Avianca Holdings moves forward with its Avianca 2021 plan by divesting from non-strategic business and the sale of 24 aircraft

  • During the months of April, May and June, the number of transported passengers increased 2.7%, compared to the same period in 2018 (maintaining a load factor of 81.8%). However, operational margins were narrow, with an EBITDA (excluding non-recurring charges) of USD 116.4 million and a margin of 10.5%.
  • The new administration, with the support of the renewed Board of Directors, is quickly moving forward with the Avianca 2021 plan to recover the margins - including operational optimization, cancelling 25 routes that are not profitable - and reprofiling its debt.
  • Avianca Holdings’ strategic partners, United Airlines and Kingsland Holdings, reaffirmed their financing proposal for up to USD$250 million.
  • Also, an “Exchange Offer” was announced yesterday, to exchange current bonds for USD 550 million set to mature in 2020, for guaranteed bonds that will automatically extend for an additional three years, upon closing financing with United Airlines and Kingsland Holdings.

Bogota, August 15, 2019.During the second quarter of 2019, Avianca Holdings expedited its “Avianca 2021” transformation strategy, which aims to strengthen the company’s competitiveness by implementing strict financial adjustments, operational optimization, fleet simplification and sale of non-strategic assets.

Adrián Neuhauser, CFO of Avianca Holdings, affirmed: “We are a new administration with the priority of improving the numbers we received and strengthening trust from our customers and the market.  We have focused the efforts in re-profiling debt and consolidating our capital structure, while adjusting the operation and improving service delivery. During the weeks we have been in the company, we have redesigned the network, starting by cancelling 25 routes that are not profitable; we sold 24 aircraft in our fleet and we continue to divest from non-strategic businesses like Getcom, Sansa and La Costeña, sales that represented the exit of 15 additional aircraft.”

The redefinition of Avianca Holdings’ strategic north is indispensable given the accelerated growth of the organization during the past years, in addition to a challenging macroeconomic and industry environment, combined with a hike in fuel prices, the devaluation of regional currencies, as well as contraction of demand. This has resulted in narrow operational margins during the second quarter, with an EBIT (excluding non-recurring charges) of -USD36 million and a margin of -3.2%; and an EBITDA (excluding non-recurring charges) of USD116.4 million, with a margin of 10.5%.

While delivering the results, Avianca Holdings’ CEO, Anko van der Werff, and its CFO, Adrián Neuhauser, presented the main results of the “Avianca 2021” strategy. 

 

Financial Results 2019 2Q

The most relevant numbers for the first quarter of 2019 were:

  • The company transported 7.55 million passengers during the second quarter, a 2.7% increment compared to the same period in 2018. It also consolidated its load factor at 81.8%.
  • During the quarter, Avianca increased its capacity measured in ASKs (average seat kilometer) by 4,7%. On its part, revenue passengers per kilometer (RPKs) increased by 4,1%.
  • Finally, the cost per available seat kilometer (CASK ex-fuel) decreased by 6.7% adjusted reaching US 6.1 cents for the quarter.
  • Operational income was US 1.1 billion, a 6.9% decrease compared with the first quarter of 2019.
  • Yield was 8.4 cents, a 9.2% decrease.
  • EBIT was -USD36 million and EBITDA USD116.4 million (excluding non-recurring charges)*

Avianca Holdings’ CEO and President, Anko van der Werff, reiterated: “Our priority is to achieve better results. During this quarter we made tough choices, but we are certain they are necessary to change the course of the company and make it competitive, profitable and improve its service standards.  Even more important, the actions we have taken are setting us up for future success, we expect this shows in future results”.
 

Re-profiling of financial commitments:

During the second quarter of the year, the company announced its decision to temporarily differ payment of certain leases and capital payments on some loans, reflecting most of its debt as short-term while re-negotiating extensions with creditors. Negotiation rounds with strategic partners are underway to reach agreements about the terms and conditions of financial commitments. Neuhauser affirmed that “we have made significant advances, the receptiveness and understanding of our partners has made our conversations easier and we expect to reach detailed agreements in the short term”.

Additionally, Avianca Holdings began the process of exchanging senior notes 8.375%, in US Dollars, maturing in 2020, the closing of which will occur by the end of the month. The company is up to date in payment of its interest obligations and is not in default with any obligation regarding these bonds.

