Avianca Emerges From Chapter 11 Bankruptcy

After over 18 months since it entered Chapter 11 bankruptcy, Avianca has announced that it is emerging from the restructuring. The Latin American airline states that it has successfully achieved agreements with its creditors, raised $1.7 billion in investments, and has received approval for its plan of reorganization. Exiting Chapter 11, the airline now has a stronger balance sheet, additional liquidity, and a lower debt burden.

Avianca has announced that it is exiting Chapter 11 bankruptcy. Photo: Boeing

Avianca exits Chapter 11

Avianca announced its exit from Chapter 11 on December 1st. This is over 18 months after it first filed for bankruptcy in May 2020. The carrier has a revamped business model with a renewed focus on efficiencies to better compete for travelers in the competitive airline landscape in Central and South America. This comes after US courts approved its plan for restructuring in early November.

Adrian Neuhauser, President and CEO of Avianca, stated the following on the carrier’s exit from bankruptcy:

 “We look forward to the Company’s future success as we continue building upon Avianca’s rich history across Latin America and internationally. We appreciate the support of our loyal customers, partners, and lenders throughout this process. I would also like to thank our dedicated employees for their commitment to providing uninterrupted service to our customers and whose hard work enabled us to complete this process efficiently. I am confident that we are well-positioned to be a highly competitive and successful carrier.” 

A new Avianca

Avianca is looking ahead and hoping to compete against the growth of low-cost carriers across the continent better. With new efficiencies, Avianca expects to offer some more competitive prices and offers more personalized fare packages, meaning a model that other airlines have taken up that provides an unbundled product that passengers then choose to add services or amenities.

One benefit Avianca is touting is its network. Over the next three years, the airline has announced that it expects to offer nearly 200 routes in Latin America and the world, including a majority of new point-to-point routes. The goal of this network is to provide the key hub-focused routes that require connections to sustain well while also competing against low-cost airlines that offer more point-to-point services.

Avianca wants to move toward more point-to-point flying, but it will still have a sizable presence in Bogota. Photo: Getty Images

Avianca’s aircraft will also start to look different. It is engaging in a plan to retrofit its Airbus A320s with three types of seats: Premium, Plus, and Economy. The Premium seat is an economy class seat with a blocked middle seat at the front of the aircraft. These seats are similar to intra-European business class. The airline is using Recaro’s lighter-weight seats that will allow it to offer 20% more seats, or up to around 180 seats. The first of these A320s will enter service in the second quarter of 2022, with retrofits continuing through the end of next year.

Avianca’s international widebody fleet will only include the Boeing 787-8. The carrier will continue to offer lie-flat business class seats, though it wants to put some new seats in economy class. The airline will use these aircraft on primarily long-haul flights.

What to make of the new Avianca

Avianca is looking at the success of its low-cost peers and looking to bring some of those efficiencies into its operating model. Simplifying its fleet down to the Airbus A320 family and Boeing 787-8 will improve operating efficiencies and reduce cost pressures. It will also increase its gauge, helping achieve lower unit costs that should lead to more competitive fare options to counter aggressive low-cost growth.

The environment Avianca is operating in will still be challenging. Low-cost carriers are on the rise in many of its key geographies, including Colombia. It will also have to contend with a choppy recovery in air travel. Recent public health news has injected new uncertainty into the return of air travel, and the carrier will need to navigate it. However, now out of bankruptcy, the airline is expressing confidence in accelerating down the runway and taking off into the future.

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