Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or an emerging growth company. See the definitions of large accelerated filer, accelerated filer and emerging growth company in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if
the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of
accounting the registrant has used to prepare the financial statements included in this filing:
If Other has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
On May 10, 2020, Avianca Holdings S.A. and certain of its affiliated entities filed voluntary petitions for chapter 11 relief under title
11 of the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the Southern District of New York, which cases are being jointly administered under Case
No. 20-11133 (MG). We refer to these proceedings in this annual report as our Chapter 11 proceedings. LifeMiles, our loyalty program, is administered by a separate company and is not part of
our Chapter 11 proceedings. As of the date of this annual report, our subsidiary Avianca Peru S.A. has initiated a voluntary dissolution and liquidation process.
The information in this annual report is presented as of December 31, 2019, unless expressly stated otherwise, and is subject to and
qualified in its entirety by our Chapter 11 proceedings and developments related thereto.
The
airline industry has been among the sectors of the global economy most affected by the spread of COVID-19 and related government measures, which have resulted in unprecedented challenges for us. Our management
has since the second half of March 2020 been focused primarily on addressing the unprecedented challenges that the COVID-19 pandemic has created for our business and employees. Consequently, this situation
resulted in a delay in our completion of this annual report on Form 20-F.
In this annual report, we use the terms we, us,
our, the Company and Avianca Holdings to refer to Avianca Holdings S.A., together with its subsidiaries, except where the context requires otherwise.
This annual
report includes our audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017, together with the notes thereto, prepared in accordance with IFRS. Unless otherwise
indicated, all financial information provided in this annual report has been prepared in accordance with IFRS. Our consolidated financial statements prepared in accordance with IFRS are stated in U.S. dollars.
On
February 21, 2018, our board of directors approved the appointment of KPMG S.A.S. as our external auditor as of May 1, 2018. Our consolidated financial statements as of and for the years ended December 31, 2019 and 2018 have been
audited by KPMG S.A.S., independent auditors, as stated in their report included in this annual report. Our consolidated financial statements as of and for the year ended December 31, 2017, included in this annual report, have been audited by
Ernst & Young Audit S.A.S., independent auditors.
In this annual report, references to dollars, U.S. dollars and $ are to the currency of the United States
and references to Colombian pesos, Pesos and COP are to the currency of Colombia. The meaning of the word billion in the Spanish language is different from that in American English. In the Spanish
language, as used in Colombia, a billion is a million millions, which means the number of 1,000,000,000,000, while in American English a billion is a thousand millions, which means 1,000,000,000. In this annual report, the
meaning of billion is as used in American English.
We have converted certain U.S. dollar amounts presented in this annual report from
Colombian peso amounts solely for the convenience of the reader. We make no representation that the peso or U.S. dollar amounts shown in this annual report could have been or could be converted into U.S. dollars or Colombian pesos at the rates shown
in this annual report or at any other rate. The Federal Reserve Bank of New York does not report a noon buying rate
for Colombian pesos. The conversion of amounts expressed in Colombian pesos as of a specified date at the then prevailing exchange rate may result in presentation of U.S. dollar amounts that
differ from U.S. dollar amounts that would have been obtained by converting Colombian pesos as of another specified date.
The rates set
forth in this annual report for conversion of Colombian pesos into U.S. dollars are the rates as of December 31, 2019 published by the Colombian Central Bank (Banco de la República) (Colombian Central Bank), as
reported by the Colombian Financial Superintendency (Superintendencia Financiera de Colombia) (SFC).
As of
December 31, 2019, the exchange rate between the Colombian peso and the U.S. dollar certified by the SFC was COP 3,277.14 per $1.00. As of May 31, 2020, the exchange rate between the Colombian peso and the U.S. dollar certified by the SFC
was COP 3,718.82 per $1.00, which represents a depreciation of 13.5% of the Colombian peso against the U.S. dollar in the first five months of 2020. See Item 10. Additional InformationD. Exchange ControlsExchange Rates.
We calculate Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) as consolidated net profit
for the year plus the sum of income tax expense, depreciation and amortization and impairment, less interest expense, interest income, derivative instruments and foreign exchange, net. We calculate Adjusted EBITDA margin as Adjusted
EBITDA divided by total operating revenue. We present Adjusted EBITDA and Adjusted EBITDA Margin because we believe these are useful indicators of our operating performance and are useful in comparing our operating performance with other companies.
However, Adjusted EBITDA and Adjusted EBITDA Margin are not measures under IFRS and should not be considered in isolation, as a substitute for net profit determined in accordance with IFRS or as a measure of our profitability. Accordingly, you are
cautioned not to place undue reliance on this information and should note that Adjusted EBITDA and Adjusted EBITDA margin, as calculated by us, may differ materially from similarly titled measures reported by other companies, including our
competitors. See Item 3. Key InformationA. Selected Financial Data for a reconciliation of Adjusted EBITDA to net profit.
Certain figures included in this annual report have been rounded for ease of presentation. Percentage figures included in this annual
report have not in all cases been calculated on the basis of rounded figures but on the basis of amounts prior to rounding. For this reason, certain percentage amounts in this annual report may vary from those obtained by performing the same
calculations using the figures in our consolidated financial statements. Certain other amounts that appear in this annual report may not sum due to rounding.
This annual report contains certain statistical data regarding our airline routes and our competitive position and market share in, and the
market size of, the Latin American air transportation market. This information derives from a variety of sources, including the Colombian Civil Aviation Authority (Unidad Administrativa Especial de Aeronáutica Civil)
(CCAA), the Civil Aviation Authority of El Salvador (Autoridad de Aviación Civil) (AAC), the Civil Aviation Authority of Costa Rica (Dirección General de Aviación Civil), the Peruvian Civil
Aviation Authority (Dirección General de Aviación Civil) (Peruvian DGAC), the Ecuadorian Civil Aviation Authority (Dirección General de Aviación Civil) (Ecuadorian DGAC), the
International Air Transport Association (IATA), the Latin American and Caribbean Air Transport Association (ALTA) and other third-party sources, governmental agencies or industry or
general publications.
Information for which no source is cited has been prepared by us on the basis of our knowledge of Latin American
airline markets and other information available to us. The methodologies and terminologies used by different sources are not always consistent, and data from different sources are not readily comparable. In addition, other sources use methodologies
that are not identical to ours and may produce results that differ from our own estimates. Although we have not independently verified the information contained in this annual report concerning competitive positions, market shares, market sizes,
market growth or other similar data that is based upon third-party sources or industry or general publications, we consider these sources and publications to be generally reliable.
This annual report contains the following terms relating to us and to our business and operating performance, several of which are commonly
used in the airline industry:
Aircraft utilization represents the average number of block hours operated per day per aircraft
for an aircraft fleet.
Amended and Restated Joint Action Agreement means the agreement dated as of November 29, 2018 by
and between Avianca Holdings S.A., Kingsland, BRW, United and Synergy.
Available seat kilometers, or ASKs, represents
aircraft seating capacity multiplied by the number of kilometers the seats are flown.
Available ton kilometers, or ATKs,
represents cargo ton capacity multiplied by the number of kilometers the cargo is flown.
Avianca Costa Rica means Avianca Costa Rica S.A., formerly named Líneas
Aéreas Costarricenses, S.A.
Avianca Ecuador means Avianca Ecuador S.A., formerly named Aerolíneas
Galápagos S.A. Aerogal.
Avianca Peru means Avianca Peru S.A., formerly named Trans American Airlines S.A. As of the date of this annual report, Avianca
Peru has initiated a voluntary dissolution and liquidation process. For more information, see Item 4. Information on the CompanyB. Business OverviewRecent DevelopmentsDissolution and Liquidation of Avianca Peru.
Block hours means the elapsed time between an aircraft leaving an airport gate and arriving at an airport gate.
BRW means BRW Aviation LLC, a Delaware limited liability company and wholly owned subsidiary of Synergy, that as of the date of
this annual report holds 515,999,999, or 78.1% of our voting common shares, which represents 51.5% of our total outstanding shares. BRW is owned by BRW Aviation Holding LLC (BRW Holding), which is owned by Synergy, a company indirectly
controlled by Mr. José Efromovich and his brother Mr. Germán Efromovich.
Code share alliance means our code share agreements with other airlines with which we have business arrangements
to share the same flight. A seat can be purchased on one airline but is actually operated by a cooperating airline under a different flight number or code. The term code means the identifier used in flight schedules, generally the two-character IATA airline designator code and flight number. Code share alliances allow greater access to cities through a given airlines network without the need to offer extra flights and makes connections
simpler by allowing single bookings across multiple planes.
Copa means Compañía Panameña de
Aviación, S.A., including, as applicable, certain of its subsidiaries and affiliates relevant in the context of the United Copa Transaction.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended.
IFRS means the International Financial Reporting Standards and applicable accounting
requirements set by the International Accounting Standards Board or any successor thereto, as in effect from time to time.
Independent Third Party means the person that United and BRW identify and select, after consultation with Kingsland and as soon as
reasonably practicable after the date of execution of the Amended and Restated Joint Action Agreement, to exercise certain rights that have been delegated by Kingsland in relation to the Amended and Restated Joint Action Agreement and the
Companys charter (pacto social), including the right to vote Kingslands shares, the right to approve certain strategic and operational transactions and any other rights afforded to shareholders generally under the Amended and
Restated Joint Action Agreement and the Company charter, except for, among others, Kingslands rights in connection with the composition of Avianca Holdings board of directors, Kingslands
tag-along rights as specified in the Amended and Restated Joint Action Agreement and all statutory rights afforded to Kingsland as a shareholder of Avianca Holdings under certain rules of Panamanian law. Until
election of such Independent Third Party by United and BRW, the Independent Third Party is Kingsland. As of the date of this annual report, the Independent Third Party has not been appointed by United and BRW. For more information, see Exhibit
2.3.17Amended and Restated Joint Action Agreement and Exhibit 2.47Share Rights Agreement.
Joint
Action Agreement means the agreement dated September 11, 2013, as amended March 24, 2015, between Avianca Holdings, Kingsland and Synergy.
Joint Business Agreement means the agreement dated November 29, 2018 by and between certain members of the Avianca Holdings
group, United, Copa and Aerorepublica, S.A.
Kingsland means Kingsland Holdings Limited, a company incorporated under the laws
of the Commonwealth of the Bahamas, which is indirectly wholly owned by the Atlantis Trust. Mr. Roberto Kriete and his family have dispositive voting power of Kingslands shares.
Load factor represents the percentage of aircraft seating capacity that is actually utilized and is calculated by dividing revenue
passenger kilometers by ASKs, unless stated otherwise.
Operating revenue per available seat kilometer, or RASK, represents operating revenue divided by ASKs.
Passenger operating revenue per available seat kilometer, or PRASK, represents passenger operating revenue divided by ASKs.
Revenue passenger kilometers, or RPKs, represent the number of kilometers flown by revenue passengers.
Revenue passengers represents the total number of paying passengers (which do not include passengers redeeming LifeMiles
(previously named AviancaPlus or Distancia) frequent flyer miles or other travel awards) flown on all flight segments (with each connecting segment being considered a separate flight segment).
Revenue ton kilometers, or RTKs, represents the total cargo tonnage uplifted multiplied by the number of kilometers the
cargo is flown.
Share Rights Agreement means the agreement dated as of November 29, 2018 by and between Avianca
Holdings, Kingsland, BRW and United.
Synergy means Synergy Aerospace Corp, indirectly controlled by Mr. José
Efromovich and his brother Mr. Germán Efromovich, and which is the indirect controlling shareholder of BRW.
Technical dispatch reliability represents the percentage of scheduled flights that are not delayed at departure more than
15 minutes or cancelled, in each case due to technical problems.
United means United Airlines, Inc., including, as
applicable, certain of its subsidiaries and affiliates relevant in the context of the United Copa Transaction.
United Approval Notice means a notice given by United pursuant to the Share Rights
Agreement, pursuant to which United notifies the other parties to the Share Rights Agreement that (i) United has determined that its exercise of any or all of the rights that have been delegated to the Independent Third Party by Kingsland can
be exercised by United or its designee without this exercise constituting control within the meaning of such term within any of Uniteds collective bargaining agreements or other material agreements, or (ii) United is otherwise
prepared to exercise any or all of such rights.
United Loan means the loan agreement dated as of November 29, 2018 between BRW Aviation LLC, as borrower, BRW Holding, as
guarantor, United, as lender, and Wilmington Trust, National Association (Wilmington Trust), as administrative and collateral agent.
Yield represents the average amount one passenger pays to fly one kilometer, or passenger revenue divided by RPKs, unless
stated otherwise.
This annual report includes forward-looking statements, principally under the captions Item 4. Information on the CompanyB.
Business Overview, Item 3. Key InformationD. Risk Factors and Item 5. Operating and Financial Review and Prospects. Our estimates and forward-looking statements are mainly based on our expectations as of the date
of this annual report and estimates on events and trends that affect or may affect our business, financial condition, results of operations, liquidity and prospects. They are made considering information currently available to us and are not
guarantees of future performance. Although we believe that these estimates and forward-looking statements are based upon assumptions that we believe to be reasonable in all material respects, they are subject to several risks, uncertainties and
assumptions.
Our estimates and forward-looking statements may be affected by the following factors, among others:
The words believe, may, should, would, aim, estimate,
continue, anticipate, intend, will, expect, plan and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning
our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, strategies for reducing costs and increasing operational efficiency, potential selected growth opportunities, the
effects of regulation and the effects of competition. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual
report because of new information, events or other factors. In light of the risks and uncertainties described above, the future events and circumstances discussed in this annual report might not occur or come into existence and forward-looking
statements are not guarantees of future performance. Considering these limitations, you should not place undue reliance on forward-looking statements contained in this annual report.
PART I
Item 1.
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Identity of Directors, Senior Management and Advisers
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Not applicable.
Item 2.
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Offer Statistics and Expected Timetable
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Not applicable.
A.
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Selected Financial Data
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The following tables present selected consolidated financial and operating information as of the dates and for the periods indicated. The
selected consolidated financial information derives from our audited consolidated financial statements. You should read this information together with our audited consolidated financial statements, and related notes thereto, included elsewhere in
this annual report, Presentation of Financial and Other Information and Item 5. Operating and Financial Review and Prospects.
