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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.
The most relevant numbers for the first quarter of 2019 were:
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”.
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:
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).
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.
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.
The business units contributed a total of 16% of income during 2Q.
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).
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.
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