April 6, 2019

Creditors approve Avianca Brasil plan

Creditors led by hedge fund Elliott Management approved on 5 April a restructuring plan for bankrupt airline Avianca Brasil, hours after the country’s antitrust regulator announced preemptively that the plan could run afoul of competition laws.

The regulator, known as Cade, warned that the watchdog agency could block the plan, which Avianca Brasil hopes could raise some $210 million.

The carrier filed for bankruptcy in December.

Cade’s warning means the creditor approval may not bring short term relief to Avianca Brasil given that the regulator itself said its review of the deal could last some eight months.

During that time, the cash-strapped carrier would have to operate with its own funds, or take on additional debt.

Under the plan rival carriers Gol and Latam Airlines Group would buy Avianca Brasil’s takeoff and landing slots in three high-traffic terminals.

Gol and Latam already control over two-thirds of the slots in each of those three airports, two of which are in São Paulo and one in Rio de Janeiro.

That plan would raise much-needed funds but is high-risk, because the carrier could be left hanging for a long time without access to new cash injections.

If Avianca Brasil fails as a business before receiving Cade approval, it will be too late and there will be no slots to sell.

Avianca Brasil fell behind on its payroll obligations in March and for months has been battling aircraft lessors trying to repossess parts of its fleet.

The carrier would not receive any funds until Cade approves the operation, which is likely.

… new deal sidelines Azul’s plan

Brazilian carrier Azul recently signed a preliminary agreement to pay at least $105 million for a selection of Avianca Brasil’s assets, a proposal that had been considered a coup by analysts who saw it as a way for Azul to challenge bigger competitors Latam and Gol.

Reports from Brazil, however, indicated that a series of disagreements had emerged between Azul and creditors that threatened to derail the initial $105 million offer.

It has been speculated from the beginning, however, that Latam and Gol would be barred from bidding on Avianca Brasil’s assets due to antitrust concerns.

A potential acquisition by Azul would be less worrying on antitrust grounds, Cade said.

Avianca Brasil’s plan was a setback for rival Azul, which ranks as Brazil’s third-largest airline and has a small presence in those three airports.

According to the Brazilian Airline Association, in February Gol led the Brazilian domestic market with 35.1%, followed by Latam (31.1%), Azul (21.1%) and Avianca Brasil (12.2%).

In São Paulo’s domestic Congonhas airport, Gol and Latam already control a combined 92% of slots while Azul controls just 3%.

Avianca Brasil has 21 slots at Congonhas, the central São Paulo airport, whereas Gol and Latam have 134 slots each.