Avianca Brasil, the country’s fourth-largest airline, filed for bankruptcy protection Monday after three lessors—BOC Aviation (Ireland), Infinity Transportation, and Aircastle subsidiary Constitution Aircraft Leasing—sued the carrier for return of close to 30 percent of its all-Airbus fleet of about 50 aircraft, just at the start of the holiday and southern hemisphere summer high season. Avianca Brasil operates independently of Colombia’s Avianca Holding, though Synergy Group and the Efromovich family own both.
Avianca blames rising fuel cost, currency fluctuations, and the depressed Brazilian economy for its financial difficulties. Operationally, Star Alliance member Avianca has increased its market share from around 3 percent in 2009 to almost 14 percent in the first months of 2018, and the market is now recovering along with the Brazilian economy. Avianca offers hot meals, screens on every seatback, and a more generous seat pitch than its competitors, and in mid-2017 it began operations to Miami, Santiago, and then New York.
The bankruptcy case remains under judicial seal, which makes for conflicting reports of Avianca’s debts and even the number of aircraft and details of the repossession petitions. According to local newspaper O Estado de S. Paulo, the first to report the Chapter 11 filing, Avianca’s debts to public and private airports alone total about R$100 million ($26 million), though fuel suppliers have received their payments. Other reported creditors include hotels that host crew. Regulatory filings indicate the airline’s bank debt grew at least 50 percent in 2018.
Avianca Brasil had decided in August to reduce its fleet by eight aircraft and began negotiations to return airplanes to lessors. Missed payments followed. Avianca said in a statement that “due to its aircraft lessors’ resistance to reaching a friendly agreement,” it filed the petition to protect its clients and passengers.
Several years ago, when Brazilian airline workers’ unions routinely struck for higher pay, they always picked mid-December as threatening maximum disruption while still offering time for agreement. With a new president set to take power on New Year’s day, the threat of chaos appears well timed to unlock government concessions.
Avianca Brasil has long taken creative approaches in a difficult market. It began as a charter firm, when the Efromovich family accepted two aircraft as settlement of a debt by a client of their shipyards, and then in 2002 became a discount airline under the name Ocean Air. When accidents gave a bad name to the Fokker 100, the backbone of Ocean Air’s fleet, Germán Efromovich re-baptized his airplanes as the MK-28. But the shipyards had as a major client Petrobras—the focus of the ongoing “Car Wash” corruption scandal—and like all Petrobras suppliers they have suffered.
Last week United Airlines extended a loan of $456 million to Synergy Group, which controls Avianca Holdings. The loan to Synergy offers Efromovich more flexibility than would a loan to the Colombian-based Avianca. With an increasing share of a growing market and nearly half a billion dollars in hand, Avianca Brasil appears a good candidate to display the entrepreneur’s creative flexibility.