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As of December 31,
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2019
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2018
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2017
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2016
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2015
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(in $ millions)
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Consolidated Balance Sheet Data
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Assets
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Current assets:
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Cash and cash equivalents
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342.5
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273.1
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509.0
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375.8
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479.4
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Restricted cash
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4.8
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5.5
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5.4
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5.4
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Short-term investments
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55.4
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59.8
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Trade and other receivables net of expected credit losses
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233.7
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288.2
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226.0
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313.9
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279.6
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Accounts receivable from related parties
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3.4
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6.3
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17.2
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19.3
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23.1
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Current tax assets
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198.7
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231.9
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114.4
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Expendable spare parts and supplies, net of provision for obsolescence
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88.3
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90.4
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97.2
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82.4
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68.8
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Prepaid expenses
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69.0
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99.9
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99.7
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59.7
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45.7
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Deposits and other assets
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39.2
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29.9
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202.0
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160.1
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130.7
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1,030.2
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1,084.3
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1,271.0
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1,016.6
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1,032.7
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Assets held for sale
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681.1
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31.6
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3.3
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Total current assets
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1,711.3
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1,115.9
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1,271.0
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1,016.6
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1,036.0
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Non-current assets:
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Available-for-sale securities
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0.1
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0.8
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Deposits and other assets
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54.1
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115.6
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116.4
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174.0
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246.5
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Trade and other receivables net of expected credit losses
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22.5
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35.5
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4.1
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92.0
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59.7
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Non-current tax assets
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136.3
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Intangible assets and goodwill, net
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505.5
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513.8
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426.6
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412.9
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413.8
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Deferred tax assets
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27.2
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24.6
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26.0
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5.8
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5.8
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Property and equipment, net
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4,953.3
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5,313.3
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4,881.0
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4,649.9
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4,599.3
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Total non-current assets
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5,562.6
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6,002.8
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5,590.4
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5,443.7
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5,325.9
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Total assets
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7,273.9
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7,118.7
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6,861.4
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6,351.3
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6,361.9
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1
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As of December 31,
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2019
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2018
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2017
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2016
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2015
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(in $ millions)
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Liabilities and equity
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Current liabilities:
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Short-term borrowings and current portion of long-term debt
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872.0
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626.7
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572.1
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406.7
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412.9
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Accounts payable
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530.6
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664.3
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495.0
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493.1
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480.6
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Accounts payable to related parties
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3.7
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2.8
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7.2
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9.1
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9.4
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Accrued expenses
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87.6
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108.7
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186.7
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138.8
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118.2
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Current tax liabilities
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26.4
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26.7
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31.9
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Provisions for legal claims
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20.3
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|
|
|
7.8
|
|
|
|
11.7
|
|
|
|
18.5
|
|
|
|
13.4
|
|
Provisions for return conditions
|
|
|
22.0
|
|
|
|
2.5
|
|
|
|
19.1
|
|
|
|
53.1
|
|
|
|
52.6
|
|
Employee benefits
|
|
|
148.7
|
|
|
|
125.1
|
|
|
|
38.7
|
|
|
|
39.6
|
|
|
|
32.9
|
|
Air traffic liability
|
|
|
337.4
|
|
|
|
424.6
|
|
|
|
454.0
|
|
|
|
521.2
|
|
|
|
433.6
|
|
Frequent flyer deferred revenue
|
|
|
187.9
|
|
|
|
186.4
|
|
|
|
85.2
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5.1
|
|
|
|
3.9
|
|
|
|
9.4
|
|
|
|
11.1
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,241.7
|
|
|
|
2,179.5
|
|
|
|
1,911.0
|
|
|
|
1,691.2
|
|
|
|
1,566.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities associated with the assets held for sale
|
|
|
490.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,732.2
|
|
|
|
2,179.5
|
|
|
|
1,911.0
|
|
|
|
1,691.2
|
|
|
|
1,566.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,984.3
|
|
|
|
3,380.8
|
|
|
|
3,180.0
|
|
|
|
2,867.5
|
|
|
|
3,060.1
|
|
Accounts payable
|
|
|
11.9
|
|
|
|
7.1
|
|
|
|
5.1
|
|
|
|
2.7
|
|
|
|
3.6
|
|
Provisions for return conditions
|
|
|
122.4
|
|
|
|
127.7
|
|
|
|
144.1
|
|
|
|
120.8
|
|
|
|
109.2
|
|
Employee benefits
|
|
|
118.3
|
|
|
|
110.1
|
|
|
|
135.6
|
|
|
|
115.6
|
|
|
|
127.7
|
|
Deferred tax liabilities
|
|
|
18.5
|
|
|
|
18.4
|
|
|
|
25.8
|
|
|
|
20.4
|
|
|
|
13.5
|
|
Frequent flyer deferred revenue
|
|
|
229.7
|
|
|
|
234.3
|
|
|
|
104.8
|
|
|
|
98.1
|
|
|
|
93.5
|
|
Other liabilities non-current
|
|
|
51.5
|
|
|
|
68.2
|
|
|
|
15.3
|
|
|
|
14.7
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
4,536.6
|
|
|
|
3,946.6
|
|
|
|
3,610.7
|
|
|
|
3,239.8
|
|
|
|
3,429.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,268.8
|
|
|
|
6,126.1
|
|
|
|
5,521.7
|
|
|
|
4,931.0
|
|
|
|
4,989.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
82.6
|
|
|
|
82.6
|
|
|
|
82.6
|
|
|
|
82.6
|
|
|
|
82.6
|
|
Preferred stock
|
|
|
42.0
|
|
|
|
42.0
|
|
|
|
42.0
|
|
|
|
42.0
|
|
|
|
42.0
|
|
Additional paid-in capital on common stock
|
|
|
234.6
|
|
|
|
234.6
|
|
|
|
234.6
|
|
|
|
234.6
|
|
|
|
234.6
|
|
Additional paid-in capital on preferred stock
|
|
|
469.3
|
|
|
|
469.3
|
|
|
|
469.3
|
|
|
|
469.3
|
|
|
|
469.3
|
|
Retained (losses) earnings
|
|
|
(543.1
|
)
|
|
|
386.1
|
|
|
|
588.0
|
|
|
|
565.1
|
|
|
|
553.7
|
|
Other comprehensive loss
|
|
|
(78.1
|
)
|
|
|
(44.1
|
)
|
|
|
(0.8
|
)
|
|
|
6.9
|
|
|
|
(28.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to the Company
|
|
|
207.3
|
|
|
|
1,170.5
|
|
|
|
1,415.7
|
|
|
|
1,400.5
|
|
|
|
1,354.1
|
|
Non-controlling interest
|
|
|
(202.2
|
)
|
|
|
(177.9
|
)
|
|
|
(76.0
|
)
|
|
|
19.8
|
|
|
|
18.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
5.1
|
|
|
|
992.6
|
|
|
|
1,339.7
|
|
|
|
1,420.3
|
|
|
|
1,372.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
7,273.9
|
|
|
|
7,118.7
|
|
|
|
6,861.4
|
|
|
|
6,351.3
|
|
|
|
6,361.9
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in $ millions, except earnings and dividends per share / ADS data)
|
|
Consolidated Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
3,904.8
|
|
|
|
4,074.4
|
|
|
|
3,550.2
|
|
|
|
3,285.2
|
|
|
|
3,458.0
|
|
Cargo and other
|
|
|
716.7
|
|
|
|
816.4
|
|
|
|
891.5
|
|
|
|
853.1
|
|
|
|
903.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
4,621.5
|
|
|
|
4,890.8
|
|
|
|
4,441.7
|
|
|
|
4,138.3
|
|
|
|
4,361.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight operations
|
|
|
75.7
|
|
|
|
153.6
|
|
|
|
92.5
|
|
|
|
58.4
|
|
|
|
58.1
|
|
Aircraft fuel
|
|
|
1,204.1
|
|
|
|
1,213.4
|
|
|
|
923.5
|
|
|
|
785.3
|
|
|
|
1,006.8
|
|
Ground operations
|
|
|
478.0
|
|
|
|
474.8
|
|
|
|
450.2
|
|
|
|
426.2
|
|
|
|
412.4
|
|
Rentals
|
|
|
11.8
|
|
|
|
267.7
|
|
|
|
278.8
|
|
|
|
314.5
|
|
|
|
317.5
|
|
Passenger services
|
|
|
176.4
|
|
|
|
188.7
|
|
|
|
166.9
|
|
|
|
151.7
|
|
|
|
149.3
|
|
Maintenance and repairs
|
|
|
257.6
|
|
|
|
206.5
|
|
|
|
280.5
|
|
|
|
260.7
|
|
|
|
309.7
|
|
Air traffic
|
|
|
279.0
|
|
|
|
269.6
|
|
|
|
242.6
|
|
|
|
219.0
|
|
|
|
203.0
|
|
Selling expenses
|
|
|
500.2
|
|
|
|
530.9
|
|
|
|
515.1
|
|
|
|
545.3
|
|
|
|
612.8
|
|
Fees and other expenses
|
|
|
411.6
|
|
|
|
203.3
|
|
|
|
177.9
|
|
|
|
187.6
|
|
|
|
176.2
|
|
Salaries, wages and benefits
|
|
|
717.3
|
|
|
|
760.8
|
|
|
|
706.8
|
|
|
|
661.7
|
|
|
|
666.1
|
|
Depreciation and amortization
|
|
|
593.4
|
|
|
|
350.5
|
|
|
|
313.4
|
|
|
|
269.5
|
|
|
|
230.7
|
|
Impairment
|
|
|
470.7
|
|
|
|
38.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,175.8
|
|
|
|
4,658.7
|
|
|
|
4,148.0
|
|
|
|
3,879.9
|
|
|
|
4,142.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
|
(554.3
|
)
|
|
|
232.1
|
|
|
|
293.6
|
|
|
|
258.5
|
|
|
|
218.8
|
|
Interest expense
|
|
|
(299.9
|
)
|
|
|
(212.3
|
)
|
|
|
(183.3
|
)
|
|
|
(172.6
|
)
|
|
|
(169.4
|
)
|
Interest income
|
|
|
9.0
|
|
|
|
10.1
|
|
|
|
13.5
|
|
|
|
13.1
|
|
|
|
19.0
|
|
Derivative instruments
|
|
|
(2.1
|
)
|
|
|
(0.3
|
)
|
|
|
(2.5
|
)
|
|
|
3.3
|
|
|
|
0.6
|
|
Foreign exchange, net
|
|
|
(24.2
|
)
|
|
|
(9.2
|
)
|
|
|
(20.2
|
)
|
|
|
(23.9
|
)
|
|
|
(177.5
|
)
|
Equity method profit
|
|
|
1.5
|
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Profit (loss) before income tax
|
|
|
(870.0
|
)
|
|
|
21.4
|
|
|
|
102.1
|
|
|
|
78.3
|
|
|
|
(108.5
|
)
|
Total income tax expense
|
|
|
(24.0
|
)
|
|
|
(20.2
|
)
|
|
|
(20.1
|
)
|
|
|
(34.1
|
)
|
|
|
(31.0
|
)
|
Net (loss) profit for the year
|
|
|
(894.0
|
)
|
|
|
1.1
|
|
|
|
82.0
|
|
|
|
44.2
|
|
|
|
(139.5
|
)
|
Earnings and dividends per share / ADS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) profit attributable to equity holders of the parent
|
|
|
(913.7
|
)
|
|
|
(24.8
|
)
|
|
|
48.2
|
|
|
|
17.0
|
|
|
|
(155.4
|
)
|
Net profit attributable to non-controlling
interest
|
|
|
19.7
|
|
|
|
25.9
|
|
|
|
33.8
|
|
|
|
27.2
|
|
|
|
15.9
|
|
Basic and diluted (loss) earnings per share (common and preferred)
|
|
|
(0.92
|
)
|
|
|
(0.025
|
)
|
|
|
0.05
|
|
|
|
0.04
|
|
|
|
(0.14
|
)
|
Basic and diluted (loss) earnings per ADS
|
|
|
(7.3
|
)
|
|
|
(0.20
|
)
|
|
|
0.40
|
|
|
|
0.32
|
|
|
|
(1.12
|
)
|
Common and preferred share dividends per share
(COP/$)
|
|
|
50 / 0.02
|
|
|
|
98.6 / 0.04
|
|
|
|
77.0 / 0.03
|
|
|
|
50 / 0.02
|
|
|
|
198.5 / 0.07
|
|
Common shares at period end
|
|
|
660,800,003
|
|
|
|
660,800,003
|
|
|
|
660,800,003
|
|
|
|
660.800,003
|
|
|
|
60,800,003
|
|
Preferred shares at period end
|
|
|
336,187,285
|
|
|
|
336,187,285
|
|
|
|
336,187,285
|
|
|
|
336,187,285
|
|
|
|
336,187,285
|
|
Weighted average of common shares used in computing earnings per share (thousands)
|
|
|
660,800
|
|
|
|
660,800
|
|
|
|
660,800
|
|
|
|
660,800
|
|
|
|
660,800
|
|
Weighted average of preferred shares used in computing earnings per share (thousands)
|
|
|
336,187
|
|
|
|
336,187
|
|
|
|
336,187
|
|
|
|
336,187
|
|
|
|
336,187
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in $ millions)
|
|
Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) profit for the period
|
|
|
(894.0
|
)
|
|
|
1.1
|
|
|
|
82.0
|
|
|
|
44.2
|
|
|
|
(139.5
|
)
|
Net cash provided by operating activities
|
|
|
448.3
|
|
|
|
703.1
|
|
|
|
527.3
|
|
|
|
568.0
|
|
|
|
363.0
|
|
Net cash (used in) investing activities
|
|
|
(8.5
|
)
|
|
|
(493.8
|
)
|
|
|
(206.0
|
)
|
|
|
(118.4
|
)
|
|
|
(330.5
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(365.1
|
)
|
|
|
(426.2
|
)
|
|
|
(195.6
|
)
|
|
|
(550.5
|
)
|
|
|
18.1
|
|
Cash and cash equivalents at end of the period
|
|
|
342.5
|
|
|
|
273.1
|
|
|
|
509.0
|
|
|
|
375.8
|
|
|
|
479.4
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in $ millions)
|
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1)
|
|
|
511.3
|
|
|
|
622.4
|
|
|
|
608.0
|
|
|
|
459.7
|
|
|
|
387.5
|
|
Total operating revenue
|
|
|
4,621.5
|
|
|
|
4,890.8
|
|
|
|
4,441.7
|
|
|
|
4,138.3
|
|
|
|
4,361.3
|
|
Operating margin(2)
|
|
|
(12.0
|
)%
|
|
|
4.7
|
%
|
|
|
6.6
|
%
|
|
|
6.2
|
%
|
|
|
5.0
|
%
|
Adjusted EBITDA margin(3)
|
|
|
11.1
|
%
|
|
|
12.7
|
%
|
|
|
13.7
|
%
|
|
|
20.4
|
%
|
|
|
17.6
|
%
|
(1)
|
We calculate Adjusted EBITDA as consolidated net profit for the year plus the sum of income tax expense,
depreciation and amortization and impairment, less interest expense, interest income, derivative instruments and foreign exchange, net. Our calculation of Adjusted EBITDA may not be comparable to other companies similarly titled
measures.
