Avianca Hangs On as Brazil's Air Transport Market Heats Up

 - February 20, 2019, 1:53 PM
An Avianca Brasil Airbus A320 lands at Hercilio Luz International Airport in Santa Catarina, Brazil. (Photo: Flickr: Creative Commons (BY-ND) by rghisi)

Avianca Brasil, which filed for bankruptcy protection in December, experienced another setback this week when an appellate judge lifted a restraining order against the deregistration by Brazil’s National Civil Aviation Agency (ANAC) of some of the carrier’s leased Airbus A320s at the demand of unpaid lessors. Should the agency proceed with the deregistration before an appellate panel decides on extending the protection until a creditors’ assembly in the first half of April, the resulting loss of about 30 percent of Avianca’s fleet would mean chaos for the country’s fourth-largest carrier and for passenger transport in general, just as the high-travel Carnival holiday approaches and as a new president struggles to bring order to his administration and the country. ANAC said in a statement issued Wednesday that no lessor has yet requested the deregistration of aircraft operated by Avianca, while noting the importance of assuring future compliance with the Capetown Convention.

The aviation market and Avianca’s competitors have enjoyed a boom of late; ANAC numbers show increases from 2017 to 2018 of 4.1 percent in overall passengers carried—3.3 percent in domestic traffic and 11.9 percent in international—and a 10.5 percent increase in overall freight carriage, including a 24-percent increase in international cargo tonnage. Competitor airline Gol leads gains on the São Paulo stock exchange this month, registering a 15 percent price increase. São Paulo Guarulhos International Airport finally recovered to 2014 passenger levels, in another sign that Brazil’s long recession has ended.

Avianca co-founder and former v-p Jorge Vianna replaced Frederico Pedreira as the airline’s president on February 11, and last month the airline suspended flights to Santiago, Miami, and New York as of March 31. The airline also announced a furlough and buyout program for 600 employees and has released some aircraft to lessors. Meanwhile, a workers' assembly on Wednesday rejected a union proposal for a wage reduction in March. Carrying debt in excess of $125 million, Avianca hopes to secure overseas financing before its meeting with a general assembly of creditors in April.

In December, a presidential decree raised permitted foreign capital in airlines to 100 percent, following an Open Skies agreement with the U.S. signed last March. Avianca’s slots and routes in the competitive southeastern market including São Paulo, Rio de Janeiro, and Brasilia would disappear if the airline closed. Access to those routes would prove vital to a new market entrant, as Brazilian legal and regulatory systems strongly favor established firms: after Varig ceased operations its check-in counters remained empty for months in overcrowded airports, and Azul grew by establishing a hub at underutilized Viracopos Airport and serving cities neglected by existing carriers. In December Azul and the country’s post office gained regulatory approval for an e-commerce logistics joint venture, over antitrust objections by airline competitors.