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The Government’s decision to approve a loan for Avianca Holdings of up to $ 370 million over 18 months, with resources from the Emergency Mitigation Fund (Fome), not only unleashed criticism and suspicions in social networks, Congress and other sectors of opinion, but has also generated a debate that still does not stop and that, on the contrary , intensifies.
Despite the controversial announcement, to make the decision, the Ministry of Finance, with the help of local and foreign advisers, put on the balance the effects on the economy of giving credit or not, with a detailed analysis.
(It may interest you: ‘Avianca’s credit has guarantees’: Minhacienda)
The result, according to the Ministry of Finance, showed that in the event that the company ceases to operate due to not obtaining financing for its restructuring under Chapter 11 of the United States Bankruptcy Code (international legislation attended by firms from all over the world) world), the cost to the economy would be 20 trillion pesos, due to impacts not only on tourism and travelers, but also on the loss of connectivity for trade and export in cargo flights of various Colombian products, which for example, in the In the case of flowers, it represented sales to the sector for 897 million dollars last year and 584.9 million dollars as of July, in this pandemic year, according to Dane.
The Vice Minister of Finance, Juan Alberto Londoño, indicated that the decision was also framed in a global context (see attached note), in which various countries have had to use public funds to go to the rescue of the main airlines, in order to to maintain its internal and external connectivity.
“From the government’s perspective, the important thing is to guarantee the public air transport service for Colombia,” Londoño explained to the media this week.
(In addition: Comptroller’s Office investigates the credit that the Government gave Avianca)
Although Avianca Holdings is a parent company based in Panama, its main operation is in Colombia through Avianca SA and other companies such as Deprisa or Avianca Cargo and, according to the Ministry of Finance, having a market share greater than 50 percent. cent, an eventual cessation of operations would have a negative impact on a chain of 500,000 jobs derived from air transport.
According to Vice Minister Londoño, the airlines were told that in order to request the evaluation of State aid they should enter into reorganization processes, because under this figure it can be established that the country has priority of payment in the loans it grants them.
The company explains that, of those 2,000 million dollars, there is a first tranche, 1,300 million dollars, which is debt financing.
In the case of Avianca Holdings, the figure of up to 370 million dollars was reached after the company obtained 1,630 million dollars with investors to leverage a plan for 2,000 million dollars, under the figure of debtor in possession (DIP, for its acronym in English).
The company explains that, of those 2,000 million dollars, there is a first tranche, of 1,300 million dollars, which is debt financing, and Colombian government credit is part of this structure (the rest will be provided by international financial institutions and Avianca Holdings bondholders), while the second tranche, of 700 million dollars, is a debt convertible into shares.
(Also read: ‘Loan means that we are going to pay’: Avianca)
Sector controversy
To the airlines that have not entered into restructuring, the Ministry of Finance has told them that it gives them a guarantee from the Nation to go to the financial sector, but this week, the executive president of Viva Air Group, Declan Ryan, told Bloomberg that the Government has had preferential treatment with Avianca and that the approved amount is excessive compared to the aid offered to other airlines, including Viva, which two months ago announced that it was seeking a loan from the Government of 50 million dollars.
“We accept that Avianca is larger than the rest of the airlines, including Viva, but there is no proportionality with the amount of money they will receive“Said Ryan, adding that he would understand the situation if they were offered 1.5 times what they were proposed,” but proportionality in this case does not make sense. “
(We recommend you read: Viva Air criticizes the ‘unfair treatment’ of the Government in credit to Avianca)
In turn, sectors such as the workers’ centrals and analysts criticized the loan. One of them was former minister Cecilia López, who believes that although the country cannot be left without an airline like Avianca, compared to other countries, the money that Colombia is allocating to serve the vulnerable population affected by the pandemic is minimal. Even protests have been called, arguing reasons such as this credit, for which the Minister of Finance, Alberto Carrasquilla, will be summoned to a debate on political control in the Senate.
Meanwhile, although it withdrew the request it had made to the Government when obtaining the funds from private investors, EL TIEMPO learned that Latam Airlines had asked the Ministry of Finance for a loan of 117 million dollars, an amount that was part of a package requested to the countries where it operates. On the other hand, Vice Minister Londoño revealed that the loan of 14 million dollars, requested by EasyFly (in reorganization in Supersociedades), will be analyzed.
We accept that Avianca is larger than the rest of the airlines, including Viva, but there is no proportionality with the amount of money they will receive
Keys to loan guarantees
– If the insolvency judge does not endorse the restructuring, the credit is not granted.
– As guarantees of the DIP loan is the participation in Lifemiles, Avianca Cargo and cash accounts, among others.
– By being part of Chapter 11, the Government has priority in the payment.
– The resources do not go to the partners, but to the firm.
– The judge monitors what resources are invested in.
(Also: mobilization against protection floor and loan to Avianca are called)
In the world, 39 countries have given aid to the sector
Data from the International Air Transport Association (Iata) show that in Latin America, which in July had a 5.1 percent share in the world passenger market, Demand fell 87.5 percent in July, which has led to a slump in airline revenues and heavy losses.
In the world, according to this entity, to date, more than 92,000 million dollars have been allocated as aid from governments to airlines, and 39 governments have delivered direct bailouts in the form of credit guarantees, reimbursable aid and non-reimbursable aid.
In the United States, the sum goes to 29,000 million dollars, in Spain the figure reaches 1,400 million dollars and in Germany the value exceeds 12,600 million dollars. Now, in this context, Avianca Holdings will receive the 370 million dollars once the restructuring judge endorses the process.
You may also be interested in:
– Duque’s defense of the loan for Avianca
– Avianca says that government loan is confidence in the airline
– ‘Avianca’s credit has guarantees’: Minhacienda
ECONOMY AND BUSINESS