|
(2)
|
We calculate operating margin as operating (loss) profit divided by total operating revenue.
|
(3)
|
We calculate Adjusted EBITDA margin as Adjusted EBITDA divided by total operating revenue.
|
The following table presents a reconciliation of our net profit to Adjusted EBITDA for the specified periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net (loss) profit for the year
|
|
|
(894.0
|
)
|
|
|
1.1
|
|
|
|
82.0
|
|
|
|
44.2
|
|
|
|
(139.5
|
)
|
+ Income tax expense
|
|
|
24.0
|
|
|
|
20.2
|
|
|
|
20.1
|
|
|
|
(34.1
|
)
|
|
|
(31.0
|
)
|
+ Depreciation and amortization
|
|
|
593.4
|
|
|
|
350.5
|
|
|
|
313.4
|
|
|
|
269.5
|
|
|
|
230.7
|
|
+ Impairment
|
|
|
470.7
|
|
|
|
38.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(-) Interest expense
|
|
|
(299.9
|
)
|
|
|
(212.3
|
)
|
|
|
(183.3
|
)
|
|
|
(172.6
|
)
|
|
|
(169.4
|
)
|
(-) Interest income
|
|
|
9.0
|
|
|
|
10.1
|
|
|
|
13.5
|
|
|
|
13.1
|
|
|
|
19.0
|
|
(-) Derivative instruments
|
|
|
(2.2
|
)
|
|
|
(0.3
|
)
|
|
|
(2.5
|
)
|
|
|
3.3
|
|
|
|
0.6
|
|
(-) Foreign exchange, net
|
|
|
(24.2
|
)
|
|
|
(9.2
|
)
|
|
|
(20.2
|
)
|
|
|
(23.9
|
)
|
|
|
(177.5
|
)
|
Adjusted EBITDA
|
|
|
511.3
|
|
|
|
622.4
|
|
|
|
608.0
|
|
|
|
459.7
|
|
|
|
387.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(as indicated below)
|
|
Other data(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passengers carried (in thousands)
|
|
|
30,538
|
|
|
|
30,628
|
|
|
|
29,459
|
|
|
|
29,480
|
|
|
|
28,290
|
|
Revenue passengers carried (in thousands)
|
|
|
29,580
|
|
|
|
29,674
|
|
|
|
28,574
|
|
|
|
28,578
|
|
|
|
27,378
|
|
RPKs (in millions)
|
|
|
44,460
|
|
|
|
44,267
|
|
|
|
40,243
|
|
|
|
38,233
|
|
|
|
35,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(as indicated below)
|
|
ASK (in millions)
|
|
|
54,410
|
|
|
|
53,310
|
|
|
|
48,401
|
|
|
|
47,145
|
|
|
|
44,513
|
|
Load factor
|
|
|
81.7
|
%
|
|
|
83.0
|
%
|
|
|
83.1
|
%
|
|
|
81.1
|
%
|
|
|
79.7
|
%
|
Block hours
|
|
|
585,804
|
|
|
|
588,902
|
|
|
|
562,431
|
|
|
|
571,820
|
|
|
|
547,859
|
|
Aircraft utilization
|
|
|
10.1
|
|
|
|
9.7
|
|
|
|
9.9
|
|
|
|
10.3
|
|
|
|
10.1
|
|
Average one-way passenger fare ($)
|
|
|
132.0
|
|
|
|
137.3
|
|
|
|
124.2
|
|
|
|
115.0
|
|
|
|
126.3
|
|
Yield
|
|
|
8.8
|
|
|
|
9.2
|
|
|
|
8.8
|
|
|
|
8.6
|
|
|
|
9.7
|
|
PRASK
|
|
|
7.2
|
|
|
|
7.6
|
|
|
|
7.3
|
|
|
|
7.0
|
|
|
|
7.8
|
|
RASK
|
|
|
8.5
|
|
|
|
9.2
|
|
|
|
9.2
|
|
|
|
8.8
|
|
|
|
9.8
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASK
|
|
|
9.5
|
|
|
|
8.7
|
|
|
|
8.6
|
|
|
|
8.2
|
|
|
|
9.3
|
|
CASK excluding fuel
|
|
|
7.3
|
|
|
|
6.5
|
|
|
|
6.7
|
|
|
|
6.6
|
|
|
|
7.0
|
|
RTK (in millions)
|
|
|
1,578
|
|
|
|
1,409
|
|
|
|
1,420
|
|
|
|
1,291
|
|
|
|
1,259
|
|
ATK (in millions)
|
|
|
2,732
|
|
|
|
2,460
|
|
|
|
2,489
|
|
|
|
2,346
|
|
|
|
2,152
|
|
Gallons of fuel consumed (in thousands)
|
|
|
538,990
|
|
|
|
518,248
|
|
|
|
483,512
|
|
|
|
481,803
|
|
|
|
461,268
|
|
Average price of jet fuel into plane (net of hedge) ($/gallon)
|
|
|
2.23
|
|
|
|
2.34
|
|
|
|
1.91
|
|
|
|
1.63
|
|
|
|
2.18
|
|
Average stage length (kilometers)(3)
|
|
|
1,202
|
|
|
|
1,129
|
|
|
|
1,069
|
|
|
|
1,019
|
|
|
|
1,002
|
|
On-time domestic performance(4)
|
|
|
75.9
|
%
|
|
|
67.1
|
%
|
|
|
69.9
|
%
|
|
|
77.4
|
%
|
|
|
83.5
|
%
|
On-time international performance(5)
|
|
|
82.9
|
%
|
|
|
77.2
|
%
|
|
|
81.1
|
%
|
|
|
83.1
|
%
|
|
|
85.7
|
%
|
Completion rate(6)
|
|
|
98.4
|
%
|
|
|
97.3
|
%
|
|
|
95.2
|
%
|
|
|
98.1
|
%
|
|
|
98.5
|
%
|
Technical dispatch reliability(7)
|
|
|
99.6
|
%
|
|
|
99.5
|
%
|
|
|
99.5
|
%
|
|
|
99.5
|
%
|
|
|
99.5
|
%
|
Departures(8)
|
|
|
280,466
|
|
|
|
293,307
|
|
|
|
291,013
|
|
|
|
304,827
|
|
|
|
299,192
|
|
Average daily departures
|
|
|
768
|
|
|
|
804
|
|
|
|
797
|
|
|
|
835
|
|
|
|
820
|
|
Airports served at period end
|
|
|
76
|
|
|
|
78
|
|
|
|
106
|
|
|
|
106
|
|
|
|
104
|
|
Routes served at period end
|
|
|
139
|
|
|
|
134
|
|
|
|
171
|
|
|
|
170
|
|
|
|
179
|
|
Direct sales as % of total sales(9)
|
|
|
35.9
|
%
|
|
|
33.8
|
%
|
|
|
33.4
|
%
|
|
|
33.7
|
%
|
|
|
34.1
|
%
|
|
|
|
|
|
|
Revenue per full-time employee plus cooperative members ($ thousands)
|
|
|
221
|
|
|
|
224
|
|
|
|
176
|
|
|
|
196
|
|
|
|
206
|
|
Full-time employees and cooperative members at period end
|
|
|
16,707
|
|
|
|
18,338
|
|
|
|
18,641
|
|
|
|
20,449
|
|
|
|
20,485
|
|
Other full-time employees (2019 includes SAI, Aerounión and LatinCo; 2018 includes La
Costeña and Getcom)
|
|
|
4,158
|
|
|
|
2,901
|
|
|
|
5,907
|
|
|
|
|
|
|
|
|
|
Total employees (headcount)
|
|
|
20,865
|
|
|
|
21,861
|
|
|
|
25,306
|
|
|
|
21,061
|
|
|
|
21,145
|
|
(1)
|
Operating data does not include cargo operations, except for block hours, departures, average daily aircraft
utilization, gallons of fuel consumed, average price of jet fuel into plane (net of hedge), full-time employees and cooperative members at period end, revenue per full-time employee plus cooperative members, RTK and ATK.
|
(2)
|
Operating data does not include regional operations in Central America, except for airports served at period
end, full-time employees and cooperative members at period end, revenue per full-time employee plus cooperative members.
|
(3)
|
The average number of kilometers flown per flight does not include freight operations.
|
(4)
|
Percentage of domestic scheduled flights that arrive at the gate within 15 minutes of the scheduled arrival.
Does not include Sansa Airlines operation.
|
(5)
|
Percentage of international scheduled flights that arrive at the gate within 15 minutes of the scheduled
arrival. Does not include Sansa Airlines operation.
|
(6)
|
Percentage of scheduled flights that arrive at the destination gate (other than flights cancelled with at least
168 hours notice). Does not include Sansa Airlines operation.
|
(7)
|
Percentage of scheduled flights that are not delayed at departure more than 15 minutes or cancelled, in each
case, due to technical problems.
|
(8)
|
Includes passenger and cargo operations.
|
(9)
|
Direct sales include sales from our ticket offices, our call centers, direct agents and our website.
|
B.
|
Capitalization and Indebtedness
|
Not applicable.
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable.
An investment in the American Depositary Shares (ADSs) representing our preferred shares involves a high degree of risk. You should
carefully consider the risks described below, as well as other information included in this annual report, before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected
by any of these risks. The trading price of the ADSs could decline due to any of these risks, and you may lose all or part of your investment. The risks described below are those known to us that we believe as of the date of this annual report may
materially affect us.
For purposes of this section, when we state that a risk, uncertainty or problem may, could, would or will have an
adverse effect on us or adversely affect us, we mean that the risk, uncertainty or problem could have an adverse
5
effect on our ability to emerge from Chapter 11 proceedings and implement a reorganization plan, as well as on our business, financial condition, results of operations, cash flow, prospects,
reputation and/or the trading price of the ADSs, except as otherwise indicated. You should view similar expressions in this section as having similar meanings.
Risks Relating to Our Chapter 11 Proceedings
We
are subject to the risks and uncertainties associated with our Chapter 11 proceedings.
As a consequence of our filing Chapter 11
petitions, our operations and our ability to develop and execute our business plan, as well as our continuation as a going concern, will be subject to the risks and uncertainties associated with bankruptcy. These risks include our ability to:
|
|
|
confirm and consummate a plan of reorganization with respect to our Chapter 11 proceedings;
|
|
|
|
obtain sufficient financing, including for working capital whether from debtor-in-possession financing or
otherwise, and emerge from bankruptcy and execute our business plan post-emergence, as well as comply with the terms and conditions of that financing;
|
|
|
|
maintain our relationships with our creditors, suppliers, service providers, customers, directors, officers and
employees; and
|
|
|
|
maintain contracts that are critical to our operations on reasonably acceptable terms and conditions.
|
We will also be subject to risks relating to, among others:
|
|
|
the high costs of bankruptcy proceedings and related fees;
|
|
|
|
the ability of third parties to seek and obtain court approval to (i) terminate contracts and other
agreements with us, (ii) shorten the exclusivity period for us to propose and confirm a Chapter 11 plan or to appoint a Chapter 11 trustee or (iii) convert the Chapter 11 proceedings to Chapter 7 liquidation proceedings; and
|
|
|
|
the actions and decisions of our creditors and other third parties who have interests in our Chapter 11
proceedings that may be inconsistent with our plans.
|
Any delays in our Chapter 11 proceedings increase the risks of our
inability to reorganize our business and emerge from bankruptcy and may increase our costs associated with the reorganization process.
Because of the many risks and uncertainties associated with a voluntary filing for relief under Chapter 11 and the related proceedings, we
cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 proceedings may have on us and there is no certainty as to our ability to continue as a going concern.
Additionally, our Chapter 11 proceedings may require us to seek
debtor-in-possession financing to fund operations. If we are unable to obtain such financing on favorable terms or at all, our chances of successfully reorganizing our
business may be seriously jeopardized and the likelihood that we instead will be required to liquidate our assets may be enhanced. Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to
our plan of reorganization. Even once a plan of reorganization is approved and implemented, we may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that has recently
emerged from Chapter 11 proceedings.
We may not be able to obtain confirmation of a Chapter 11 plan of reorganization.
To emerge successfully from bankruptcy court protection as a viable entity, we must meet certain statutory requirements with respect to
adequacy of disclosure regarding a plan of reorganization, solicit and obtain the requisite acceptances of our plan, demonstrate the feasibility of our plan to the bankruptcy court by a preponderance of the evidence and fulfill other statutory
conditions for confirmation of our plan, which have not occurred to date. The confirmation process can be subject to numerous unanticipated potential delays. We cannot assure you that a plan of reorganization will be approved by the bankruptcy
court.
The success of any reorganization will depend on approval by the bankruptcy court and the willingness of our creditors to agree to
the exchange or modification of their claims as will be outlined in a plan of reorganization, and there can be no guarantee of success with respect to any plan of reorganization. We may receive objections to confirmation of any plan of
reorganization from various stakeholders in our Chapter 11 proceedings. We cannot predict the impact that any objection to or third party motion during our Chapter 11 proceedings may have on the bankruptcy courts decision to confirm a plan of
reorganization or our ability to complete a plan of reorganization.
6
If a plan of reorganization is not confirmed by the bankruptcy court, it is unclear whether we
would be able to reorganize our business and what, if any, distributions holders of claims against us, including holders of the ADSs, would ultimately receive with respect to their claims. There can be no assurance as to whether or when we will
successfully reorganize and emerge from our Chapter 11 proceedings. If no plan of reorganization can be confirmed, or the bankruptcy court finds that it would be in the best interest of creditors, the bankruptcy court may convert our Chapter 11
proceedings to cases under Chapter 7 of the bankruptcy code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the bankruptcy code.
The pursuit of our Chapter 11 proceedings have consumed, and will continue to consume, a substantial portion of the time and attention of our
management, which may adversely affect us, and we may face increased levels of employee attrition.
