Avianca Holdings S.A. – Colombian Airline Emerges Cautiously from Bankruptcy and into Ongoing Pandemic Having Shed $3bn and a Third of its Fleet

December 1, 2021 – The now forrmer Debtors notified the Court that their further Modified Third Amended Plan had become effective as of December 1, 2021 [Docket No. 2384]. The Court had previously confirmed the Debtors’ Plan on November 2, 2021 [Docket No. 2300]. Avianca also filed a further Plan Supplement which includes amended finance and aircraft related agreements [Docket No. 2385] as listed below.

On May 10, 2020, Avianca Holdings S.A. and 38 affiliated Debtors (NYSE: AVH; “Avianca” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-11133 (Judge Glenn). At filing, the Debtors, an operator of passenger and cargo airlines and the flag carrier of Colombia for over 100 years (now controlled by United Airlines), noted estimated assets of $7,273,900,000 and estimated liabilities of $7,268,700,000 (these are also the numbers reported by the Debtors on February 27th in respect of their Q4 2019).

The Debtors were represented by (i) Milbank LLP as local bankruptcy counsel, (ii) Smith Gambrell and Russell, LLP as aviation counsel, (iii) Seabury Securities LLC as investment bankers, (iv) FTI Consulting, Inc. as financial advisors and (v) Kurtzman Carson Consultants as claims agent.

The deadline to file administrative and professional fee claims has been set for 90 days after the effective date (i.e., March 1, 2022)

In a press release announcing the emergence,Avianca stated that, “it has successfully completed its financial restructuring process and emerged from Chapter 11 as a more efficient and financially stronger airline, with significantly reduced debt and over $1 billion of liquidity.  

As per the approved plan of reorganization, the new shareholders will invest in Avianca Group International Limited, a new holding company, which will be domiciled in the United Kingdom and will consolidate the group’s investments in all of its subsidiaries (including Aerovias del Continente Americano, its Colombian subsidiary, and TACA International, its Central American operation). The prior holding company, Avianca Holdings was domiciled in Panama.”

Avianca Chairman Roberto Kriete noted as to the business environment into which the airline emerges: "While we are on the right path to recovery, we must remain cautious with the progress of the pandemic that has not yet ended and must stay focused on executing our new business plan." 

Plan Summary

The Debtors' memorandum of law in support of Plan confirmation [Docket No. 2261] provides: “The Plan, which represents the culmination of the Debtors’ restructuring and is the product of extensive good-faith, arm’s-length negotiations with the Debtors’ stakeholders, enjoys widespread creditor support. In total, holders of Claims totaling over $3.645 billion voted to accept the Plan — approximately 99% of the total amount of all Claims voted. The Plan also enjoys the support of the Committee, the fiduciary representing the interests of the Debtors’ unsecured creditors.

Indeed, the Plan, which incorporates the Global Plan Settlement, represents a singular achievement for the Debtors and their stakeholders. As a result of the Global Plan Settlement, the Plan provides recoveries to holders of unsecured Claims that otherwise would not have been available. Further, the Plan allows the Debtors to achieve their key restructuring goals: reducing costs, restructuring their balance sheet, overhauling their business plan, and obtaining access to additional liquidity and long-term financing. The Debtors will emerge from these Chapter 11 Cases as a lean, refocused airline that is poised for success."

The Disclosure Statement [Docket No. 2138] notes, “The Plan is the result of extensive good faith negotiations, overseen by AVH’s board of directors, among the Debtors and several of their key economic stakeholders. The Plan is supported by, among others, the Committee; the Consenting Noteholders (as defined below), which collectively held a majority of the Debtors’ 9.000% Senior Secured Notes due 2023 prior to giving effect to the DIP Roll-Up (as defined below); and a majority of the holders of Tranche B DIP Facility Claims.

