Avianca: Chapter 11

BOGOTA, Colombia, March 21 (Reuters) – Struggling Colombian airline Avianca and its U.S. subsidiary of the same name have filed for Chapter 11 bankruptcy protection in the United States to restructure up to $130 million in debt, a top official said on Friday.

The loss-making company will also cut some routes to cope with the effects of rising fuel prices, more expensive insurance premiums and falling demand, said Juan Emilio Posada, the head of Alianza Summa, which controls Avianca.

“The protection could last for months or years. We hope that in approximately eight months we will emerge again from the protection offered by Chapter 11,” Posada told Reuters, adding that as much as $130 million could be restructured.

The airline, the latest casualty in a struggling global aviation industry buffeted by sluggish economies and war fears, could cut some of its 3,000 staff, out of Summa’s total 7,500, he said.

The other airlines controlled by Summa, ACES and SAM, will not be seeking Chapter 11 protection, which allows companies to propose a restructuring plan to a U.S. court while continuing to operate.

The Colombian airline should have its restructuring plan ready within 40 days, well ahead of the 120-day legal limit, according to Posada.

Avianca, which joined up with SAM and local rival ACES last year to form Summa, dominates aviation in Colombia, but has also been hit by a depreciation of the peso, which has pushed up fuel costs. Deep political and economic crises in Venezuela and Argentina and Colombia’s guerrilla war have hurt demand for air tickets.

Summa is owned 50-50 by Colombian conglomerate Valores Bavaria VBS.CN and by the National Coffee Growers’ Federation.

Avianca lost about $35 million in 2002, down from about $94 million the year before, according to preliminary company figures due to be presented at a shareholders’ assembly at the end of March.

The carrier’s 10 main domestic routes saw traffic fall by 14 percent in the 12 months to this February and international traffic declined by 13 percent.

Summa has a total debt of about $300 million, including pension liabilities, of which some $270 million correspond to Avianca.

Valores Bavaria, which is itself controlled by businessman Julio Mario Santo Domingo, has pumped about $320 million of fresh capital into Avianca in the past two years, but has indicated it expects the company to begin to support itself now that it is part of Summa.
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