Avianca Holdings (AVH) filed for bankruptcy protection after travel restrictions tied to the coronavirus pandemic brought passenger operations to an almost complete halt since mid-March.
The Columbian air carrier said it submitted Chapter 11 proceedings to the U.S. Bankruptcy Court for the Southern District of New York in an effort to preserve jobs, restructure its $7.27 billion in debt and reorganize its business operations. Throughout the restructuring period, it will continue operations, the company said.
“Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic,” said Avianca CEO Anko van der Werff. “Despite the positive results yielded by our ‘Avianca 2021’ plan, we believe that, in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges.”
Avianca’s passenger operations have been grounded since mid-March, cutting its consolidated revenue by over 80% and placing significant pressure on its cash reserves. As a result, Latin America’s second-largest carrier implemented employee furloughs, temporary wage reductions, reductions in non-essential capital expenditures and temporary deferred payments on long-term leases.
With a fleet of 158 aircraft, Avianca employs more than 21,000 workers throughout Latin America, including more than 14,000 in Colombia, while also working with more than 3,000 vendors.
Global shelter-in-place orders to contain the fast spread of the COVID-19 pandemic has resulted in a 90% decline in global passenger traffic and is expected to reduce industry revenues worldwide by $314 billion, according to the International Air Transport Association.
Given the impact COVID-19 has had on travel plans, Avianca announced that it will continue to waive change fees and other penalties associated with changes to customers’ travel plans for tickets purchased until October 31.
At the start of the year, the company had managed to organize an out-of-court reprofiling of its financial debt and lease obligations and raised $375 million in new financing.
Shares in Avianca rose 4.1% to $0.88 on Friday trimming the year-to-date plunge to 81%.
Last week, five-star analyst Michael Linenberg at Deutsche Bank cut the stock to Sell from Hold and slashed the price target to 50 cents from $2, due to the accelerated COVID-19 impact in Latin America in recent weeks which forced the industry to make large capacity cuts and reduce its network to only fly “essential” routes.
Linenberg noted that Latin America was one of the last regions globally to be affected by the coronavirus pandemic, following limited impact for most of the March quarter.
Overall Wall Street analysts have a Moderate Sell consensus rating on the stock based on 2 Sells and 1 Hold. The $0.73 average price target implies 17% downside potential for the shares in the coming 12 months. (See Avianca stock analysis on TipRanks).
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