United Airlines is extending an attractive loan offer to Avianca while vowing to keep the airline independent. At the same time, it is trying to oust the company’s chairman.
Last week, I wrote about the possibility of United taking a majority in control in Avianca thanks to a default by investor-owner Germán Efromovich. Put simply, Avianca is majority-controlled by BRW Aviation, a company owned by Efromovich. BRW Aviation recently defaulted on a $456MN loan from United, giving United the option to exercise far more control over Avianca.
> Read More: United Airlines May Acquire Avianca
For the last week, we have wondered how United would handle this default. Now we know. Earlier this week via a SEC filing, United indicated it would be willing to invest up to $150MN in Avianca, if requested, to help stabilize the airline. Now that plan has been shared with employees.
In a note to employees shared with Live and Let’s Fly, United outlines why it will offer the investment to Avianca:
Today, we announced the possibility of offering Avianca a loan of up to $150 million, assuming certain commitments are made by other Avianca stakeholders. We took this action to strengthen our partnership with Avianca and give Avianca’s management team and employees the very best opportunity to succeed.
This olive branch comes at a pivotal time for the Latin-American carrier, as its stock plummets and it faces a crisis of investor confidence.
Avianca’s success matters to United because they are part of a proposed joint business agreement with United and Copa that would allow us to better serve our customers who want to travel to Latin America. That agreement will work for United and our customers only if Avianca is a reliable partner – and today’s action will give them the best opportunity for success.
United explains that in order for its join-venture partnership to work, Avianca must be an operationally-reliable partner.
United Won’t Interfere With Avianca’s “Operational or Business Decisions”
The note continues:
It will also empower Avianca’s management team to pursue their transformation plan, but Avianca remains an independent company. United has not and will not be making operational or business decisions for Avianca. There is also no change to their membership in Star Alliance and how we work with Avianca connecting passengers across our networks.
United insists it will not be pulling the puppet strings for Avianca.
Avianca is a great company with a long history of serving Colombia, and we expect them to stabilize and improve their profitability, which is good for our customers and, in turn, the value of our partnership in the years ahead.
But United Also Wants to Oust Efromovich
The note to employees mentioned nothing about a parallel action taken by United to oust Efromovich from his role as Chairman.
But the SEC filing I noted above seeks to remove Efromovich by giving control of Avianca to Kingsland Holdings Limited, Avianca’s second-largest shareholder.
In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited, AVH’s largest minority shareholder, has been granted independent authority to manage BRW, which remains the majority shareholder of AVH.
Per Flight Global, Kingsland is owned by former TACA CEO Roberto Kriete. TACA merged with Avianca in 2010.
Addressing the move (in a separate statement), United only offered a cautious statement:
While Avianca will remain an independent company and continue to run their own airline, United strongly supports their company-wide focus on transformation.
Avianca is certainly going through a hard time, though it appears United willing to step in to pause the drop in investor confidence. We don’t know the fine print of the deal, though. Will Avianca accept the offer from its North American partner? Will Efromovich fight his ouster? This will be a fascinating story to watch.