The Plan provides for a comprehensive restructuring of the Company’s balance sheet and a significant investment of new capital in the Company’s business. The transactions contemplated in the Plan will strengthen the Company by substantially reducing its debt and increasing its cash flow and will preserve over 10,000 jobs. More specifically, in connection with the Plan:

• The Debtors have determined to exercise their right, pursuant to the DIP Facility Documents, to convert the Tranche A-1 DIP Facility Claims and Tranche A-2 DIP Facility Claims to seven (7)-year exit financing upon emergence. Subject to satisfaction of certain conditions precedent, Tranche A-1 DIP Facility Claims and Tranche A-2 DIP Facility Claims will convert into indebtedness under the Exit Facility pursuant to the Plan.
• As discussed in more detail below, the Debtors engaged in a competitive marketing process (the ‘Equity Solicitation Process’) to determine whether an alternative investor (an ‘Alternative Sponsor’) would be willing to provide capital to the Reorganized Debtors on terms superior to those offered by the Tranche B DIP Lenders, which, as part of the DIP Credit Agreement, committed to convert all of the Tranche B DIP Facility Claims to at least 72% of fully diluted equity securities of a new corporation or other legal entity that may be formed on or prior to the Effective Date to, among other things, directly or indirectly acquire substantially all of the assets and/or stock of AVH (as defined in the Plan, ‘Reorganized AVH’).
• Ultimately, and as discussed further below, the Equity Solicitation Process yielded one indication of interest, which did not aggregate sufficient value to satisfy all Tranche B DIP Facility Claims in full in Cash. Accordingly, the Debtors, in their business judgment, determined that the terms of the indication of interest were not superior to those offered by the Tranche B DIP Lenders. Therefore, the Debtors have elected to exercise their option under the DIP Credit Agreement to convert the Tranche B DIP Facility Claims to equity in Reorganized AVH (as defined in the Plan, the ‘New Common Equity’) as part of the Plan. Additionally, certain holders of Tranche B DIP Facility Claims have agreed to contribute cash and/or assets to the Reorganized Debtors in an aggregate amount of $200 million in exchange for New Common Equity.
• As set forth in further detail in the Plan, holders of General Unsecured Avianca Claims will receive the cash equivalent of their Pro Rata share of (a) 1.75% of the New Common Equity and (b) warrants to purchase 5.0% of the New Common Equity, with a cashless exercise price of $1.48 billion and a five (5) year term (as defined in the Plan, the ‘Warrants’); provided, that, in the event that the Class of General Unsecured Avianca Claims votes to accept the Plan, holders of General Unsecured Avianca Claims will receive the cash equivalent of their Pro Rata share of an additional 0.75% of the New Common Equity (i.e., 2.5% of the New Common Equity in the aggregate) and the Warrants. In lieu of receiving cash, holders of General Unsecured Claims may elect to receive their Pro Rata share of the applicable percentage of New Common Equity and the Warrants by making a written election on a timely and properly delivered and completed Ballot to receive the Unsecured Claimholder Equity Package.
• These recoveries are being carved out of the value of the collateral securing the Tranche B DIP Facility Claims and would not otherwise be available to holders of such unsecured Claims without the consent of holders of Tranche B DIP Facility Claims, which consent was obtained in connection with good-faith, arms’-length negotiations among the Debtors, the Committee and holders of Tranche B DIP Facility Claims. Such negotiations resulted in a global settlement (the ‘Global Plan Settlement’), pursuant to which the Debtors resolved all issues that may have been raised by the Committee with respect to the Plan, including, among other things, disputes on enterprise value.
• On the Effective Date or as soon as reasonably practicable thereafter, all Interests in AVH will be cancelled, released, extinguished or receive economically similar treatment, to the extent permitted by applicable law as determined by the Debtors in their business judgment. Holders of Interests in AVH will not receive any distributions, nor retain any property, under the Plan.
• The foregoing transactions will eliminate approximately $3.0 billion of debt from the Debtors’ consolidated balance sheet."

Fleet Plan

Central to the Debtors' Plan and going concern aspirations were (i) the renegotiation of purchase agreements (cancelling and delaying the acquisition of aircraft) and (ii) the cancellation of leases which has resulted in an approximately 1/3 reduction in its current fleet size. 

The Disclosure Statement provides: "As part of the Avianca 2021 Plan…Avianca took significant steps to streamline its fleet. In late 2019 and early 2020, Avianca renegotiated its aircraft purchase orders to align them with its adjusted strategic plans. It reduced firm commitments with Airbus from 108 A320 neo aircraft to 88, and cancelled or deferred A320 neo deliveries in 2020 through 2024. Avianca also entered into operating leases for 10 new A320 neo aircraft with BOC Aviation and reached agreement with Boeing to postpone until 2024 the outstanding deliveries of 787-9 aircraft.

