Colombia’s finance ministry said over the weekend that it would grant an 18-month loan of up to US $ 370 million to Avianca Airlines, currently pending Chapter 11 in US courts. The financing would be provided under the DIP (Debtor In Possession) financing offered by Avianca, securing the loan with a lien that takes precedence over current creditors.
The $ 370 million would be part of the entire $ 2 billion DIP package that the airline is trying to organize. Today, September 1, Avianca and other Colombian airlines began passenger flights after being grounded since March. Avianca was already in financial difficulty before the COVID-19 coronavirus pandemic.
Before being grounded due to the pandemic, Avianca, legally domiciled in Panama, held the largest market share of airlines operating in Colombia, with 45.5% of passenger traffic, serving 75 destinations, and 31 , 6% of freight traffic.
The Colombian national government justified the funding, saying the airline contributes 1.4% of the country’s gross domestic product (GDP). However, this decision is not without controversy in Colombia. Avianca, known as the Colombian airline, is legally domiciled in Panama. Viva Air, which although majority owned by Irelandia Aviation, is actually a Colombian airline (Fast Colombia SAS), founded in Colombia. Viva has asked the government for a much smaller amount (less than US $ 60 million) to mitigate the effects of the pandemic. Viva is not bankrupt and in much better shape. The airline is in expansion mode, announcing new routes and taking delivery of more than 20 new Airbus A320s.
LATAM Airlines is also bankrupt. Its Colombian subsidiary is the country’s second historic carrier. Easyfly, a local carrier specializing in connecting small towns in Colombia, is also bankrupt.
The mayor of Bogotá, Claudia Lopez, strongly condemned this decision. “Millions of unemployed people, small businesses, vendors, transit systems and territories have spent months submitting loan and bailout proposals without receiving a response. Strike the corruption and self-centeredness of which Avianca is privileged! She tweeted. Sister to Colombian President Ivan Duque, María Paula Duque is the Senior Vice President of Strategic Relations and Customer Experience at Avianca.
Millones of desempleados, microempresas, comerciantes, los sistemas de transporte masivo y los entes territoriales llevamos meses presentando propuestas de prestamos y salvamento sin recibir ninguna respuesta.
Raya con la corruption y el auto prestamo that is privileged in Avianca!
– Claudia Lopez? (@ClaudiaLopez) August 31, 2020
On Sunday, Avianca released a statement in an SEC 6-K file regarding the government’s decision:
“We are delighted that the government of the Republic of Colombia is participating in the company’s DIP funding and express our gratitude for the trust and support shown in this commitment.
As previously announced on August 13, 2020, Avianca’s DIP loan financing is expected to consist of two tranches comprising approximately US $ 1.2 billion of new funds under an overall funding facility of 2, 0 billion US dollars (including the accumulations of existing debt and the purchase counterpart) which will allow the Company to finance its operations during the period of its reorganization under Chapter 11. In addition to the commitment of the Colombian government to participate in the DIP loan – providing around 30% of the new funds, or 20% of the total DIP funding – we are also very satisfied with the positive reception that the DIP loan structure has received from third party investors party institutions which, along with existing lenders, are expected to provide a substantial majority of DIP loan funding.
Based on the substantial indications of interest received to date, we are confident in our ability to complete the syndication process and finalize the documentation within the next week. We look forward to filing an application for approval of funding in the United States Bankruptcy Court shortly thereafter, which will set out our full DIP financing package, with approval expected sometime in September. The DIP loan, which will be secured by Avianca’s key assets (including the company’s interests in its LifeMiles and cargo subsidiaries, as well as its key brands and treasury accounts) will contain certain conditions precedent to be met before withdrawing these funds. “