It is impossible to predict
with certainty the amount of time that we could spend in our Chapter 11 proceedings or to assure parties in interest that a plan of reorganization will be confirmed. Our Chapter 11 proceedings may involve additional expense and our management will
be required to spend a significant amount of time and effort focusing on the proceedings. This diversion of attention may adversely affect us, particularly if the Chapter 11 proceedings are protracted.
During the pendency of the Chapter 11 proceedings, our employees will face considerable distraction and uncertainty, and we may experience
increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could impair our ability to execute our strategy and implement operational initiatives, thereby adversely affecting us.
We have substantial liquidity needs and may not be able to obtain sufficient liquidity to confirm a plan of reorganization and exit our Chapter 11
proceedings successfully.
Although we have taken multiple measures to reduce our expenses and have reduced the scale of our
operations significantly, mainly as a result of developments relating to the spread of COVID-19, our business remains capital intensive. In addition to the cash requirements necessary to fund our ongoing
operations, we have incurred significant professional fees and other costs in connection with our reorganization and expect that we will continue to incur significant professional fees and costs throughout our Chapter 11 proceedings. There are no
assurances that our liquidity is sufficient to allow us to satisfy our obligations related to our Chapter 11 proceedings, to proceed with the confirmation of a Chapter 11 plan of reorganization and to emerge successfully from our Chapter 11
proceedings.
We can provide no assurance that we will be able to secure additional interim financing or exit financing sufficient to meet
our liquidity needs. Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to comply with the terms and conditions of the cash management order entered by the
bankruptcy court in connection with our Chapter 11 proceedings, (ii) our ability to maintain adequate cash on hand, (iii) our ability to generate cash flow from operations, which depends largely on factors beyond our control relating to
developments deriving from the spread of COVID-19, (iv) our ability to confirm and consummate a Chapter 11 plan of reorganization and (v) the cost, duration and outcome of the Chapter 11 proceedings.
Any Chapter 11 plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us. If these
assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.
Any plan of reorganization we may
implement could affect our capital structure and operation of our business and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other
factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to: (i) our ability
to change substantially our capital structure, (ii) our ability to obtain adequate liquidity and access financing sources, (iii) our ability to maintain customers confidence in our viability as a going concern, (iv) our ability
to retain key employees and (v) the overall strength and stability of general macroeconomic conditions. In light of the many uncertainties and risks deriving from developments relating to the spread of
COVID-19, these factors and their effect on us are highly unpredictable.
7
In addition, any Chapter 11 plan of reorganization will rely upon financial projections that are
necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal because of the
many uncertainties we face relating to macroeconomic conditions in the countries in which we operate, depressed demand for air travel and severe travel restrictions imposed by governments, all as a result of developments relating to the spread of COVID-19. Accordingly, we expect that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results
or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us or our business or operations. The failure of any such results or developments to
materialize as anticipated could materially and adversely affect the successful execution of any plan of reorganization.
Even if a Chapter 11 plan
of reorganization is consummated, we may not be able to achieve our stated goals and continue as a going concern.
Even if a
Chapter 11 plan of reorganization is consummated, we will continue to face a number of risks, including further depressed demand for air travel and challenging economic conditions as a result of developments relating to the spread of COVID-19 or otherwise. Accordingly, we cannot guarantee that a Chapter 11 plan of reorganization will achieve our stated goals and permit us to effectively implement our strategy.
Furthermore, even if our debts are reduced or discharged through a plan of reorganization, we may need to raise additional funds through
public or private debt or equity financing or other various means to fund our business after the completion of our Chapter 11 proceedings. Our access to additional financing is, and for the foreseeable future will likely continue to be, limited, if
it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms.
Our Chapter 11
proceedings may adversely affect our ability to maintain important relationships with creditors, customers, suppliers, employees and other personnel and counterparties, which could materially and adversely affect us.
Our Chapter 11 proceedings may adversely affect our commercial relationships and our ability to negotiate favorable terms with important
stakeholders and counterparties. Further, public perception of our continued viability may also adversely affect our relationships with customers and their loyalty to us. Strains in any of these relationships could materially and adversely affect
us.
Risks Relating to Our Business
Developments relating to the outbreak of COVID-19 have already materially and adversely affected, and may further
materially and adversely affect, us.
In December 2019, cases of COVID-19 were first
reported in Wuhan, China, and the virus has now spread globally. The World Health Organization declared COVID-19 a pandemic and, in March 2020, governments around the world, including those of the
United States, Colombia and most Latin American countries, declared states of emergency in their respective jurisdictions and implemented measures to halt the spread of the virus, including enhanced screenings, quarantine
requirements and severe travel restrictions.
Following orders by the governments of Colombia and of other countries in which we operate,
we have temporarily ceased international passenger operations to and from Colombia, ceased all Colombian domestic passenger flight operations and cancelled all passenger flights to and within Peru, El Salvador and Ecuador. As a result of these
measures, substantially all of our passenger flights have been cancelled and our corresponding fleet has been grounded.
The spread of COVID-19 and the government measures taken to address it have already had a material and adverse effect on the airline industry and on us and have resulted in unprecedented revenue and demand drop as well as
overall macroeconomic uncertainty. We cannot foresee or quantify the extent of the impact of COVID-19 on our operational and financial performance, which will depend on developments relating to the spread
of the outbreak, the duration and extent of quarantine measures and travel restrictions and the impact on overall demand for air travel, all of which are highly uncertain and cannot be predicted.
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For information on the measures we have taken in response to developments relating to the spread
of COVID-19, see Item 4. Information on the CompanyB. Business OverviewRecent DevelopmentsDevelopments Relating to COVID-19.
BRW has pledged its common shares of Avianca Holdings to secure its obligations under the United Loan Agreement. BRW is in breach of certain provisions
of the United Loan and United has commenced the exercise of remedies against BRW and its holding company, BRW Holding.
On
November 9, 2018, under the terms of the United Loan Agreement, BRW pledged to Wilmington Trust, as collateral agent for the benefit of United, 78.1% of our common shares (the BRW Pledged Shares), among other assets, as security for
BRWs obligations under the United Loan Agreement. In addition, on November 9, 2018, Kingsland pledged to Wilmington Trust, as collateral agent for the benefit of United, all of the common shares that it owns in Avianca Holdings
(representing 21.9% of our common shares) as security for the payment and performance of certain contractual obligations owed by Kingsland to United under certain contractual arrangements, including an upside sharing agreement, a put option
agreement and a cooperation agreement.
Following defaults by BRW under the United Loan Agreement, United accelerated the United Loan
Agreement and, on May 24, 2019, commenced the exercise of remedies against BRW and BRW Holding. Pursuant to the terms of the United Loan Agreement, United appointed Kingsland as the Independent Third Party entitled to exercise voting control
over BRW and, as a result, BRW Holding (and, indirectly, Synergy) lost the right to direct the manner in which BRW votes the BRW Pledged Shares. Through its ownership of our common shares and its authority as manager of BRW (with the right to direct
the voting of the BRW Pledged Shares), Kingsland assumed voting control over Avianca Holdings. Subsequently, on May 24, 2019, certain members of our board of directors, including José Efromovich and Germán Efromovich, were
replaced.
While economic ownership of the BRW Pledged Shares has not been transferred, future enforcement actions may include Kingsland
and/or United taking steps to enforce the share pledge and ultimately foreclose on the BRW Pledged Shares, resulting in a sale of Avianca Holdings to a third party. Unless such sale or transfer is made to United or Kingsland, this change of control
could constitute an event of default under several of our financing agreements, including material bilateral and multi-lender credit facilities, our senior notes and all of our ECA financings covering a substantial portion of our aircraft fleet,
unless a waiver is obtained from the relevant creditors. While we have secured waivers of such change of control events of default relating to certain possible purchasers of our equity from certain of our creditors, there are a number of different
definitions of change of control in our financing agreements, and any future determination of whether a change of control has occurred may be a complex assessment and may not be without doubt. In addition, if United forecloses on the BRW Pledged
Shares and Avianca Holdings is sold, this may, in certain circumstances, result in the right of Advent International (Advent) (a 30% minority investor in LifeMiles) to require Avianca Holdings to purchase Advents interest in
LifeMiles at a price to be determined pursuant to LifeMiles shareholders agreement, which would represent a material obligation.
As of the date of this annual report, creditor claims regarding defaults under our payment obligations and other covenants are subject to
developments relating to our Chapter 11 proceedings.
Furthermore, any breach of the obligations of Kingsland that are owed to United and
secured by the common shares that Kingsland owns may also entitle United to take enforcement action in respect of such shares. We cannot
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assure you that, as a consequence of these arrangements, our current controlling shareholders will keep their majority stake and/or exclusive voting control in Avianca Holdings. Finally, we
cannot assure you that BRW Holding will not regain voting control of the common shares of BRW.
In addition, any change in our or our
subsidiaries control structure may jeopardize our designated carrier status that permits us to operate in certain countries, which could have a material adverse effect on us. Any change in our control structure may cause corresponding changes
in relation to management and control decisions and could alter our shareholders objectives in a manner that is not favorable to holders of the ADSs.
If BRW Holding (and, indirectly, Synergy) prevails in its claim against Kingsland and United, and/or repays the amounts due under the United Loan
Agreement, it could regain control of our common shares.
On May 28, 2019, Kingsland filed a complaint against BRW and BRW
Holding seeking, among other things, to foreclose on the collateral under the United Loan Agreement. On July 29, 2019, BRW and BRW Holding filed a response to such complaint together with a counterclaim seeking, among other things, to dismiss
Kingslands petitions and to recover its voting rights in Avianca Holdings, including the right to direct the voting of the BRW Pledged Shares. BRW also filed for an injunction impeding the stakeholder loan by United and Kingsland, which
injunction was denied. Neither we nor our subsidiaries are party to these claims.
The outcome of the claim between Kingsland and BRW and
BRW Holding is, as of the date of this annual report, uncertain. If BRW and BRW Holding were to prevail in their requests, BRW Holding (and, indirectly, Synergy) could regain control of our common shares, including the right to direct the manner in
which BRW votes the BRW Pledged Shares. Likewise, BRW Holding could, at any time, repay the amounts due under the United Loan Agreement and recover the ownership of our common shares and its voting rights.
If BRW Holding (and, indirectly, Synergy) recovers its rights to our common shares, it would become our controlling shareholder, with
effective voting control, and would likely make significant changes to our board of directors and management. This voting control would give it the power to control certain actions that require shareholder approval under our articles of association,
including approval of mergers and other business combinations and changes to our articles of association. This voting control could cause transactions to occur that might not be beneficial holders of the ADSs and could prevent transactions that
would be beneficial to holders of the ADSs. In addition, BRW Holding would not be precluded from causing our direct parent company, Synergy, from selling the controlling interest in us to a third party. This could trigger a change of control that
could ultimately constitute a default under certain of our financing facilities which could materially and adversely affect us.
The United Copa
Transaction is subject to approvals, consents and clearances from regulatory authorities in multiple jurisdictions in North, Central and South America and could be subject to conditions that could prevent or materially affect its consummation and,
if approved, we may not extract its full anticipated benefits.
In November 2018, Avianca entered into the United Copa Transaction
to enhance our passenger and cargo services between the United States and 19 countries in Latin America. Under the expected partnership terms, we plan to share revenue, integrate services and coordinate pricing and schedules with United and Copa for
service in these regions to align frequent flyer programs, coordinate flight schedules and improve airport facilities. There can be no assurances, however, that the United Copa Transaction will be consummated, as it remains, as of the date of this
annual report, subject to regulatory approvals, consents and clearances in multiple jurisdictions, which will likely be delayed as a result of developments relating to the COVID-19 outbreak, or that, if
consummated, unexpected transaction costs will not arise or that the full expected benefits of the transaction will materialize.
We have
experienced recent ratings downgrades.
Major rating agencies, including Fitch Ratings (Fitch) and Standard &
Poors Financial Services LLC (S&P), have recently downgraded our credit ratings, suggesting the likelihood that we will be able to repay our existing debt obligations has diminished. In June 2019, Fitch downgraded our credit
rating from B to B- and reduced its outlook from stable to negative; in July 2019, Fitch further downgraded our credit rating to RD (restricted default) and removed the
negative outlook; in December 2019, Fitch upgraded our credit rating to CCC+; and, on April 2, 2020, amid developments relating to the spread of COVID-19, Fitch downgraded our credit rating to
C, followed by a subsequent downgrade in May 2020, following our filing for Chapter 11 proceedings, to D. In July 2019, S&P downgraded our credit rating from CCC+ to SD (selective default); in
December 2019, S&P upgraded our credit rating to B- with a stable outlook; and, in March 20, 2020, amid
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developments relating to the spread of COVID-19, S&P downgraded our credit rating to CCC, followed by subsequent downgrades in May 2020 to CCC- and, following our filing for Chapter 11 proceedings, to D. A ratings downgrade may make it difficult for us to refinance our debt and may increase our interest expenses, which could
adversely affect us.
We have significant indebtedness, fixed financing and other costs and our debt and lease financing agreements contain
restrictive covenants and events of default that impose significant operating and financial restrictions on us.
As of
December 31, 2019, we had $5,346.8 million of total debt outstanding and our interest expense in 2019 was $263.3 million. In addition, as of December 31, 2019, we had purchase agreements to acquire 110 aircraft to be delivered
between 2020 and 2028. In January 2020, we amended certain of these purchase agreements to postpone aircraft deliveries initially scheduled for between 2020 and 2024 for delivery between 2025 and 2029. We expect to incur additional indebtedness in
connection with these purchase obligations.
Our leverage may impair our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or other important needs or to do so on acceptable terms. In addition, we may be required to direct a substantial portion of our cash flow to the payment of principal and interest on our indebtedness, which could
impair our liquidity and reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other important needs. Our leverage may also increase the possibility of an event of default under the financial and
operating covenants contained in our debt instruments and limit our ability to adjust to rapidly changing conditions in the market or the airline industry, reducing our ability to withstand competitive pressures and making us more vulnerable to a
downturn in general economic conditions or business than our competitors that are less leveraged.
Additionally, our debt and lease
financing agreements contain restrictive covenants and events of default that impose significant operating and financial restrictions on us, including limitations on our ability to incur additional debt, create liens and make certain investments. As
of the date of this annual report, creditor claims regarding defaults under our payment obligations and other covenants are subject to developments relating to our Chapter 11 proceedings.
We are subject to litigation that could materially and adversely affect us.