Since the onset of COVID-19, Avianca has taken further steps to streamline its fleet profile and reduce the number of future deliveries. As to future deliveries, as part of these Chapter 11 Cases, Avianca currently is undertaking negotiations with Airbus and Boeing to assume and amend or reject these purchase agreements. Regardless of whether the Debtors reach agreements with Airbus and Boeing with respect to these purchase agreements or ultimately determine to reject the purchase agreements, the Debtors do not expect a substantive impact to their business plan as a result. Avianca also has rejected aircraft leases of all 10 new A320neo aircraft that would have been leased from BOC Aviation starting in 2023.

The following table sets forth Avianca’s firm contractual deliveries that are still  scheduled through 2029, taking into account the potential rejection of the 10 new A320neo aircraft:

In addition to reducing the number of future deliveries, Avianca rejected leases with respect to 12 aircraft almost immediately after commencement of the Chapter 11 Cases and has rejected or may reject leases with respect to approximately 47 additional existing aircraft. As part of these Chapter 11 Cases, Avianca has commenced a process of amending and assuming, as so amended, its remaining aircraft leases on improved economic terms and entering into approximately 58 new leases with deliveries between 2021 and 2023. Additionally, Avianca is entering into approximately 15 new leases for aircraft previously subject to leases that Avianca is concurrently rejecting, which with respect to each aircraft will provide Avianca a simplified lease structure and better economic terms beneficial to the estate Many of the new and amended leases include 'power by the hour' arrangements that will allow Avianca to adjust its expenses depending on the level of demand for passenger travel. The net effect of Avianca’s lease rejections, negotiation of lease amendments, and entry into new leases is set forth in the following table, which compares Avianca’s fleet profile immediately before the Petition Date and the number of aircraft that are projected to be subject to long-term leasing arrangements upon emergence from chapter 11:"

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; also see Liquidation Analysis below):

• Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Engine Loan Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $52,226,711 and expected recovery is 100%. The Engine Loan Agreement will be amended as of the Effective Date in accordance with an amendment to be included in the Plan Supplement. The amendment will provide for, among other things, no reduction in the outstanding amount of principal, payment of accrued interest (at the revised non-default rate) on regular interest payment dates, and an amended amortization schedule. Notwithstanding anything in this Plan to the contrary, the Engine Loan Claims will remain outstanding and be in full force and effect as of the Effective Date under the amended Engine Loan Agreement and are not satisfied, cancelled, extinguished, discharged or released by this Plan, the Confirmation Order or on account of the Confirmation or Consummation of this Plan.
• Class 4 (“Secured RCF Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $100,000,000 and expected recovery is 100%. The Secured RCF Agreement will be amended and restated as of the Effective Date in accordance with, and subject to, the terms and conditions of the Secured RCF Amendment. Notwithstanding anything in this Plan to the contrary, the Secured RCF Claims will remain outstanding and be in full force and effect as of the Effective Date under the amended Secured RCF Agreement and are not satisfied, cancelled, extinguished, discharged or released by this Plan, the Confirmation Order or on account of the Confirmation or Consummation of this Plan. On the Effective Date, the Debtors will pay in Cash in full all accrued and unpaid interest under the Secured RCF Agreement; provided, that interest accruing at the default rate under the Secured RCF Agreement during the pendency of the Chapter 11 Cases through the Effective Date will be waived and will not be due and payable, subject to the occurrence of the Effective Date.
• Class 5 (“USAV Receivable Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $66,962,332.85, pursuant to the USAV Settlement Agreement and expected recovery is 100%.
• Class 6 (“Grupo Aval Receivable Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $128,552,032, pursuant to the Grupo Aval Settlement Agreement and expected recovery is 100%.
• Class 7 (“Grupo Aval Lines of Credit Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $11,651,000, allocated as $1,000,000 to Banco de Bogotá S.A. and $10,651,000 to Banco de América Central S.A. El Salvador and expected recovery is 100%. Each Holder will receive (i) its Pro Rata share of the Grupo Aval Exit Facility; (ii) its Pro Rata share of the Grupo Aval LifeMiles Consideration; and (iii) equal Cash payments on the first Business Day of each month on or after the Effective Date through January 2024 in an amount equal to non-default interest accrued and unpaid under the Grupo Aval Lines of Credit through the Effective Date.
• Class 8 (“Grupo Aval Promissory Note Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $9,999,997.28 and expected recovery is 100%.
• Class 9 (“Cargo Receivable Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $3,176,468, plus accrued and unpaid interest (at the applicable non-default rate) due under the terms of the existing Cargo Receivable Facility Agreement and expected recovery is 100%.
• Class 10 (“Pension Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 11 (“General Unsecured Avianca Claims”) is impaired and entitled to vote on the Plan. The expected recovery is 1.0% – 1.4% (with the $6.0mn “Unsecured Claimholder Cash Pool” incentive, i.e., if the class votes in favor of the Plan). Each Holder will receive its Pro Rata share of either (A) the Unsecured Claimholder Cash Pool or (B) if such holder is an Eligible Holder and makes a written election to receive the Unsecured Claimholder Equity Package, (1) the Unsecured Claimholder Equity Pool and (2) the Warrants; provided, that, if Class 11 votes to accept the Plan, in addition to the treatment set forth above, each holder will also receive its Pro Rata Share of either (x) the Unsecured Claimholder Enhanced Cash Pool or (y) if such holder is an Eligible Holder and duly elects to receive the Unsecured Claimholder Equity Package, the Unsecured Claimholder Enhanced Equity Pool.
• Class 12 (“General Unsecured Avifreight Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 13 (“General Unsecured Aerounión Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 14 (“General Unsecured SAI Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 15 (“General Unsecured Convenience Claims”) is impaired and entitled to vote on the Plan. The expected recovery is 1.0%. Except to the extent previously paid during the Chapter 11 Cases or such holder agrees to less favorable treatment, each Holder will receive Cash in an amount equal to 1.0% of the amount of such Allowed General Unsecured Convenience Claim.
• Class 16 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is 0%.
• Class 17 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The expected recovery is 0%.
• Class 18 (“Existing AVH Non-Voting Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is 0%.
• Class 19 (“Existing AVH Common Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is N/A.
• Class 20 (“Existing Avifreight Equity Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is N/A.
• Class 21 (“Existing SAI Equity Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 22 (“Other Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is N/A.
• Class 23 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The expected recovery is N/A.

