Avianca’s bankruptcy reorganization got a big boost on Tuesday with 99 percent of its creditors backing the Colombian carrier’s restructuring plan.
Supporters include partner United Airlines, which will see its outstanding loans to Avianca converted to a roughly 16.4 percent equity stake in the carrier, as well as the unsecured creditors committee. The backing by the vast majority of creditors provides added support to U.S. bankruptcy court judge Martin Glenn signing off on the plan.
At a confirmation hearing on Tuesday, Glenn closed the record to new evidence and gave the few objectors to the plan until Thursday, October 28, at 5 p.m. Eastern Daylight Time to file any comments to the issues raised during the hearing. Glenn called the final plan a “moving target” as he was not able to review the final revisions to the plan that were filed overnight on Monday.
A rumored merger with Chilean discounter Sky Airline was not discussed Tuesday. A deal would be driven by private equity firms Caoba Capital and Elliot Investment Management, which are set to acquire a majority stake in Sky, according to reports. Several Caoba executives either sit on the Avianca board or on those of its creditors, while Elliot holds an undisclosed share of the carrier’s debtor-in-possession financing that will convert to equity under the plan.
Avianca plans to pivot from its roots as a high-cost legacy carrier to a hybrid airline focused on primarily leisure travelers. That includes adding seats to its Airbus A320-family jets to come close — but not match — to the density on planes flown by ultra low-cost carrier competitors, and leveraging its partnership with United and expansive loyalty program to woo travelers. Avianca is also broadening its route map with dozens of new nonstops from secondary bases, including Medellin and San José, Costa Rica, to offer flyers more options and increase aircraft utilization.
Avianca has extended its partnership with United through September 2025, according to court documents. In addition, the carriers, along with Copa Airlines, continue to discuss their planned joint venture covering U.S.-Latin America flights.
“There’s a lot of energy and enthusiasm around this business plan,” said Evan Fleck, a partner at Milbank who represents Avianca, during the hearing.
Speaking earlier in October, Avianca CEO Adrian Neuhauser said the new business plan would help the airline recover from what he sees as an at least 50 percent structural drop in business travel after the pandemic.
“We don’t want to lose our historical customers — we want to keep a differentiated product to address them but on the other hand we have to acknowledge that our competitors have a much lighter product. So we try and find that balance,” he said.
Avianca will emerge from Chapter 11 a smaller carrier. The airline will shed 37 passenger aircraft, including all of its ATR turboprops, for a total of 110 passenger jets — 12 widebodies and 98 narrowbodies — at exit compared to when it filed in May 2020, and it closed its Peruvian subsidiary. Avianca also shrank its workforce. Combined, the carrier estimates that unit costs excluding fuel will be roughly 41 percent lower in 2023 compared to 2019.
The airline maintains outstanding orders for 88 A320neo-family jets due from 2025-29, and two Boeing 787-9s due in 2024.
Avianca was the first major Latin American carrier to file for Chapter 11 bankruptcy in the U.S., in May 2020. It was followed by Latam Airlines Group — the largest airline in Latin America — and Aeromexico. The former has yet to file a reorganization plan and is seeking an extension to November 26 from the court, while the latter submitted its plan at the end of September.