abandon are burdensome to the estates because they are not required under the debtors’ business plan and the debtors do not have any equity in any of the owned aircraft. “The evaluation of Excess Aircraft included considering (1) whether each aircraft is surplus in a post-COVID-19 demand environment, (2) whether each aircraft is optimally suited for post-COVID flight operations from the Debtors’ Bogotá hub, and (3) whether each aircraft exposes the Debtors to risk of carry cost,” notes the motion. The debtors highlight that rejection of the applicable leases effective as of the petition date will result in “a significant annual cost savings” for the estates.

Exhibit C to the motion lists the aircraft leases the debtors seek to reject as part of the first day relief.

Other Motions

The debtors also filed various standard first day motions, including the following:
  • Motion for joint administration
    • The cases will be jointly administered under case No. 20-11133.
  • Motion to authorize entry into hedging and derivative contracts
    • The debtors are currently party to 11 interest rate swaps with two financial institutions. As of the petition date, on a mark-to-market basis, the debtors have approximately $1.8 million in exposure under their interest rate swap portfolio.
    • The debtors are not party to any foreign currency derivative contracts in light of their grounded operations but may enter into such agreements during the course of the cases.
  • Motion to authorize debtors to assume certain agreements related to airline clearinghouses
    • Certain of the debtors are parties to various agreements, which they seek authorization to assume, including (i) multilateral agreements with, or administered by, the International Air Transport Association, or IATA; (ii) the Air Transport Association of America, or ATA, membership agreement; and (iii) more than 80 bilateral interline agreements with other airlines.
    • The debtors estimate that, as of the petition date, they owe approximately (i) $200,000 on a net basis under the Star Alliance agreements; (ii) $300,000 on a net basis under frequent flyer agreements; and (iii) $1 million on a net basis under other agreements that are settled through the clearinghouses.
  • Motion to authorize payment of prepetition fuel relationship parties
    • The debtors estimate that as of the petition date, they owe, in the aggregate, approximately $16.8 million to fuel suppliers, $190,000 to the Into-Wing service providers and approximately $80,000 to the Fuel Consortia service providers.
  • Motion to authorize payment of outside maintenance, service providers
    • The debtors estimate that, as of the petition date, the amount of outstanding obligations owed to outside maintenance and service providers is approximately $30 million. Additionally, the debtors estimate that they owe approximately $3 million and $2 million on account of prepetition claims from shippers and contractors, respectively.
  • Motion to pay foreign creditors
    • The debtors request that they be authorized to pay $19 million in prepetition amounts ($9 million on an interim basis) owed to foreign creditors.
  • Motion to pay employee wages and benefits
    • The debtors expect about $15.3 million of employee obligations will come due in the first 30 days of the chapter 11 cases.
  • Motion to use cash management system
    • Avianca says its cash management system’s main components include: i) cash collection, including collecting revenue through ticket and other sales; ii) cash transfers among the debtors and certain nondebtor affiliates, and iii) cash disbursements to fund the debtors’ business operations and related obligations.
    • The debtors’ key bank accounts are with Banco Santander, Citibanamex, Banco de Bogotá, CaixaBank, Bancolombia, Banco Cuscatlan, Banco de America Central, Banco del Pacifico, Banco de Credito del Peru, Banco de la Nacion del Peru, Scotiabank Colpatria, Davivienda, Banco Lafise and Produbanco.
  • Motion to honor prepetition obligations to customers, travel agents and tour operators
    • As of the petition date, the debtors had booked approximately $7.33 million as a liability for the LifeMiles program, representing approximately 2.77 billion unredeemed reward miles; accrued but unpaid travel agency commissions (including commissions to general sales agents and third-party travel websites) for prepetition passenger ticket sales total approximately $6.1 million.
    • The debtors request that the court modify the automatic stay to the limited extent necessary to permit the travel agents, ARC, and BSPs to follow their normal setoff and processing procedures in respect of undisputed claims in the ordinary course.
  • Motion to establish procedures for reclamation claims
  • Motion to pay 503(b)(9) claims
    • The debtors estimate that they owe 503(b) claimants an aggregate total of $3 million as of the petition date.
  • Motion to pay taxes and fees
    • The debtors owe approximately $156.6 million on account of accrued, unpaid prepetition taxes and fees, $112.8 million of which is categorized as airline taxes and fees from various jurisdictions.
  • Motion to maintain insurance programs
  • Application to appoint Kurtzman Carson Consultants LLC as claims agent
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