Voting Results

On October 19, 2021, the Debtors’ claims agent notified the Court of the Plan voting results [Docket No. 2239] which were as follows:

• Class 3 (“Engine Loan Claims”) 1 claim holder, representing $$58,923,703.04 in amount and 100% in number, accepted the Plan.
• Class 4 (“Secured RCF Claims”) 4 claim holders, representing $100,000,000 in amount and 100% in number, accepted the Plan.
• Class 7 (“Grupo Aval Lines of Credit Claims”) 2 claim holders, representing $11,651,000.00 in amount and 100% in number, accepted the Plan.
• Class 11 (“General Unsecured Avianca Claims”) 384 claim holders, representing $$3,464,935,265.42 (or 98.96%) in amount and 92.09% in number, accepted the Plan. 33 claim holders, representing $36,541,506.63 (or 1.04%) in amount and 7.91% in number, rejected the Plan.
• Class 15 (“General Unsecured Convenience Claims”) 204 claim holders representing $9,553,233.89 (or 87.18%) in amount and 77.57% in number, accepted the Plan. 59 claim holders representing $1,404,938.66 (or 12.82%) in amount and 22.43% in number, rejected the Plan.

Key Documents

The Solicitation Version of the Disclosure Statement [Docket No. 2138] attached the following exhibits:

• Exhibit A: Plan
• Exhibit B: Organizational Chart
• Exhibit C: Liquidation Analysis
• Exhibit D: Financial Projections
• Exhibit E: Committee Recommendation Letter

The Debtors filed Plan Supplements at Docket Nos. 2185, 2208, 2264, 2276 and 2385 which attached the following: 

