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Actually, Avianca’s bad hour started a couple of years before the pandemic.
Last December, Avianca celebrated its 100th anniversary with announcements of new routes, concerts at airports and flights, and the issuance of commemorative stamps in alliance with the Iván Duque government.
“Avianca has become a symbol of Colombia before the world,” celebrated the Executive at that time.
Five months later, the economic crisis caused by the coronavirus pandemic, which has 90% of the world’s planes stopped, led the largest airline Colombia to default.
- Colombian airline Avianca files for bankruptcy in the US due to the economic impact of the coronavirus
On Sunday, when the term of some debt payments was fulfilled, the company requested to file for Chapter 11 of the Bankruptcy Code of the United States, a figure that seeks to defend creditors in that country and gives incentives to companies with contracts there to not having to close operations.
The company, which has subsidiaries in Ecuador, Brazil and Honduras, among other countries, announced the liquidation of its operation in Peru, the first concrete consequence of bankruptcy. The pandemic has meant an 80% drop in company revenue.
However, by joining the famous chapter 11 Avianca hopes resume your flights when the pandemic ends. Bankruptcy allows you to maintain control of your operations and earn close to a year to renegotiate a total debt estimated at US $ 7,000 million.
- When and how airlines will fly again in the world and in Latin America
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90% of the planes in the world are still. Avianca’s are no exception.
One of the mechanisms that has been proposed to save the company is a rescue from the Colombian government.
The idea, apparently raised by the company according to local media leaks, generated strong controversy in a country that tries to cope with the pandemic between poverty, inequality and informal employment.
Defenders of a bailout argue that the social and economic impact of Avianca’s disappearance, which they consider a “strategic asset” for the country, would be catastrophic.
Detractors see it as an award to a company that is no longer Colombian -and every now and then stars scandals of customer abuse- by a government of technocrats who, they say, “governs for businessmen.”
Duque (whose sister, Maria Paula, is Avianca’s vice president for strategic relations), who was chosen by the private sector, has neither rejected nor accepted the initiative. But, with bankruptcy, the debate will continue.
Ups and Downs History
Avianca employs 21,000 people, of whom 14,000 are in Colombia. It is the second largest airline from the region after the Chilean Latam; It has 176 aircraft, operates to 150 destinations and has so far offered 5,100 weekly flights.
The brand is registered in the memory of Colombians, partly because in 1973 their emblematic building in Bogotá caught fire and in 1990, the drug traffickers shot down one of their planes.
According to Skytrax, an aeronautical consulting service, Avianca is the best airline in Latin America. But in other critical portals, such as the Official Aviation Guide, it registers as one of the most delays and complaints in the region.
It is not the first time that the airline has filed for bankruptcy before the US court, although this is, according to its president, Anko van der Werffa, “the most challenging crisis in our history”
Actually, airlines like Delta, American and United entered this process during the post-2008 crisis.
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The aeronautical sector is one of the most affected by the coronavirus pandemic.
The last emergency of this magnitude for Avianca was in 2003, when the renegotiation process resulted in the purchase of the majority of the shares by businessman Germán Efromovich, who still owns the majority today, but lost control of the board.
The Brazilian wanted to turn Avianca into a “Latin American airline“, it invested in Bogotá and San Salvador as the main connection centers, developed satellite airlines in Peru, Argentina and Brazil and allied with the US giant United Airlines.
The airline, whose headquarters was transferred to Panama, shot up during the first decade of the century.
But towards 2017, with the slowdown in the Latin American economy, the problems reappeared: the operations in Brazil were a failure and the company had to accept a bankruptcy law; the crisis in Argentina contracted demand for low-priced domestic flights; and an old and deep conflict with the aeronautical union in Colombia meant delays, protests and the firing of dozens of pilots in 2018.
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Germán Efromovich has been the head of Avianca since 2003 but in recent years he lost his position on the board.
“Before the 1980s the global market was compartmentalized and there was no open skies policy,” economist Salomon Kalmanovitz tells BBC Mundo.
“But that changed in the 1990s, full competition opened, prices fell and Avianca was never able to adapt to this new scenario.”
“Between 2003 and 2015 they performed well and that gave it wings to expand, but the crisis punishes her very hard because the story was believed that the boom of that time, generated by the boom in raw materials, low taxes and total openness, was forever, “he adds.
Kalmanovitz, who wrote a column of The viewer criticizing the state rescue, he recalls that Avianca has always had a participation, sometimes majority, of foreign businessmen.
Less Colombian than her reputation
Avianca was created on December 5, 1919 and was called the Colombian-German Air Transport Society (Scadta). The promoters were three Germans and six Colombians who were part of a group of investors in Barranquilla, the port city in northern Colombia closest to the Panama Canal.
By then, the only profitable airline in the world was the Dutch KLM.
According to an investigation by the historian Luis Eduardo Rosemberg, the arrival of Nazism to power in 1933 had a certain impact on Scadta, because the German government wanted to use it as part of its geopolitical strategy in the region.
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One of the strongest crises in recent years was the pilots’ strike in Colombia, which demanded better conditions and safety. Most were fired.
Some of the company’s German founders, moreover, seemed to show sympathy with National Socialism.
In the late 1930s, according to records of the time, the US government pressured Colombian President Eduardo Santos to nationalize Avianca and strip the Germans of their stake in the company.
Thus, in June 1940, the company was renamed Avianca. It was a Colombian company whose main shareholder, however, was the US government through Pan Am Airlines.
Over time the shareholding changed, it passed through the portfolio of the main millionaires in Colombia and, in 1975, it remained in the hands of the most powerful company in the country at that time: the Santo Domingo Group, owners of breweries, television channels and customs services, among other things.
“Avianca for years he enjoyed state protectionism, which limited competition, gave it a monopoly on the mail and rescued it when it needed to, but when the free market arrived in the 1980s and 1990s, it never knew how to adapt, “concludes Kalmanovitz.
Under the reins of the Santo Domingo, in 2003 Avianca went bankrupt. And now, with the coronavirus, history repeats itself.
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