We are, and in the future may be, a defendant in various judicial, arbitral and administrative proceedings arising in the ordinary course of
our business or on an exceptional basis. These proceedings may relate to civil, tax, labor, social security, regulatory or environmental matters and involve our customers, employees, management or environmental, labor and tax authorities, among
others. Many of these matters raise difficult and complicated factual and legal issues and are subject to uncertainties and complexities. The timing of the final resolutions to lawsuits, regulatory inquiries and governmental and other legal
proceedings is uncertain. Additionally, the possible outcomes or resolutions to these matters could include materially adverse judgments or settlements, either of which could require substantial payments or other significant financial obligations.
We cannot assure you that the outcomes of any proceedings will be favorable to us, or that we will have established sufficient reserves for all potential liabilities in connection with these proceedings. Unfavorable decisions or settlements in
relation to these proceedings that prevent us from implementing our strategies and business plans, or that involve substantial amounts that have not been adequately provisioned, may materially and adversely affect us.
For more information on the material proceedings to which we are a party, see note 32 to our audited consolidated financial statements as of
and for the year ended December 31, 2019, included elsewhere in this annual report.
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Any violation or alleged violation of anti-corruption, anti-bribery, anti-money laundering and sanctions
laws could adversely affect us.
We are subject to several anti-corruption laws, including the U.S. Foreign Corrupt Practices Act
of 1977 (FCPA). The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign officials with the purpose of obtaining or keeping business and/or other benefits. There can be no assurance that
our employees, executives, board members, agents and the companies to which we outsource certain of our business operations, will not take actions in violation of our anti-corruption, anti-bribery and anti-money laundering policies or applicable
law, for which we may be ultimately held responsible. Any allegations or investigation relating to such violations may harm our reputation and adversely affect us.
Through our internal processes, we discovered a business practice whereby company employees, which may include members of our senior
management, as well as certain members of our board of directors, provided things of value, which we currently believe to have been limited to free and discounted airline tickets and upgrades, to government employees in certain
countries. We commenced an internal investigation and retained outside counsel and a forensic investigatory firm to determine whether this practice may have violated the FCPA or other potentially applicable anti-corruption laws. Based on our
internal investigation to date, we have improved our policies and implemented additional controls designed to screen the recipients of tickets and to restrict the issuance of free or discounted tickets to government employees. On August 13,
2019, we voluntarily disclosed this investigation to both the U.S. Department of Justice and the SEC, and we are cooperating with both agencies. We also disclosed this investigation to the SFC and the Colombian Office of the Attorney General, and we
are cooperating with them. In January 2020, our primary aircraft supplier Airbus entered into a settlement with authorities in France, the United Kingdom and the United States regarding corrupt business practices. Airbus settlement with French
authorities references a possible request by an Avianca senior executive in 2014 for an irregular commission payment, which was ultimately not made. As a result of this development, we have voluntarily initiated an internal investigation
to analyze our commercial relationship with Airbus and to determine if we have been the victim of any improper or illegal acts. We have disclosed this internal investigation to the U.S. Department of Justice and the SEC, as well as the
Superintendency of Industry and Commerce and the Colombian Office of the Attorney General. We are cooperating with all agencies. Our internal investigations are not complete and we cannot predict the outcome of these internal investigations or what
potential actions may be taken by the U.S. Department of Justice, the SEC or local regulators or officials. If it is found that these business practices violated the FCPA or other similar laws applicable to us, or we were at any time not in
compliance with any other laws governing the conduct of our business, we could be subject to criminal and civil remedies, including sanctions, monetary penalties and regulatory actions, which could materially and adversely affect us.
In 2019, we became aware that we were subject to U.S. jurisdiction for purposes of certain U.S. sanctions laws and regulations administered by
the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury as a result of the November 2018 transfer by Synergy of approximately 78% of our voting common shares to BRW, a Delaware limited liability company wholly
owned by Synergy. We engaged outside counsel and identified that our regularly scheduled commercial passenger flights between cities in Central and South America and Havana, Cuba and related Cuba operations may have constituted inadvertent
violations of U.S. sanctions laws and regulations, specifically, of the U.S. Cuban Assets Control Regulations (the CACR). In September, October and November 2019, we submitted to OFAC a voluntary self-disclosure addressing these
potential inadvertent violations. We no longer operate any flights to Cuba, nor do we maintain commercial activities in Cuba or sell any passenger or cargo tickets or other bookings involving Cuba (including via our codeshare and interline
partners). We remain in the process of reimbursing certain passengers whose travel to Havana was canceled as a result of these measures. Furthermore, we have revised our loyalty processes and implemented action plans to block calls, freeze
members accounts and stop new members enrollment that may come from OFAC sanctioned countries, including Cuba. In addition, and as a part of a new development, any access made or intended from an IP from sanctioned countries will be
blocked and a message will be displayed with terms similar to: this services/page is not available in your country. OFAC countries will not appear as options for residence address or mailing address upon
enrollment of new members. We have also issued written cancellations of all our contracts involving Cuban counterparties.
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If our new aircraft are not delivered or placed into service on time and on competitive terms, or if new
aircraft do not perform as expected, we may be adversely affected.
We have entered into aircraft purchase agreements and our
fleet plan depends on the timely delivery of these aircraft, which is subject to several uncertainties, including production restraints of our suppliers, unexpected safety or other operational problems that could cause aircraft to be grounded,
as has happened with Boeing MAX aircraft operated by other airlines, and our ability to obtain necessary aircraft financing.
Even if our
new aircraft are delivered on time, any difficulties or delays in obtaining necessary certifications from regulatory authorities, registration of the aircraft or parts and other buyer-furnished equipment (such as
in-flight entertainment systems), or any non-compliance of the new aircraft and their components with agreed specifications and performance standards, may materially and
adversely affect us. For example, due to an industry-wide issue in 2018 and 2019 relating to Rolls Royce engines used on the Boeing 787 fleet, we experienced periods of unavailability of our Boeing 787 aircraft pending engine maintenance by Rolls
Royce, which caused us to incur unanticipated costs.
Further, we may experience difficulties in integrating new aircraft into our fleet,
including in relation to the additional costs, resources, space, personnel and time needed to hire and train new pilots, technicians and other skilled support personnel to operate new aircraft. Any failure to integrate newly purchased aircraft into
our fleet as planned might require us to seek extensions of the terms for some of our existing leased aircraft, which may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in
increased maintenance costs.
As of the date of this annual report, claims regarding defaults under our lease payment obligations and
other
covenants are subject to developments relating to our Chapter 11 proceedings.
Our maintenance costs will increase as our fleet ages, and we would be adversely affected due to unplanned stoppages related to maintenance.
As of December 31, 2019, our operating fleet had an average age of 7.81 years; our jet passenger operating fleet had an
average age of 7.33 years; our cargo fleet had an average age of 16.45 years; and our turboprop operating fleet had an average age of 5.60 years. If our fleet ages and is not replaced or the warranties covering our fleet expire and are not renewed,
we expect our maintenance expenses to increase significantly, both on an absolute basis and as a percentage of our operating expenses. Any significant increase in maintenance and repair expenses would adversely affect us.
Unplanned stoppages or suspensions of operations associated with planned or unplanned maintenance due to mechanical issues, including, for
example, any design defect or mechanical problem that would cause our aircraft to be grounded during repair, would adversely affect our operation. We cannot assure you that we would succeed in obtaining all aircraft and parts to solve any defect or
mechanical problem, or that we would do so in a timely manner, or that we would succeed in solving any defect or mechanical problem, which could result in a suspension of the operations of certain of our aircraft, potentially for a prolonged period
of time, and could adversely affect us.
We depend on our strategic alliances and our commercial partnerships, such as our Star Alliance membership,
in many countries where we operate in order to carry out our strategy. We would be adversely affected if any of our strategic alliances or commercial relationships were to terminate.
In many of the jurisdictions where we operate, we have found it in our interest to maintain a number of alliances and other commercial
partnerships. We depend on these alliances and commercial partnerships to enhance our network and, in some cases, to offer our customers alternative services that we could not otherwise offer. If any of our strategic alliances and commercial
partnerships, in particular with Star Alliance or its members, deteriorates, or are terminated, we would be adversely affected.
We are a
party to codeshare agreements with various international air carriers, which provide that certain flight segments operated by us are held out as our codeshare partners flights, as the case may be, and that certain of our codeshare
partners flights, as the case may be, are held out for sale as Avianca flights. In addition, these agreements provide that our LifeMiles members can earn miles on or redeem miles for these codeshare partners flights, as the case
may be, and vice versa. We receive revenue from flights sold under these codeshare agreements. In addition, we believe that these arrangements are an important part of our LifeMiles program. The loss of a significant partner
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through bankruptcy, consolidation or otherwise could adversely affect us. We could also be adversely affected by the actions of one of our codeshare partners, for example, in the event of
nonperformance of material obligations or misconduct, which could potentially result in us incurring liabilities, or poor delivery of services by one of our codeshare partners, which could adversely affect our brand and customer perceptions.
We may be adversely affected if LifeMiles loses business partners or if these business partners change their policies in relation
to the granting of benefits to their clients.
LifeMiles relies on its main business partners (including over 100 financial
services companies with which LifeMiles has co-branded credit card and miles conversion agreements) for a significant portion of its gross billings. A decrease in miles sold to one of
LifeMiles key business partners for any reason, including a temporary or permanent downturn in their business or financial condition, a decrease in their activity or their development of new loyalty strategies for their respective
clients, could adversely affect LifeMiles and its financial condition. In addition, a decision by one of these key partners to not participate in the LifeMiles program could adversely affect us.
Most agreements with LifeMiles business partners, other than Avianca, have terms of up to seven years and may be terminated or
renewed under same or different terms when they expire. For example, co-branded credit card agreements with financial services companies typically have five to seven-year terms. Agreements with other business
partners often have shorter terms. In addition, some of these agreements may be terminated prior to expiration in the case of any material uncured breach by LifeMiles. Any such termination or inability to renew these agreements could
materially and adversely affect LifeMiles and, consequently, us.
We do not exercise control or influence over the commercial
policy of several of LifeMiles partners. Some partners may freely change their policies for accumulating, transferring and redeeming miles, as well as develop their own platforms for clients to exchange points for rewards, including
airline tickets issued by other airlines, and as a result reduce demand for and revenue generated by LifeMiles. Changes in these policies may (i) make the LifeMiles program less attractive or efficient for the clients of its
partners and (ii) increase competition in the loyalty program sector, which in turn may reduce the demand for miles, increase downward pressure on the average price of miles and adversely affect LifeMiles. If the loyalty program sector
does not grow enough to absorb new participants or if LifeMiles does not adequately react to the market or to the policies of its partners, LifeMiles and we may be adversely affected.
Any interruption, destruction or loss of data in our information technology systems, including at LifeMiles, due to cyberattacks
could materially and adversely affect us.
We and our service providers are subject to a variety of information technology and
system cyber threats as a part of our normal course of operations, including computer viruses or other malware, cyber-fraud, data breaches and destruction or interruption of our information technology systems by third parties or our own personnel.
Any of these or other events could cause interruptions, delays, loss of critical or sensitive data, misappropriation of or unauthorized access to personal or sensitive data or failure to comply with regulatory or contractual obligations with respect
to such information, which could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, any of which may adversely affect us. We are not fully compliant with the latest PCI-DSS standards, and the banks processing our payment card transactions have imposed monthly fines until we come into full compliance. Until we come into full compliance, the banks may impose additional fines,
increase processing fees, terminate our ability to accept payment card transactions or hold us liable for losses that may arise from any breach of payment card information stored by us.
Like other large multinational corporations, we have experienced cybersecurity incidents. These incidents have not had a material impact on
our operations, but we cannot assure that we will not experience additional incidents that may materially and adversely affect us.
We rely on
automated systems to operate our business, and any failure of these systems could adversely affect us.
We rely on automated
systems and technology to operate our business, enhance customer service and reduce operating expenses. The performance and reliability of our automated systems and data center infrastructure is critical to our ability to operate our business and
compete effectively. These systems include our computerized airline reservation system, flight operations system, telecommunications systems, website, engineering and maintenance systems, check-in kiosks, in-flight entertainment systems and our primary and secondary data centers. Our computerized airline reservation system, and website must be able to accommodate a high volume of traffic and
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deliver important flight information. These systems require upgrades or replacement periodically, which involve implementation and other operational risks. We may be adversely affected if we fail
to operate, replace or upgrade our automated systems or data center infrastructure.
In certain cases, we rely on third-party providers of
automated systems and data center infrastructure, including for technical support. If these providers were to fail to adequately provide technical support for any one of our automated systems or if new or updated components were not integrated
smoothly, we could experience service disruptions, which could result in the loss of important data. Furthermore, our automated systems cannot be completely protected against events that are beyond our control, including natural disasters, computer
viruses, other security breaches or telecommunications failures. Substantial or sustained failures in our automated systems could impact customer service and ticket sales. We cannot assure you that the security and disaster recovery measures and
change control procedures we have implemented are adequate to prevent failures that could materially and adversely affect us.
If actual redemptions
by LifeMiles members are greater than expected (other than redemptions in Avianca air tickets), or if the costs related to LifeMiles redemptions increase (other than costs of redemptions in Avianca air
tickets), we could be adversely affected.
LifeMiles derives most of its revenues from the sale of miles. Based on
historical data, the estimated weighted average period between the issuance of a mile and its redemption is approximately 10 months. However, LifeMiles cannot control the timing of the redemption of miles or the number of miles ultimately
redeemed. LifeMiles uses cash generated by the sale of miles to pay for redemption costs, and maintains a cash reserve to cover estimated future redemptions. As a result, if the redemption costs that LifeMiles incurs in a given fiscal
year exceed its available cash and new sales in that period, it may not have sufficient cash on hand to cover all actual redemption costs in that year or future years, which could materially and adversely affect it and us.
LifeMiles main operating expenses relate to the purchase of rewards, particularly airline tickets, in order to satisfy the
redemption of miles by members. Because LifeMiles does not incur redemption-related costs for miles that are not redeemed and have expired, its profitability depends in part on the estimated percentage of miles issued that will never be
redeemed by members, or breakage.
LifeMiles estimate of breakage is based on historical trends. We expect that
breakage will decrease as LifeMiles expands its network of partners and makes a greater variety of rewards available to members. LifeMiles seeks to offset the decrease in breakage through increases in volume of miles sold and, where
practicable, through adjustments to its pricing policy for miles sold to its partners. If actual redemptions exceed expectations and LifeMiles fails to increase the volume of its sales or to appropriately price its miles and rewards, its
profitability and, consequently, our profitability could be adversely affected.