• Exhibit A: Description of Restructuring Transactions and Transaction Steps [Docket No. 2385]
• Exhibit A-1: Blackline of Description of Restructuring Transactions and Transaction Steps Against October 5 Version [Docket No. 2276]
• Exhibit B: New Organizational Documents for Reorganized Debtors [Docket No. 2276]
• Exhibit B-1: Blackline of New Organizational Documents for Reorganized Debtors Against October 5 Version Exhibit C Warrant Agreement [Docket No. 2276] 
• Exhibits B-2 through B-41: New Organizational Documents for all other Reorganized Debtors [Docket No. 2185]
• Exhibits B-42 through B-44: New Organizational Documents for other relevant entities [Docket No. 2185]
• Exhibit C: Warrant Agreement with Blackline [Docket No. 2385] 
• Exhibit D: Schedule of Retained Causes of Action [Docket No. 2208]
• Exhibit D-1: Blackline of Schedule of Retained Causes of Action Against October 5 Version [Docket No. 2208]
• Exhibit E-1: Schedule of Assumed Contracts (General Executory Contracts) [Docket No.2385] 
• Exhibit E-1(A): Blackline of Schedule of Assumed Contracts (General Executory Contracts) [Docket No.2385] 
• Exhibit E-2: Schedule of Assumed Aircraft Leases with Definitive Documentation [Docket No. 2385] 
• Exhibit E-2(A): Blackline of Schedule of Assumed Aircraft Leases with Definitive Documentation [Docket No. 2385] 
• Exhibit E-3: Schedule of Aircraft Leases to Be Assumed Subject to Entry into Definitive Documentation in accordance with Previous Court-approved Letters of Intent and Approval Orders [Docket No. 2276] 
• Exhibit E-3(A): Blackline of Schedule of Aircraft Leases to Be Assumed Subject to Entry into Definitive Documentation in accordance with Previous Court approved Letters of Intent and Approval Orders Against October 5 Version [Docket No. 2276] 
• Exhibit E-4: Schedule of Aircraft Leases with no previously Court-Approved Letter of Intent to Be Amended and Assumed, or Entered Into, Subject to Entry into Final Documentation [Docket No. 2276]
• Exhibit E-4(A): Blackline of Schedule of Aircraft Leases with no previously CourtApproved Letter of Intent to Be Amended and Assumed, or Entered Into, Subject to Entry into Final Documentation Against October 5 Version [Docket No. 2276] 
• Exhibit F: Schedule of PBH Agreement Extensions and Rejection of Aircraft Leases [Docket No. 2276] 
• Exhibit F-1: Blackline of Schedule of PBH Agreement Extensions and Rejection of Aircraft Leases Against October 5 Version [Docket No. 2276] 
• Exhibit G: Schedule of the Disposition of Rejected Aircraft Leases [Docket No. 2276] 
• Exhibit G-1: Blackline of Schedule of the Disposition of Rejected Aircraft Leases Against October 5 Version [Docket No. 2276] 
• Exhibit H: Secured RCF Amendment [Docket No. 2385 
• Exhibit H-1: Blackline of Secured RCF Amendment Against October 5 Version [Docket No. 2385]
• Exhibit I: Engine Loan Agreement [Docket No. 2185]
• Exhibit I-1: List of Directors of Reorganized AVH [Docket No. 2208]
• Exhibit I-2: Schedule of Directors of Other Reorganized Debtors [Docket No. 2208]
• Exhibit J: Form of Exit Facility Indentures [Docket No. 2385]  
• Exhibit J-1: Blackline of Form of Exit Facility Indentures Against October 13 Version [Docket No. 2385] 
• Exhibit K: Shareholders Agreement [2385] 
• Exhibit K-1: Blackline of Shareholders Agreement Against October 26 Version [2385] 
• Exhibit L: Agreement and Second Omnibus Amendment to Certain Commercial Arrangements among United, Avianca and Certain of Their Affiliates [Docket No. 2264]
• Exhibit M: Schedule of ECA Airbus Leases [Docket No. 2276] 
• Exhibit N: Amendment to the ECCA [Docket No. 2385]
• xhibit N-1: Blackline of Amendment to the ECCA Against October 26 Version [2385]
• Exhibit O: Second Amendment to the ECCA [2385]

Petition Date Perspective

In a press release announcing their Chapter 11 filings, the Debtors advised that: “The filing was necessitated by the unforeseeable impact of the COVID-19 pandemic….Avianca’s scheduled passenger operations have been grounded since mid-March, reducing its consolidated revenue by over 80% and placing significant pressure on its cash reserves.