 

Sale of non-strategic assets:

  • Getcom: sale of 100% interest in Getcom Int'l Investments S.L (50% of the total shares), a Contact Center and BPO service company, to Seger Investments Corp. 
  • CAE: sale of 100% interest in the flight simulator business; it included the sale of certain assets and all of the shares (50%) in Avianca-CAE Flight Training (ACFT) S.A.S. The Holding sold CAE International Holdings Ltd which owned the remaining 50% of this company.
  • SANSA and La Costeña: sale of 100% interest in these airlines that provide services within Costa Rica and Nicaragua. For this sale, the company received approximately USD 15.5 million.
  • Transactions underway: we expect to finalize the sale of 100% of Deprisa and 42% of Viajes Exito.


Fleet simplification:

We are moving forward with deceleration of fleet additions and its simplification. In addition to the renegotiation with Airbus during the first quarter, which allowed a cutback of USD2.6 billion in financial commitments and protecting cash flow resources of USD350 million, we were able to extend the terms of the agreements for certain aircraft.  Additionally, during the second quarter we signed agreements for a total of 39 aircraft (including those associated with the sale of Sansa and La Costeña).

  • Exit of 13 Cessna 208 aircraft and two (2) ATR 42 aircraft for the sale of Sansa and La Costeña.
  • Sale of fourteen (14) A320 aircraft to Fortress Transportation and Infrastructure Investors LLC.
  • Sale of the entire Embraer Fleet (10 aircraft).

The sale of the fleet will be differed throughout the rest of the year. With these transactions, Avianca Holdings will close 2019 with approximately 156 aircraft, which implies a reduction of its fleet by approximately 21%, and therefore a reorganization of its offer to be more consistent with demand. It will have also significantly simplified its operation, in maintenance costs, as well as stock and crew training.


Optimization of Operational Profitability:

Network adjustment is one of the main actions implemented during the year. The changes were made to service those with higher demand and better performance. Therefore, 25 routes were cancelled and frequencies were reduced. The adjustments took place mainly in the Central American, North American and Peruvian markets.  Likewise, the Holding announced added capacity on some routes, increasing the number of flights between Bogotá and Cali, Medellin, Bucaramanga, Santiago de Chile, Orlando - US, and Barcelona - Spain, seeking to allocate resources in more profitable routes. 


Performance of Business Units:

The business units contributed a total of 16% of income during 2Q.

  • Avianca Cargo: continues to be the leader in the Colombian market with a 38.3% market share, and the third company in the Miami International Airport with a 13.7% market share. 
  • LifeMiles: the member base of the loyalty unit has grown by 10.7%, with more than 9.2 million members. On the other hand, the program closed the term with 537 commercial partners in Latin America. 


Strengthening of Corporate Government and the Executive Team:

Finally, the corporate government was further strengthened during the second quarter when United Airlines exercised the contractual rights derived from its agreement with BRW Aviation (Synergy Group) and named Kingsland Holdings Limited as the third independent party with voting rights corresponding to BRW Aviation. At the same time, appointing Anko van der Werff as CEO and President, and Adrián Neuhauser as CFO, contributed to strengthening the executive team and allowed expediting adjustment plans.

* Operational expenses showed a strong increase due to the impairment in book value of the fleet classified as available for sale (10 Embraer 190, 10 A318 and 4 A320).  Since the expected sale value would be less than what was registered in the company’s accounting records, due to accounting standards this difference is assumed as a larger expense within the Depreciation and Amortization account, which increased the company’s expenses without implying an outflow of cash.

The greater expense in the depreciation and amortization account reverses the accounting effect.

The financial and operational information is provided in US Dollars, except as otherwise indicated, and pursuant to International Financial Reporting Standards (IFRS).


About Avianca Holdings:

Avianca is the commercial group that assembles the passenger and cargo transportation airlines that comprise Avianca Holdings S.A. It has flown for 100 years uninterruptedly. With a fleet of approximately 156 aircraft it offers a route network that includes 76 destinations in 27 countries in America and Europe. With more than 21.000 employees, the Holding transported 30.5 million travelers. On February 22, 2019, Avianca submitted its corporate transportation plan comprised of four pillars: 1) improving operational indicators 2) adjustment to the fleet plan 3) optimization of operational profitability 4) divestment of non-strategic assets. On May 24, the company’s control was assumed by Kingsland Holding Limited as an independent third party for United Airlines.

 

About Kingsland. Kingsland Holdings Limited is a shareholder of Avianca Holdings with 40 years’ experience in aviation. Kingsland is presided by Roberto Kriete, who has been part of Avianca Holdings S.A.’s Board of Directors since 2010. He was the founder of Volaris, pioneer of TACA and President of the Latin American Air Transportation Association.

 

Press Information:

Maria Carolina Cortes Arce

Global Director of External Communications
Mobile: 57 3107778301
carolina.cortes@avianca.com

 

Viviana Escobar

Global Mass Media Coordinator
Mobile: 57 3134057311
viviana.escobar@avianca.com