We depend on a limited number of suppliers for our aircraft and
engines.
One of the elements of our business strategy is to reduce costs by operating a simplified aircraft fleet. However, as a
result of this strategy, we are increasingly reliant on a small group of suppliersAirbus and Boeingand are thus vulnerable to problems associated with these suppliers, including, among others, in relation to design defects, mechanical
problems, contractual performance, adverse public perceptions and regulatory actions. Supplier concentration risks also extend to the engines that power our aircraft.
If any of Airbus or Boeing or the manufacturers of the engines that power aircraft manufactured by them were unable to perform their
contractual obligations, or if we are unable to acquire or lease new aircraft or engines from aircraft or engine manufacturers or lessors on acceptable terms, we would have to find alternative suppliers. If we have to lease or purchase aircraft from
another supplier, we could lose the efficiency and other benefits we derive from our simplified aircraft fleet. We cannot assure you that any replacement aircraft would have the same operating advantages as the Airbus or Boeing aircraft that we
operate or that we could lease or purchase engines that would be as reliable and efficient as the engines that currently power them. We may also incur substantial transition costs, including costs associated with retraining our employees, replacing
our manuals and adapting our facilities. We may also be adversely affected by the failure or inability of Airbus or Boeing or the manufacturers of our engines to provide sufficient parts or related support services on a timely basis.
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We would be materially and adversely affected if a design defect or mechanical problem with any
of the types of aircraft that we operate were discovered that would ground any of our aircraft while the defect or problem was corrected, assuming it could be corrected at all. For example, in September 2017, we discovered issues with some of our
TRENT 1000 engines of our Boeing B787 fleet, which led us to preemptively ground and fix one of our Dreamliners. Operation of our aircraft could be suspended or restricted by regulatory authorities in the event of any actual or perceived mechanical
or design problems. We would also be adversely affected if the public began to avoid flying with us due to an adverse perception of the types of aircraft that we operate stemming from safety concerns or other problems, whether real or perceived, or
in the event of an accident involving those types of aircraft. Hidden system failures in aircraft could result in accidents leading to the loss of life of passengers and third parties and damage to third-party property. In 2018 and 2019, the Boeing
737MAX suffered two fatal accidents within six months and the aircraft has been widely grounded around the world. We do not have any Boeing 737MAX aircraft in our fleet or on order. If any of the types of aircraft we operate are subject to
grounding, we would be materially and adversely affected. Airlines that operate a more diversified fleet are better positioned than we are to manage these types of events.
In the context of our Chapter 11 proceedings, certain of our agreements with suppliers may be rejected.
We are highly dependent on our hubs at Bogotás El Dorado International Airport and El Salvadors International Airport and confront
structural challenges at each of these airports.
We are highly dependent on our operations at our hubs in Bogotá and El
Salvador, and will become increasingly dependent on our Bogotá hub as we streamline our network. Many of our routes operate through these hubs, which accounted for approximately 79% of our daily arrivals and departures in 2019 (with
Bogotá accounting for 61%). The hub-and-spoke structure of many of our operations is particularly dependent on the on-time
arrival of tightly coordinated groupings of flights to ensure that passengers can make timely connections to continuing flights.
As our
operations become increasingly focused around our Bogotá hub, we will have to address challenges related to El Dorado International Airport, which faces significant traffic congestion due to the lack of capacity in ground and air operations.
The reduced number of terminal parking stands and the recurring adverse weather conditions affect airport capacity and, consequently, our operations.
Like other airlines, we are subject to delays caused by factors beyond our control, including air traffic congestion at airports, adverse
weather conditions and increased security measures, any of which could affect one or more of our hubs or other airports where we operate. Limited parking positions and infrastructure challenges are among the risks we face in trying to improve our
operations at our hub airports and at other airports where we operate. Airport-related challenges inconvenience passengers, reduce aircraft utilization and increase costs, all of which adversely affect us.
We are in the process of incorporating new information technology systems and distortions and other disruptions may occur during the implementation
period.
We may experience problems with the operation of our information technology systems or the information technology systems
of third parties on which we rely, as well as the development and deployment of new information technology systems, any of which could adversely affect, or temporarily disrupt, all or a portion of our operations. As we implement these information
technology upgrades, distortions may occur in the process of phasing-in, particularly in relation to our general ledger systems and other related information technology systems we use to process our accounting
transactions. Accordingly, adjustments may be required during the phase-in period.
We cannot
assure you that information technology failures will not occur as a result of the ongoing implementation of new systems. Challenges and delays in implementing new systems, as well as the possibility of human failure when dealing with new systems,
could affect our ability to realize projected or expected cost savings and improve operating efficiency and customer satisfaction as anticipated. Additionally, any information technology failures could adversely affect how our customers perceive us
and impede our ability to timely collect and report financial results in accordance with applicable laws or result in data losses.
We rely on third
parties to provide us with parts and services.
We have entered into agreements with, and depend upon, a number of suppliers for
our parts and services, including for maintenance. We also have entered into agreements with third-party contractors to provide us with call
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center services, catering, ground handling and baggage handling and below the wing aircraft services. It is our general policy that agreements with suppliers and third-party
contractors are subject to termination on short notice. In some cases, we would have to pay penalties for terminating contracts on short notice. Our suppliers and third-party contractors may also terminate agreements on short notice. Termination of
these agreements or our inability to renew these agreements or to negotiate new agreements with other suppliers and third-party contractors at comparable rates could adversely affect us. Further, our reliance on suppliers and third-party contractors
limits our control over the costs, efficiency, timeliness and quality of those supplies and services. We expect to remain dependent on suppliers and third-party contractors for the foreseeable future. In the context of our Chapter 11 proceedings,
certain of our agreements with suppliers and third-party contractors may be rejected.
We may be materially and adversely affected in the event of
an accident or major incident involving our aircraft or aircraft of the types we operate or if our aircraft are grounded for any reason.
An accident or major incident involving our aircraft could result in significant claims by injured passengers and/or relatives and others, as
well as significant costs related to the repair or replacement of a damaged aircraft and its temporary or permanent removal from service.
We are required by our creditors and the lessors of our aircraft under our lease agreements to carry liability insurance. We believe the
coverage and conditions set forth in our liability insurance policies are in accordance with the practice for international airlines and comply with the requirements of the aviation authorities in the countries where we operate. However, the
liability insurance coverage we maintain may not be adequate and we may be forced to bear substantial losses in the event of an accident or major incident. Our insurance premiums may also increase significantly. Moreover, any accident or major
incident involving our aircraft, even if fully insured, or the aircraft of any major airline, especially if aircraft of the types we operate, could cause negative public perceptions about us, our aircraft or the air transportation generally, due to
safety concerns or other problems, whether real or perceived, which would adversely affect us. Safety concerns relating to our aircraft may cause us to ground our aircraft and, because our fleet plan has been streamlined by reducing the number of
aircraft and fleet types we operate, these groundings may affect us more than our competitors that operate a more diverse fleet.
We may incur
substantial compliance costs and be subject to severe sanctions if we fail to comply with U.S. and other international drug trafficking laws.
We are required to comply with the drug trafficking laws of Colombia, the United States and the European Union, among other countries, and are
subject to substantial government oversight in connection with the enforcement of these laws. For example, the U.S. Foreign Narcotics Kingpin Designation Act and Executive Order 12978 contain a list of persons designated by the United States
government as drug traffickers, which is periodically updated. Pursuant to these regulations, we may be subject to severe sanctions and reputational harm if we are found by the U.S. government to have intentionally or inadvertently assisted in the
international narcotics trafficking activities of a designated person. Although we monitor this list in an effort to determine that we do not conduct business with any designated person, we cannot assure you that the counterparties with whom we do
business will not be subject to or will comply with these regulations, in which case such counterparty might face severe sanctions and be unable to perform under their agreements with us.
We cannot assure you that we will succeed in complying at all times with these laws. In the event, that we fail to comply with any U.S. or
other foreign international drug trafficking laws, we may be subject to severe sanctions, fines, seizures of our aircraft or the cancellation of our flights, any of which could materially and adversely affect us.
We are dependent on key personnel and we may be unable to attract and retain qualified, skilled employees necessary to operate our business.
Our success depends to a significant extent upon the efforts and abilities of our senior management team and key financial,
operational and commercial personnel. Our employment agreements with members of our senior management team may be terminated by them at any time, without prior notice and without penalties. Furthermore, in certain countries we are not permitted to
have non-competition agreements in place with members of our senior management team after termination of employment. In addition, our business is labor-intensive, and our operations require us to employ a
large number of highly-skilled personnel, including pilots, maintenance technicians and other operating personnel. In some of the countries in which we operate, there is a shortage of qualified pilots and maintenance technicians or other operating
personnel we have faced turnover of skilled employees, many of whom have left us to work in countries where compensation is higher, requiring us to attract new skilled employees.
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Should the turnover of skilled employees (particularly pilots and maintenance technicians)
increase, our training expenses would increase. We cannot assure you that we will be able to recruit, train and retain the managers, pilots, maintenance technicians and other operating employees that we need to continue our operations or replace
departing employees, which could adversely affect us.
Increases in labor benefits, union disputes, strikes and other labor-related disturbances may
adversely affect us.
We operate in a labor-intensive industry that is subject to the effects of instabilities in the labor
market, including strikes, work stoppages, protests, lawsuits and changes in employment regulations, increases in wages, controversies regarding salary and labor allowances and the conditions of collective bargaining agreements that, individually or
in the aggregate, could adversely affect us. We have been affected by these types of instabilities in the past and we cannot assure you that these instabilities will not occur again.
Many of our employees are members of labor unions, and we may be adversely affected if we fail to maintain harmonious relationships with these
labor unions, which could lead to strikes, work stoppages or other labor disruptions by employees. Given that the majority of our operations is in Colombia, we are highly and particularly sensitive to labor disruptions affecting the Colombian
market.
In addition, our personnel costs may increase significantly as a result of our renegotiation of collective bargaining agreements.
If we are not able to pass these increased costs onto our customers through inflation-based price increases, or if we breach any of the collective bargaining agreements we are party to, we may be materially and adversely affected.
See BusinessEmployeesCollective Bargaining Agreements for further information regarding our collective bargaining
agreements and relations with employees.
If we are unable to attract customers to our website and make direct ticket sales, our revenue would be
adversely affected.
Direct ticket sales through our website, which represented 23.9% of our passenger revenue in 2019 and, over
recent years, have represented a growing proportion of our total sales, represent our lowest cost distribution channel. Our website also serves as a platform to offer ancillary products to increase our revenue from
non-ticket sources. Accordingly, it is increasingly important that we are able to attract customers to our website and encourage them to purchase tickets online.
We intend to continue working to increase sales through online channels, in particular through our website and our mobile app, as these sales
are more cost-efficient and involve lower distribution costs than sales through travel agencies. In furtherance of this goal, we continue to make significant capital expenditures to improve our website and mobile app and generally increase our
online presence; however, we cannot guarantee these efforts and marketing campaigns will be effective, which would adversely affect us.
We may not
be able to maintain or grow our ancillary revenue.
Our business strategy includes continually growing our stream of passenger
related revenue from our portfolio of ancillary products and services, which represented 4.8%, 4.0% and 3.4% of our total passenger revenue in 2019, 2018 and 2017, respectively. There can be no assurance that passengers will pay for additional
ancillary products and services or that passengers will continue to choose to pay for the ancillary products and services we currently offer, which could adversely affect us.
If we are unable to protect our intellectual property rights, specifically our trademarks and trade names, we could be adversely affected.
We own the rights to certain trademarks and trade names used in connection with our business, including Avianca and
LifeMiles. We believe that our trademarks, trade names and other related intellectual property are important to the success of our business. We protect our intellectual property rights through a variety of methods, including, but
not limited to, applying for and obtaining trademark protection in Colombia, Central America, the United States and certain other countries where we operate. Any violation of our intellectual property rights or refusal to grant record of such rights
in foreign jurisdictions may result in measures to protect these rights through litigation or otherwise, which could be expensive and time consuming. As of the date of this annual report, our intellectual property rights, including the
Avianca brand, are pledged to creditors. If we fail to adequately protect our intellectual property rights, we could be adversely affected.
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Any condition that would prevent or delay our access to airports or routes that are vital to our strategy,
or our inability to maintain our existing landing rights and slots at reasonable costs, could materially and adversely affect us.
We must pay fees to airport operators for the use of their facilities. Passenger taxes and airport charges have increased in recent years, in
some cases substantially. Consistent with this trend, it is possible that the airports we rely on will impose, or further increase, passenger taxes and airport charges. To the extent we are unable to pass these costs onto our customers in the form
of increased fares, we would be adversely affected.
Certain airports that we serve are subject to capacity constraints and impose slot
restrictions during certain periods of the day. We cannot assure you that we will be able to obtain a sufficient number of slots, gates and other facilities at airports to operate in a manner consistent with our business strategy. It is also
possible that airports not currently subject to capacity constraints may become so. In addition, we must use our slots on a regular and timely basis and, in some cases, comply with certain on-time performance
requirements, or risk having those slots re-allocated to other airlines. Where slots or other airport resources are not available or their availability is restricted in some fashion, we may have to adjust our
schedules, change routes or reduce aircraft utilization. If we are unable to obtain or maintain favorable take-off and landing authorizations, slots, gates or other facilities at certain high-density airports,
especially our hubs, we may be materially and adversely affected.
Moreover, some of the airports to which we fly impose various other
operational restrictions, including limits on aircraft noise levels, limits on the number of average daily departures and curfews on runway use, and other airports may adopt similar restrictions, which may adversely affect our operations.
We may be liable for the potential under-funding of a pilots pension fund.
We are obligated to make contributions to a pilots pension fund for the Colombian Association of Civil Aviators known as La Caja de
Auxilios y de Prestaciones de la Asociación Colombiana de Aviadores Civiles (CAXDAC), on behalf of certain of our eligible pilots. The pensioners affiliated with CAXDAC include not only some of our current pilots and former
pilots, but also pilots employed and formerly employed by other Colombian airlines. Our contributions to CAXDAC are segregated into a separate account that is restricted for the payments of retirement benefits to our employees. Amounts in the common
CAXDAC fund used to pay pensions may not be sufficient to cover all accrued pension liabilities since other Colombian airlines have gone bankrupt or have been liquidated and have failed to pay their ratable contributions to the pension fund.
