Struggling Avianca to get up to $370 million state loan
Fighting-for-survival Columbian airline Avianca (AVHOQ) is about to get the government's support. Colombian government will lend up to $370 million to the struggling carrier and will participate in the airline‘s restructuring process.
The Ministry of Finance announced that, being the largest airline in Colombia and one of the largest air carriers in Latin America, Avianca (AVHOQ) plays an important role in securing the country's aerial connections.
“With a view to guaranteeing service, air connectivity for Colombians and general economic activity, the national government will participate in Avianca’s (AVHOQ) restructuring (AVHOQ) process”, commented the Finance Ministry in a press release.
Before filing the bankruptcy, Avianca (AVHOQ) had been providing about 500,000 direct and indirect jobs, the ministry counts. Moreover, the airline was providing about $3.8 billion per year to the economy of the Andean states, that is equivalent to about 1.4% of gross domestic product. For this reason, Colombian government would not only participate in the airline’s turnaround by providing more than $370 million in loans, but would also contribute to a strategy to attract new investors, reported Forbes Colombia.
“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”, stated the Ministry of Finance and estimated that Avianca’s (AVHOQ) credit would expire until November 2021.
Before reaching the company, the loan will have to be confirmed by the Administrative Committee of the country’s Emergency Fund. After evaluation, it will have to be authorized by the judge overseeing the bankruptcy case in New York court.
According to a credit rating report prepared by Moody's Investors Service, Avianca (AVHOQ) already had significant financial liabilities in 2019. As the COVID-19 pandemic hit the aviation industry worldwide and Colombia implemented a strict lockdown, the airline was able to operate only non-scheduled flights between late March and May 2020.
The lack of liquidity and a total debt of $7.3 billion at the end of 2019 left the airline particularly vulnerable.On May 10, 2020, it filed for bankruptcy under Chapter 11 protection, identifying an unpredictable impact of the COVID-19 pandemic as the main cause of its collapse.
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