Through the Chapter 11 reorganization process, Avianca intends to:

• Protect and preserve operations so Avianca can continue to operate and serve customers with safe and reliable air travel, under the strictest bio safety protocols, as COVID-19 travel restrictions are gradually lifted;
• Ensure connectivity and drive investment and tourism by continuing as Colombia’s flagship airline, serving over 50% of the domestic market in Colombia and providing essential non-stop service across South America, North America and European markets as well as continuing cargo operations, playing a key role in the economic recovery of Colombia and the Company’s other core markets following the COVID-19 pandemic; 
• Preserve jobs in Colombia and other markets where the Company operates, with Avianca directly responsible for more than 21,000 jobs throughout Latin America, including more than 14,000 in Colombia, and working with more than 3,000vendors; and
• Restructure the Company’s balance sheet and obligations to enable Avianca to navigate the effects of the COVID-19pandemic as well as comprehensively address liabilities, leases, aircraft orders and other commitments."

Prepetition Indebtedness

An overview of the Debtors’ funded indebtedness as of the Petition date is as follows:

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Neuhauser Declaration”), Adrian Neuhauser, the Debtors’ Chief Financial Officer, detailed the events leading to Avianca’s Chapter 11 filing. The Neuhauser Declaration begins the Debtors' mea culpa with "The Debtors have been compelled to file these Chapter 11 Cases for one principal reason: the COVID-19 pandemic," and that may be true if one heavily weights the word "compelled" [which we have]. These Debtors have another huge pre-existing financial health condition that COVID-19 made much worse, but was already dangerous enough to cause defaults in respect of borrowings and require several interventions in respect of balance sheet health: They have too many planes. 

Too many planes on order, too many planes being financed and too many planes subject to expensive leasing arrangements. The Neuhauser Declaration points the finger at earlier management, providing: "going back a number of years, the Debtors and their controlling shareholders incurred substantial leverage to increase capacity which ultimately outpaced demand in Colombia and other principal markets and resulted in an unsustainable level of debt service." The numbers are impressive, even when only seen through the lens of the Debtors' mitigating efforts. The Debtors will delay $4.0bn of capital expenditures over the next 3 years by deferring delivery of aircraft, but even after buying a bit of time, they still have approximately $1.024bn and $765.9mn due over the next three years in respect of aircraft financing costs and lease obligations, erspectively

Neuhauser sums up what has to be done and one of the key goals of these bankruptcies: "[A]n important component of the Debtors’ successful reorganization will be to expeditiously address the looming issue of surplus aircraft that the Debtors can ill afford to retain." That cannot be good for Airbus or Boeing; or for leasing and financing partners.

COVID-19. The Debtors have been compelled to file these Chapter 11 Cases for one principal reason: the COVID-19 pandemic, which has affected the world’s population and economy in ways that have never been experienced. In light of these circumstances, the Debtors are likely to have a significant surplus of owned and leased aircraft at the outset of this case and will seek to enter into negotiations with aircraft lenders and lessors with respect to such surplus aircraft. 

In addition to the impacts of COVID-19, under previous management and going back a number of years, the Debtors and their controlling shareholders incurred substantial leverage to increase capacity which ultimately outpaced demand in Colombia and other principal markets and resulted in an unsustainable level of debt service. The situation culminated in the first half of 2019 with defaults under loan agreements whereby the then-controlling shareholders had borrowed funds from United Airlines (the 'United Loan'), triggering alleged cross-defaults under certain of the Debtors’ indebtedness beginning in mid-May 2019. This situation limited the Debtors’ access to the financing markets, resulting in ratings downgrades, and, together with other factors, contributed to the Debtors’ financial distress, preventing them from consummating certain transactions that they had expected to result in a significant improvement in liquidity and severely impacting their efforts to refinance near-term maturities of existing debt and their ability to finance capital expenditures."

Too Many Planes. The Neuhauser Declaration continues: "As previously discussed, an important component of the Debtors’ successful reorganization will be to expeditiously address the looming issue of surplus aircraft that the Debtors can ill afford to retain.

The Debtors have amended their aircraft purchase agreements and reduced their order of Airbus A320neo by 20 aircraft, and negotiated with Airbus a postponement in certain aircraft deliveries previously scheduled for 2020, 2021, 2022, 2023, and 2024, which will now be delivered between 2025 and 2029, as well as certain changes to the Airbus A320neo aircraft to be delivered. This agreement will reduce capital expenditures related to Avianca’s fleet by approximately $4.0 billion over the next three years. The Debtors have also amended their aircraft purchase agreements with Boeing to postpone the delivery date of two aircraft from 2021 to 2024.