Although CAXDAC, as a pension manager, is the only entity obligated to pay retirement benefits to those pensioners legally affiliated with CAXDAC, it is uncertain how the expected deficiency will ultimately be funded and whether or not pensioners
and other third parties may bring actions against contributing airlines, including ourselves, seeking contributions to cover such deficiency, in which case we will be required to defend our position that we are not liable for this deficiency and
face the uncertainty of judicial review. Our obligation to make contributions to CAXDAC will terminate once we transfer the full value of actuarial calculation, which, under Colombian law, should occur by the end of 2023.
Risks Relating to the Airline Industry
The
outbreak or the threat of an outbreak of a contagious disease has already and may further materially and adversely affect the airline industry.
Outbreaks of contagious diseases with epidemic or pandemic potential, such as the Ebola virus, the Middle East respiratory syndrome, Dengue
fever, the bird flu virus, cholera, influenza and, most recently, COVID-19 can materially and adversely affect the airline industry and our business. First, the disease may affect the health of our crew and
operations personnel, impairing normal flight operations. Second, aircraft use may be affected by passengers with contagious diseases or by government measures to avoid the spread of contagious diseases, and may be grounded until the health and
safety of passengers and crew can be guaranteed. Third, the disease may adversely affect demand for air travel, adversely affecting passenger flow and, consequently, us.
We operate in a highly competitive industry and actions by our competitors could adversely affect us.
We face intense competition on domestic and international routes from competing airlines, charter airlines and potential new entrants in our
market and our loyalty program LifeMiles also faces competition. Airlines compete mainly in the areas of pricing, scheduling (frequency and flight times), on-time performance, on-board experience, frequent flyer programs and other services.
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Each year, we may face increased competition from existing and new participants in the markets in
which we operate. The air transportation sector is highly sensitive to price discounting and the use of aggressive pricing policies. Other factors, such as flight frequency, schedule availability, brand recognition and quality of offered services
(such as loyalty programs, VIP airport lounges, in-flight entertainment and other amenities) also have a significant impact on market competitiveness. In addition, the barriers to entering the domestic market
are relatively low and we cannot assure you that existing or new competitors in our markets will not offer lower prices, offer more attractive services or increase their route capacity in an effort to obtain greater market share.
Some of our competitors have larger customer bases and greater brand recognition in the markets we serve outside of Colombia, and most of our
international competitors have significantly greater financial and marketing resources than we do. In addition, some of our competitors may receive support from external sources, such as their national governments, which may be unavailable to us.
Support may include, among others, subsidies, regulatory facilities, financial support or tax waivers. This support could place us at a competitive disadvantage and adversely affect us.
In addition to traditional competition among airline companies, we face competition from companies that provide ground transportation,
especially in our domestic cargo and passenger business, as well as companies that provide sea transportation in relation to our cargo business. In addition, technology advancements may limit the desire for air travel. For example, video
teleconferencing and other methods of electronic communication may reduce the need for in-person communication and add a new dimension of competition to the industry as travelers seek lower cost substitutes
for air travel.
Furthermore, new competitors may target LifeMiles business partners and members or enter the loyalty
marketing industry. We cannot provide assurance that an increase in competition faced by LifeMiles will not have an adverse effect on LifeMiles or, consequently, us. If we are unable to adjust rapidly to the changing nature of
competition in our markets or if the Colombian loyalty marketing industry does not grow sufficiently to accommodate new participants, we could be adversely affected.
We expect to face increasing competition from low-cost carriers offering discounted fares.
Low-cost carrier business models have gained momentum in the Latin American aviation market,
particularly as challenging macroeconomic conditions in Latin America persist and affect consumer purchasing power. The successes of VivaAir Group and Wingo in Colombia, GOL Linhas Aéreas and Azul in Brazil, Interjet, Viva Aerobus and Volaris
in Mexico, JetSMART in Chile and Flybondi in Argentina are evidence of this trend.
Low-cost
carriers operations are typically characterized by point-to-point route networks focused on the highest-demand city pairs, high aircraft utilization, single-class
service and fewer in-flight amenities. Our business model is significantly different from that of low-cost carriers and is predicated on providing a level of service
that we consider superior and charging higher prices for this service. However, as low-cost carriers continue to penetrate our home markets, this could result in significant and lasting downward pressure on
the fares we charge, which could have a material adverse effect on us and compel us to reconsider our business model to adapt it to evolving passenger preferences.
We face increasing competition from other international airlines due to the continuing liberalization of restrictions traditionally affecting airlines
and consolidation in the industry.
The global airline industry has been shifting to increasing acceptance of liberalized and
open skies air transport agreements between nations. Open skies agreements exist between the countries of the European Union, and between Europe and the United States. In Latin America, multilateral open skies
agreements exist between Colombia, Ecuador, Peru and Bolivia and bilateral open skies agreements between each of these countries and the United States. These agreements serve to reduce (or, in the case of open skies,
eliminate) restrictions on route rights, designated carriers, aircraft capacity or flight frequencies and promote competitive pricing.
We
expect that governmental authorities will continue to liberalize restrictions on international travel to and from countries, which may involve, among other initiatives, the granting of new route rights and flights to competing airlines and an
increase in the numbers of market participants. As a result of this liberalization, we could face substantial new competition, which may erode our pricing and market share and have a material adverse effect
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on us. For example, it is likely that the Colombian government will eventually liberalize the current restrictions on international travel to and from our Bogotá hub by, among other
things, granting new route rights and flights to competing airlines and generally promoting an increase in market participants on the routes we serve.
In addition, consolidation in the Latin American airline industry, including by means of joint business agreements between airlines and
acquisitions, including, for example, Deltas acquisition of 20% of LATAM Airlines Group (LATAM) in 2019, may allow our competitors to increase their scale, diversity and financial strength. Consolidations in the airline industry
and changes in international alliances are likely to affect the competitive landscape in the industry and may result in the formation of airlines and alliances with increased financial resources, more extensive global networks and reduced cost
structures than us, which could materially and adversely affect us.
Volatility in our fuel costs or disruptions in our fuel supply would materially
and adversely affect our operating results.
Aircraft fuel costs constitute a significant portion of our total operating expenses,
representing 23.3%, 26.0% and 22.3%, respectively, of our operating expenses in 2019, 2018 and 2017. Historically, international and local fuel prices have been subject to wide price fluctuations and, in some cases, sudden disruptions, based on
geopolitical issues and supply and demand as well as market speculation. Fuel availability is also subject to periods of market surplus and shortage and is affected by demand for both home heating oil and gasoline. Events resulting from prolonged
instability in the Middle East or other oil-producing regions, or the suspension of production by any significant producer, may result in substantial price increases and/or make it difficult to obtain adequate
supplies, which may adversely affect us. Natural disasters or other large unexpected disrupting events in regions that normally consume significant amounts of other energy sources could have a similar effect. We cannot predict the price and future
availability of fuel with any degree of certainty, and significant increases in fuel prices may affect our operating results and otherwise harm our business.
We cannot assure you that fuel costs will not increase significantly and our hedging activities may not be sufficient to protect us from fuel
price fluctuations, as they are limited in volume and duration and may carry counterparty risk. In addition, when fuel prices decrease, we may be exposed to losses on our hedge contracts, which can partially offset savings in fuel expenses. We may
not be able to adjust our fares adequately or otherwise respond quickly to protect us from volatility in fuel costs, and our competitors may have better access and terms in satisfying their fuel needs. We maintain two fuel sources in Bogotá.
Since August 2018, 80% of our fuel is provided by Organización Terpel S.A. and Chevron provides 20% of our fuel.
Our aircraft fuel
purchase agreements do not protect us against price increases or guarantee the availability of fuel and termination of our fuel purchase agreements would require us to renegotiate our fuel supply in a market with a limited number of suppliers, which
might result in higher costs for us. If we were unable to obtain fuel on similar terms from alternative suppliers, we would be adversely affected. Our fuel risk in Colombia is intensified to the extent that Ecopetrol S.A. (Colombias
government-controlled oil company) experiences any disruption or slowdown in its fuel production or pumping capacity. In such event, we or our suppliers may be unable to obtain fuel or may be forced to pay significantly higher prices. This risk is
heightened by the low oil storage levels that we understand are maintained by Ecopetrol S.A. and its distributors in Bogotá.
Our business is
highly regulated and changes in the regulatory environment in which we operate, including relating to safety assessments by regulators such as the FAA, or any non-compliance on our part, may adversely affect
us.
Our business is highly regulated and substantially depends upon the regulatory environment in the countries in which we
operate. For example, price controls on fares may limit our ability to effectively apply customer segmentation profit maximization techniques, which use passenger demand forecasts and fare mix optimization, and adjust prices to reflect cost
pressures. Government regulation may limit the scope of our operations and may impose significant costs on us. As of December 31, 2019, 79.0% of our total fleet was U.S.-registered. The U.S. Federal Aviation Administration (FAA) and
the European Aviation Safety Agency (EASA) are our most significant foreign government regulators. The FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require
significant expenditures. Additional regulations applicable to our operations continue to be regularly implemented by various U.S. and European agencies, including the U.S. Transportation Safety Administration (TSA), the U.S. Drug
Enforcement Agency and the EASA. We cannot predict or control any actions that the civil aviation and consumer protection authorities or other aviation regulators may take, which could include restricting our operations or imposing new and costly
regulations.
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Additionally, we may be affected by governmental safety assessments. For example, our ability to
fly to the United States and the benefits of our strategic alliances or commercial relationships are dependent on the FAAs continued favorable safety assessment of each of the countries in which we have hubs. The FAA periodically audits
aviation regulatory authorities and each country is given an International Aviation Safety Assessment (IASA) rating. The IASA rating of each of Colombia, Peru, El Salvador and Ecuador is currently Category 1, which means that
each such country complies with the International Civil Aviation Organization (ICAO) safety requirements. As a result, we may continue our service from our hubs in these countries to the United States and take part in reciprocal
code-sharing arrangements with U.S. carriers. However, any of these ratings may be downgraded for a variety of safety and other reasons and we have no control over compliance by the civil aviation authorities of these or other countries with
international safety standards. In the case of a downgrade, we will not be able to offer flights to any new destinations in the United States or certify new aircraft for flights to the United States; in addition, our U.S. air carrier code share
partners will be required to suspend placement of their codes on our flights. This could materially and adversely affect our service to the United States and, consequently, us.
We are subject to international bilateral and multilateral air transport agreements in relation to the grant and exchange of air traffic rights between
different countries and if governmental authorities deny permission to us to provide service to domestic and international destinations, we may be adversely affected.
Bilateral aviation agreements as well as local aviation approvals frequently involve political and other considerations beyond our control.
Accordingly, a modification, denunciation of or withdrawal of any country in which we operate from one or more bilateral agreements, or suspension or revocation of our permission to operate in certain airports or destinations or the imposition of
other sanctions, could have a material adverse effect on us. A change in the administration of current laws and regulations or the adoption of new laws and regulations in any of the countries in which we operate that restricts our routes, airports
or operations may also materially and adversely affect us. We cannot give you any assurance that existing bilateral agreements among the countries in which we are based and to which we fly, and permits from local and foreign governments, will
continue.
Certain bilateral air transport agreements, including agreements with the United States, the United Kingdom and Brazil, require
that we remain substantially owned and effectively controlled by a national governmental entity or its nationals. We cannot assure you that national citizens, directly or indirectly, will continue to own and control a majority of our capital stock
indefinitely. For example, if for any reason Germán Efromovich, José Efromovich and/or Roberto Kriete, who each have citizenships in several countries and are the beneficial owners of nearly all of our common stock, cease to have
substantial ownership of our capital stock, or the effective control of our management and operations ceases to be exercised by nationals, we may no longer be in compliance with certain bilateral agreements that include the substantial ownership and
effective control requirement. Our route and landing rights in a number of important countries and, consequently, we may be adversely affected to the extent of such non-compliance. See Item 4.
Information on the CompanyB. Business OverviewRegulation.
Failure to comply with applicable environmental regulations could
adversely affect our business and reputation.
The airline industry is subject to increasingly stringent global, regional,
federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment, including those relating to air emissions, noise levels, discharges to surface and subsurface waters, safe drinking water and the
management of hazardous substances, oils and waste materials. Any non-compliance may subject us to administrative and criminal sanctions, in addition to the obligation to repair or to pay damages caused to the
environment and third parties.
The proliferation of national regulations and taxes on carbon dioxide emissions in the countries in which
we operate, and compliance with environmental regulations generally, could increase our costs. Failure to comply with any environmental regulations and licensing requirements could adversely affect us, including by suspension or revocation of
operating authorizations. Remediation obligations can result in significant costs associated with the investigation and clean-up of contaminated properties, as well as claims for damages initiated by affected
parties.
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Because the airline industrys financial performance is characterized by low profit margins, high
fixed costs and relatively elastic revenue, we cannot quickly respond to a shortfall in expected revenue or reduce our costs to compete effectively with airlines with greater financial resources or lower operating costs.
The airline industry is characterized generally by low profit margins and high fixed costs, primarily comprising wages and salaries of crew
and other personnel, fuel costs and aircraft and engine lease payments and other financing costs related to aircraft equipment, headquarter facility and information technology system license costs. Revenues per flight are primarily driven by the
number of passengers transported and fares, which may vary significantly depending on several factors which are generally outside of our control, including general economic conditions, weather-related factors and our competitors pricing
strategies. However, the operating costs of each flight do not vary significantly and, therefore, a relatively small change in the number of passengers, fare pricing or traffic mix could have a significant effect on our operating and financial
results.
As a function of our fixed costs, we may (i) have limited ability to obtain additional financing, (ii) be required to
dedicate a significant part of our cash flow to fixed costs resulting from aircraft lease and financing payments, and (iii) have a limited ability to plan for, or react to, changes in our business, the industry generally and overall
macroeconomic conditions. In addition, volatility in global financial markets may make it difficult for us to obtain financing to manage our fixed costs on favorable terms or at all.
As a result of the foregoing, we may be unable to quickly adjust our fixed costs in response to changes in our revenue. A shortfall from
expected revenue levels could have a material adverse effect on us.
We rely on maintaining a high daily aircraft utilization rate, which makes us
vulnerable to delays.
