A Brazilian court has ordered Avianca Brasil to surrender 20% of fleet to lessors. Meanwhile, the carrier downplays the ruling as unnecessary. Even so, investor United Airlines is watching carefully.
BOC Aviation and Constitution Aircraft leases aircraft, mostly Airbus A320, to Avianca Brasil. In August, the airline decided to reduce its fleet by eight aircraft and began negotiating a reduction plan. Negotiating has led to missed payments and now this court order. Still, Avianca Brasil says it does not plan to appeal the ruling and hopes to find an out-of-court settlement.
As an aside, Avianca Brasil is not part of Colombia-based Avianca Holdings SA (at least technically). Owned by Bolivian-born investor German Efromovich, both companies are part of the same holding company.
How United Airlines Plays In
United Airlines, which plans a joint venture with Avianca Holdings SA (Colombia) and Panana-based Copa, extended a personal loan of $456,000,000 to Efromovich last week. The loan was secured by Efromovich’s shares in Avianca Colombia and will reportedly be use to settle other debt. Interestingly, if Efromovich fails to pay back his debt, United would own a substantial chunk of Avianca. This debt issue underscores the sensitive nature of Avianca deal. The Avianca Brasil debt deal could further tie up the $456MN loan, opening the door for United to gain unprecedented access to the Latin America market.
Even with the reduction in fleet, Avianca Brasil remains Brazil’s fourth largest airline. With TAM out of Star Alliance, the carrier provides a critical feed to that market. Look for a deal on the debt. Even so, Efromovich must carefully guard his loan or seek losing control of his airlines. United also partner with Azul, so Avianca is not the only game in town.
Strategically, you have to wonder if United is hoping that this debt service is delayed so it can exert more control in the region.