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Colombia’s Avianca airline files for bankruptcy over coronavirus impact

Avianca Holdings SA, Latin America’s second-largest airline, filed for Chapter 11 bankruptcy on Sunday, as a bond payment deadline loomed and after unsuccessfully pursuing emergency aid from Colombia’s government to survive the coronavirus crisis.

Avianca estimated liabilities between $1 billion to $10 billion in a filing with the U.S. Bankruptcy Court for the Southern District of New York.

“Avianca is facing the most challenging crisis in our 100-year history,” CEO Anko van der Werff said in a press release.

If it fails to come out of bankruptcy, Avianca would be one of the first major carriers worldwide to fail as a result of the coronavirus crisis, which has resulted in a 90% decline in global air travel. Avianca has not flown a regularly scheduled passenger flight since late March.

Avianca is also one of the oldest airlines in the world, as well as a source of pride for Colombians. It already went through bankruptcy in the early 2000s, from which it was rescued by a Bolivian-born oil entrepreneur, German Efromovich.

Efromovich grew the airline aggressively but also saddled the carrier with significant debt. Efromovich was ousted from the airline last year in a board-room coup orchestrated by United Airlines Holdings Inc, but he still formally owns the carrier.

United stands to lose up to $700 million in loans related to Avianca.

Efromovich told Reuters on Sunday that he disagreed with the decision to file for bankruptcy and that he was not involved in making it.

The airline had been in weak shape even before the crisis hit. Roberto Kriete, president of Avianca’s board, said last year in a meeting with employees that the airline was “broke.”

Most pressingly, Avianca faced a $65 million bond payment on Sunday that analysts did not think the airline was in a condition to meet. S&P downgraded the airline to CCC- status in the days leading up to the payment.

Van der Werff had in recent weeks gone on a public relations campaign to secure emergency aid from Colombia’s government, but as of Sunday none had materialized.

The majority of Avianca’s 20,000 employees had taken unpaid leave as a result of the crisis and the carrier had no certain date to resume operations.

In parallel to its Chapter 11 filing in the United States, Avianca said it intends to begin winding down operations in Peru pursuant to local laws.

Avianca is the third of Efromovich’s airlines to go through bankruptcy or out of business in recent years. Airlines Avianca Brasil and Avianca Argentina ceased to exist last year due to economic troubles in their markets.

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