September 15, 2022
President and CEO, Avianca Holdings S.A.
John E. Luth
Chairman and CEO, Seabury Capital Group LLC
Avianca Airlines was one of the airlines that were hit the hardest during the pandemic. After changing its high-cost structure in 2019, the company declared bankruptcy in mid-2020 and underwent a financial restructuring process.
During Day 2 of the U.S. Chamber of Commerce’s Global Aerospace Summit, Adrian Neuhauser, President and CEO of Avianca Airlines, discussed new opportunities for Avianca following its recent restructuring. Neuhauser addressed the company’s future direction and its path to recovery in the post-COVID world.
Avianca Was One of the First Airlines to Declare Bankruptcy at the Start of the Pandemic
When Neuhauser joined Colombia-based Avianca Airlines in 2019 first as Chief Financial Officer, the company had a legacy-focused model and was one of the highest-cost operators in the Latin America region. However, the company was also in technical default with a high-cost structure.
“We went through an out-of-court restructuring in 2019 that cleaned up the balance sheet but left us with very little collateral as well,” said Neuhauser. “We had pledged everything into the structures that we used to finance the company to take us out of the defaults the company was in at the time.”
Once the pandemic hit, Avianca had no choice but to file for Chapter 11 bankruptcy.
“We were the earliest Latin American company to go into bankruptcy when COVID hit us,” said Neuhauser. “We were forced to face an existential crisis at the beginning of our Chapter 11, which I think was unique in the region.”
Avianca Changed Its Business Plan and Redefined Its Cost Structure
To get out from under the bankruptcy, Avianca brought its creditors to the table to put together debtor-in-possession financing. Next, Avianca teams looked at the company's cost structure and business model.
“We did two things: We restructured our business plan around a very cost-focused carrier… [and] we brought everyone in very early [so the] capital structure changed,” said Neuhauser.
John E. Luth of Seabury Capital Group LLC, a banker and advisor for Avianca before and during the bankruptcy process, described the final results of these changes.
“The amount of capital that had to be raised … was over $2 billion going into that Chapter 11, which we didn't have — and then coming out [we had] 2.7 billion, leaving a lot of cash now, finally, on the balance sheet — about three or four times the historical high,” explained Luth.
“This a company that used to run with about 300 million of available cash,” Neuhauser added. “We came out with close to 1.2 billion… so [we are now] a very different airline.”
An Underpinning of Avianca’s Restructuring Was Striking a Deal with Its Pilot Crew
As the aviation industry was wading through the beginning of the COVID-19 pandemic and going deeper into crisis, Neuhauser stated that Avianca was in a unique situation to bring the entire company together during its bankruptcy. This included the pilots with who the company had an ongoing difficult relationship which featured a previous pilot strike in 2017.
“Everybody [understood] that if we don't reach a broad consensus here, the company is going to literally liquidate,” said Neuhauser. “ So everybody sort of came together… [and] we were able to get very successful terms from creditors … but it also brought our pilots to the table where the company had a bad relationship with the pilots going back.”
“We reached an agreement with them that gives us ongoing savings and … aligns their interest with us for the next three or four years,” he continued. “[It] has dramatically changed the relationship, so we're working with them really closely now.”
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