Avianca Brasil needs major restructuring effort to stay flying

Brazilian airline Avianca Brasil will need to sell 14 of its 50 aircraft and improve its operational efficiency, if it wants to continue flying while being able to repay its creditors, according to an analysis by Galeazzi & Associados. 

The São Paulo based management consultancy was hired by Avianca Brasil in December shortly after the airline filed for bankruptcy protection. Consultants of the firm have since assessed the financial performance of the company and crafted restructuring plans in a bid to turn Avianca’s fortunes. Galeazzi & Associados is also exploring future options for the airline, which include finding a partner, a buyer, or even filing for bankruptcy.

Following a number of payment defaults, Avianca’s main creditors, aircraft lessors Aircastle and General Electric Capital Aviation Services, sounded the alarm bells on the company’s financial position. The two creditors have in the meantime been seeking to repossess their planes, however, their attempts have so far been successfully fended off by Avianca, allowing the company to maintain its current flight schedule. According to Reuters, consultants from Galeazzi & Associados have visited the carrier’s creditors to discuss scenario’s and potential measures. Concrete results have though not materialised.

In the background, Avianca is negotiating with Elliott Management, a hedge fund, about a 250 million real ($69 million) loan, sources close to the matter disclosed. As part of bankruptcy protection process, any investment would need to happen within the regulatory guidelines, likely in the form of debtor-in-possession financing. Brazil’s fourth-largest airline plans to ask the judge overseeing its bankruptcy for more time to reach a final deal, pointing at the progressive loan talks held with Elliott Management. 

In the analysis by Galeazzi & Associados, the advisors conclude that a major restructuring effort is required for Avianca Brasil to continue its operations. Around 14 of the 50 aircraft would need to be disposed, in order to optimise the capacity usage of the fleet. As per the plan, 36 aircraft would combined be capable of achieving 235 flights per day. The sale of the aircraft would provide a needed buffer to repay creditors.

On top of this, the airline will need to reduce its operational expenses and attract investments to the tune of $75 million to stay afloat.

Last year, another Latin American airline, Aerolíneas Argentina called in the help of an external consulting firm to reshape its loyalty program.