.As of December 31, 2019, the Debtors’ financed aircraft obligations, including the foregoing purchase commitments, aggregated to more than $2.32 billion, with approximately $1.024 billion due payable over the next three years.

As of December 31, 2019, the Debtors operated 57 aircraft under long-term lease agreements, pursuant to which the Debtors are required to make monthly lease payments and to bear the maintenance, servicing, insurance, repair and overhaul expenses of the leased aircraft. As of December 31, 2019, the Debtors’ aircraft lease obligations aggregated to more than $1.44 billion, with approximately $765.9 million due payable over the next three years."

Prepetition Equity Holders

• BRW Aviation LLC ("BRW"): 78.1%
• Kingsland Holdings Limited ("Kingsland"): 21.9%

Background on Petition Date Ownership Structure 

On November 9, 2018, Synergy, which was then the Debtors' controlling shareholder and which, in turn, is indirectly controlled by Mr. José Efromovich and his brother Germán Efromovich, transferred a number of he Debtors'  common shares, comprising 78.1% of the voting share capital, to BRW Aviation LLC, a Delaware limited liability company (“BRW”). BRW is owned by BRW Aviation Holding LLC, a Delaware limited liability company (“BRW Holding”), which is wholly owned by Synergy. 

On November 29, 2018, BRW, as borrower, and BRW Holding, as guarantor, entered into a loan agreement (the “United Loan Agreement”) with United, as lender, and Wilmington Trust, National Association, as administrative and collateral agent (“Wilmington Trust”). In connection with such loan, BRW pledged to Wilmington Trust, for the benefit of United, all of the common shares of Avianca Holdings owned by BRW (which represented 78.1% of voting share capital) as security for BRW’s obligations under the United Loan Agreement (the “Pledged Shares”). 

Following defaults by BRW under the United Loan Agreement (unrelated to any financial covenants applicable to Avianca Holdings), on May 24, 2019, United commenced the exercise of certain remedies against BRW and BRW Holding. Pursuant to the terms of the United Loan Agreement, United appointed Kingsland as an independent third party entitled to exercise voting control over BRW and, as a result, BRW Holding (and, indirectly, Synergy) lost the right to direct the manner in which BRW votes the Pledged Shares. Following the foregoing transactions, Kingsland appointed itself as BRW’s manager. Through its ownership of the Debtors' common shares and its authority as manager of BRW (with the right to direct the voting of the Pledged Shares), Kingsland assumed voting control over Avianca Holdings. Subsequently, certain members of our board of directors, including José Efromovich and Germán Efromovich, were replaced by our current directors."

Liquidation Analysis (see Exhibit C to amended Disclosure Statement [Docket No. 2138])

About the Debtors

According to the Debtors: “Avianca is the commercial brand for the collection of passenger airlines and cargo airlines under the umbrella company Avianca Holdings S.A. Avianca has been flying uninterrupted for 100 years. With a fleet of 158 aircraft, Avianca serves 76 destinations in 27 countries within the Americas and Europe. With more than 21,000 employees, Avianca Holdings had revenues of US$4.6 billion in 2019 and transported 30.5 million passengers. On February 22, 2019, Avianca Holdings announced its corporate transformation plan consisting of four key pillars: 1) the improvement of operational indicators, 2) fleet adjustments, 3) the optimization of operational profitability and 4) repositioning of non-strategic assets. On May 24, 2019, control of Avianca Holdings was assumed by Kingsland Holdings Limited, an independent third party of United Airlines.”

S&P added: “Avianca, through its subsidiaries, engages in the passenger and cargo air transportation services, aircraft maintenance, airport services to other carriers, travel-related services to its customers and ground operations for third-party airlines in hub airports. Moreover, Avianca is the main shareholder of LifeMiles, a loyalty rewards program company. Avianca is Colombia’s largest airline. It has operations in 27 countries and flies to 105 destinations in the U.S., Latin America and Europe. Avianca was founded in 1919 and is headquartered in Panama City, Panama.”

Corporate Structure Chart (see Exhibit B to Disclosure Statement)

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