Avianca Gets $370M Loan From Colombian Government

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Avianca, the flag carrier of Colombia, received a confirmation from the country’s government over the weekend that it would receive a $370M loan from a disaster fund.

Avianca Holdings, a company based in Panama, filed for bankruptcy protection back in May (read more here) and was seeking more than a billion USD from the government.

You can access Avianca here.

Here’s an excerpt from the Reuters:

Colombia’s government said on Saturday it will extend up to $370 million in loans to Avianca (AVT_p.CN), amid the airline’s Chapter 11 bankruptcy protection process in the United States.

“The operation will take place through a credit of up to $370 million in an 18-month transaction that corresponds to the estimated time the company’s restructuring process will last,” the ministry statement added.

The credit will expire in November 2021.

And here’s from Bloomberg:

Avianca, one of the biggest airlines in Latin America, filed for Chapter 11 protection in New York in May after travel bans forced the airline to ground its fleet. It reached an agreement with lenders this month for a substantial part of the $2 billion it’s trying to raise as it restructures. The company is offering one of the highest premiums yet seen on a $1.3 billion debtor-in-possession loan.

Conclusion

I was listening to a pod from Economist today where they were referring to an IATA study, which found that only 30 or so of 700 airlines could survive the current Covid-19 pandemic and travel slump without any government support.

LATAM, AeroMexico, and Avianca have all filed for bankruptcy protection. Avianca’s Brazilian arm, not directly owned by Avianca Holdings, folded last year and ceased operations.

I am still not convinced that burdening these heavily indebted airlines with even more debt is the right long term solution. At some point, the debt holders need to take a haircut or convert a significant part of it into equity, and they all need to be recapitalized.

Avianca is one of the oldest airlines in the world. I am glad that the Colombian government decided that keeping the airline around is a long term net positive for the country.

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