We seek to maintain a high daily aircraft utilization rate (the number of hours we use our aircraft per
day). High daily aircraft utilization allows us to generate more revenue from our aircraft and is achieved in part by reducing turnaround time at airports, so we can fly more hours on average in a day. Nevertheless, aircraft utilization is reduced
by delays and cancellations arising from a number of different factors, many of which are beyond our control, including air traffic and airport congestion, adverse weather conditions, security requirements, unscheduled maintenance and delays by
third-party service providers relating to matters such as fueling and ground handling. On the other hand, high aircraft utilization increases the risk that, if an aircraft falls behind schedule during a given day, it could remain behind schedule for
several additional days. These delays could disrupt of our operating performance, leading to customer dissatisfaction due to delayed or cancelled flights and missed connections which could in turn adversely affect us.
Terrorist attacks or hostilities could adversely affect the airline industry by decreasing demand and increasing costs.
Any terrorist attack or threat of attack, whether or not involving commercial aircraft, any increase in hostilities relating to reprisals
against terrorist organizations, including an escalation of military involvement in the Middle East or otherwise, and any related economic impact could result in decreased passenger traffic and materially and adversely affect us.
For example, the terrorist attacks in the United States on September 11, 2001 materially and adversely affected the airline industry.
Airline traffic in the United States fell dramatically and airlines experienced increased costs resulting from additional security measures that may become more rigorous. A substantial portion of the costs of these security measures is borne by the
airlines and their passengers and, therefore, may adversely affect our profit margins.
Premiums for insurance against aircraft damage and
liability to third parties increased substantially following the 2001 terrorist attacks, and insurers could reduce their coverage or increase their premiums even further in the event of additional terrorist attacks, hijackings, airline crashes or
other events adversely affecting the airline industry. Certain aviation insurance could become unaffordable, unavailable or available only with amounts of coverage that are insufficient to comply with the levels of insurance coverage required by
aircraft lenders and lessors or applicable government regulations. While governments in other countries have agreed to indemnify airlines for liabilities that they might incur from terrorist attacks or provide
low-cost insurance for terrorism risks, the Colombian government has not indicated any intention to provide similar benefits to us. Increases in the cost of insurance may result in both higher airline ticket
prices and decreased demand for air travel generally, which could materially and adversely affect us.
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Risks Relating to Colombia, Peru, Central America and Other Countries in Which We Operate
Our performance is heavily dependent on economic and political conditions in the countries in which we operate.
Passenger demand is heavily cyclical and highly dependent on global and local economic growth, economic and political expectations and foreign
exchange rate variations. A significant portion of our revenue derives from discretionary travel and leisure travel, which are especially sensitive to economic downturns. Additionally, any perceived downturn in the economic conditions in the Andean
region or Central America could adversely affect our ability to obtain financing to meet our future capital needs in international capital markets. Changes in economic or other governmental policies, including relating to interest rates, exchange
rates, exchange controls, inflation rates, taxation, banking, labor and pension funds, regulatory, legal or administrative practices, expropriation measures, political instability or other economic or political developments in the countries in which
we operate could materially and adversely affect us. The governments of Colombia, Peru, Ecuador and Central America have historically exercised substantial influence over their respective economies, and their policies are likely to continue to have
a significant effect on companies operating in these countries, including us. We cannot predict what policies the governments in these countries will adopt and consequently cannot assure you that future developments in government policies or in the
economies of these countries will not adversely affect us.
Rates of inflation in the countries in which we operate have historically been
high, and we cannot assure you inflation will not return to high levels. Inflationary pressures may adversely affect our ability to access foreign financial markets, leading to adverse effects on our capital expenditure plans. In addition,
inflationary pressures may reduce consumers purchasing power or lead governments to institute certain anti-inflationary policies, such as increased interest rates. Inflationary pressures may adversely affect us.
Our performance is heavily dependent on economic and political conditions in Colombia.
Our performance is heavily dependent on economic and political conditions in Colombia, as our operations in Colombia represented 51% of our
total revenue in 2019. Economic growth or contractions, inflation, changes in law, regulation, policy or future judicial rulings and interpretations of policies involving exchange controls and other matters such as (but not limited to) currency
depreciation, inflation, interest rates, taxation, banking laws and regulations and other political or economic developments in or affecting Colombia may affect the overall business environment and may, in turn, adversely affect us.
Colombias central government fiscal deficit and growing public debt could adversely affect the Colombian economy. Colombians
fiscal deficit was 2.4% of gross domestic product (GDP) in 2019, 2.4% of GDP in 2018 and 2.3% of GDP in 2017. According to the projections published in December 2019 by the Ministry of Finance and Public Credit, the Colombian government
expected a fiscal deficit of 2.4% of GDP for the year 2020. The Colombian government frequently intervenes in Colombias economy and from time to time makes significant changes in monetary, fiscal and regulatory policy. President Iván
Duque Márquez, who took office in August 2018, inherited high government spending levels, and measures to meet fiscal targets led to protests around the country in late 2019 and early 2020, paralyzing activities in the main cities in Colombia
for days. We may be adversely affected by changes in government or fiscal policies, and other political, diplomatic, social and economic developments that may affect Colombia. We cannot predict what policies will be adopted by the Colombian
government and whether those policies would adversely affect the Colombian economy and, consequently, us.
In March 2017, Fitch Ratings
(Fitch) upgraded Colombias rating outlook from negative to stable due to the perceived reduction in macroeconomic imbalances as a result of the sharp reduction in the current account deficit, diminished uncertainties surrounding
Colombias fiscal consolidation path due to the tax reform measures passed in December 2016 and the expectation that inflation would meet the Colombian Central Banks target. Fitch reaffirmed the stable outlook in May 2017. In
December 2017, S&P downgraded Colombias long-term foreign currency sovereign credit ratings from BBB to BBB-. In February 2018, Moodys Corporation
(Moodys) changed Colombias rating outlook from stable to negative. In April 2020, amid developments relating to the spread of COVID-19 and the collapse of oil prices, S&P changed
the outlook of Colombias credit rating to negative and Fitch downgraded Colombias credit rating from BBB to BBB- with a negative outlook.
Any further downgrade of Colombias credit rating could adversely affect the Colombian economy and us. In 2017 and 2019, tax reforms were
implemented, which included raising the VAT rate from 16% to 19%, increasing the withholding income tax rate for foreign providers from 15% to 20% and introducing further taxation in the context of the indirect transfer of shares of Colombian
entities.
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The Colombian government and the Central Bank may seek to implement new policies aimed at
controlling further fluctuation of the Colombian peso against the U.S. Dollar and fostering domestic price stability. The Central Bank may impose certain mandatory deposit requirements in connection with foreign-currency denominated loans
obtained by Colombian residents, including us. Although there is currently no deposit requirement, we cannot predict or control actions by the Central Bank in respect of deposit requirements. The use of such measures by the Central Bank may be a
disincentive for us to obtain loans denominated in a foreign currency. The U.S. dollar/Colombian peso exchange rate was COP 3,277.14 per $1.00, COP 3,249.75 per $1.00 and COP 2,984.00 per $1.00 as of December 31, 2019, 2018 and 2017. As of May
31, 2020, the exchange rate was COP 3,718.82 per $1.00, which represents a depreciation of 13.5% of the Colombian peso against the U.S. dollar in the first five months of 2020. We cannot assure you that measures adopted by the Colombian government
and the Central Bank will suffice to control this instability or that the Colombian peso will not depreciate or appreciate relative to other currencies.
Our performance is heavily dependent on economic and political conditions in El Salvador.
El Salvador has a political history marked by long periods of civil unrest and military rule. From 1979 to 1991, El Salvador was involved in
guerrilla activities, which ended with a peace agreement signed in January 1992. The Nationalist Republican Alliance Party (ARENA) controlled the presidency from 1989 to 2009, at which time the Farabundo Martí National Liberation
Front (FMLN), a former guerrilla organization now turned into a political party, won the presidential elections with Mauricio Funes. Salvador Sánchez Cerén, also a member of the FMLN, was elected president by a narrow
margin, beginning his term in June 2014. The FMLN ruled continuously for 10 years.
In June 2019, Nayib Armando Bukele Ortez, a former
member of the FMLN until his removal, assumed the presidency. He is the first president since the end of the civil war who is not a member of ARENA or FMLN. He faces challenges relating to national security, primarily from gang-related crimes.
In February 2020, President Bukele initiated a political crisis when he instructed the military to march into parliament to demand a loan of
$109 million to address national security.
El Salvadors unemployment and poverty rates remain high. Despite reforms and
initiatives, El Salvador ranks among the ten poorest countries in Latin America and suffers from deep income inequality. We cannot assure you that El Salvador will not face political, economic or social problems, and we may be seriously affected by
these problems. El Salvadors GDP grew 2.5%, 2.5% and 2.3% in 2019, 2018 and 2017, respectively, according to the Central Reserve Bank, which estimates that GDP growth will be 1.5% in 2020.
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Our performance is heavily dependent on economic and political conditions in Ecuador.
The Ecuadorian economy is heavily dependent on the oil industry and global fluctuations in oil prices. While Ecuadors GDP grew (0.5)%,
1.4% and 2.4% in 2019, 2018 and 2017, it faces an extreme poverty level estimated at 8.9% in 2019, according to the Ecuadorian National Center of Statistics. Ecuadorian exports, denominated in dollars, have lost competitiveness due to the currency
depreciation of other Latin American export economies, leaving Ecuadors economy more dependent on internal demand, which is adversely affected by poverty levels and unemployment rates.
Lenin Moreno was elected president in April 2017, representing the first change in administration since January 2007.
President Moreno has presented initiatives with the goal of reducing sovereign debt by privatizing certain state-owned companies and seeking
new financings to service existing debt. He has faced growing civil discontent and has been pushed to withdraw certain of his policies in order to prevent further civil uprising.
Developments and the perception of risk in other countries, especially emerging market countries, may adversely affect the market price of many Latin
American securities including the ADSs.
The market value of securities issued by companies with operations in the Andean region
and Central America may be affected to varying degrees by economic, political and market conditions in other countries, including other Latin American and emerging market countries. Although macroeconomic conditions in Latin American and other
emerging market countries may differ significantly from macroeconomic conditions in Colombia and the other countries in which we operate, investors reactions to developments in these other countries may have an adverse effect on the market
values of our securities. Further, crises in world financial markets, such as in 2008, as well as global economic challenges as of the date of this annual report deriving from the outbreak of the coronavirus and government measures to contain it,
could affect investors views of securities issued by companies that operate in emerging markets. These developments could also make it more difficult for us and our subsidiaries to access the capital markets and finance our operations on
acceptable terms, or at all.
Natural disasters in the countries in which we operate could disrupt our operations and adversely affect us.
We are exposed to natural disasters in each of the countries in which we operate, such as earthquakes, volcanic eruptions,
tornadoes, tropical storms, lightning and hurricanes. For example, heavy rains in Colombia sometimes result in severe flooding and mudslides. El Salvador and Peru have experienced significant earthquakes. Moreover, the Central American isthmus, in
particular El Salvador, Costa Rica, Guatemala and Nicaragua, is home to one of the worlds largest concentrations of active volcanos. Colombia has also experienced significant volcanic activity, affecting important cities covered by our
domestic operations. Volcanic ash clouds not only affect airport operations, but also the route conditions of flights operating near the affected zone.
In the event of a natural disaster, there is a risk of damage to our airport hubs and other facilities, which could have a material adverse
effect on our operations, particularly if such an occurrence affects computer-based data processing, transmission, storage and retrieval systems or destroys customer or other data. In any such event, our property damage and business interruption
insurance might not be sufficient to fully offset our losses, which could adversely affect us. In addition, if a significant number of our employees and senior managers were unavailable because of a natural disaster, our ability to conduct our
businesses could be compromised.
Fluctuations in foreign exchange rates and restrictions on currency exchange could adversely affect us.
The currency used by us is the U.S. dollar in terms of setting prices for our services and presenting our financial statements.
We sell most of our services in U.S. dollars or prices equivalent to the U.S. dollar, and a large part of our expenses are also denominated in U.S. dollars or equivalents to the U.S. dollar, particularly fuel costs, aircraft leases, insurance and
aircraft components and accessories.
In 2019, 75.1% of our costs and expenses and 79.8% of our revenue were denominated in, or linked to,
U.S. dollars. The remainder of our expenses and revenue were denominated in currencies of the countries in which we operate, of which the most significant is the Colombian peso. Changes in the exchange rate between the Colombian peso and the U.S.
dollar or other currencies in the countries in which we operate may adversely affect us. In particular, when our non-U.S. dollar-denominated revenue exceeds our non-U.S.
dollar-denominated expenses, the depreciation of non-U.S. currencies against the U.S. dollar could have an adverse effect on our results because these amounts will convert into less U.S. dollars. We operate in
numerous countries and face the risk of variation in foreign currency exchange rates against the U.S. dollar or between the currencies of these various countries.
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In addition, a relevant portion of our expenses and liabilities are denominated in Colombian
pesos. At times when the Colombian peso appreciates against the U.S. dollar, the value of these expenses and liabilities will increase in U.S. dollar terms, resulting in an increase in our non-operating
expenses. Our $24.2 million currency exchange loss in 2019 was principally the result of exchange rate variations in the currencies of Colombia, Argentina and Brazil and we remain subject to exchange rate variations that may adversely affect
us.
Variations in interest rates may adversely affect us.
We are exposed to the risk of interest rate variations. Our Colombian peso-denominated debt is mainly exposed to variations in long-term
interest rates and the Colombian 90-day deposit rate for commercial banks (establecimientos bancarios), financial corporations (corporaciones financieras) and financing companies
(companies de financiamiento), the banking benchmark IBR or the fixed term deposit rate DTF, as published by the Colombian Central Bank. Our non-Colombian peso-denominated debt is mainly exposed
to variations in the London Interbank Offer Rate (LIBOR). Any increase in inflation or other macroeconomic pressures may lead to increases in these rates. As of December 31, 2019, we had $925.4 million in aggregate principal
amount of variable-rate debt.
Increases in the above-mentioned rates may result in higher debt service payments under our loans, and we
may not be able to adjust the prices we charge to offset the impact of these increases. If we are unable to adequately adjust our prices, our revenue might not be sufficient to offset the increased payments due under our loans and this would
adversely affect us.
The U.K. Financial Conduct Authority announced in July 2017 that it intends to no longer compel banks to submit
rates for the calculation of the London interbank offered rate, or LIBOR, after 2021. To mitigate any possible impact, various regulators have proposed alternative reference rates. As of December 31, 2019, we had $202.2 million of
LIBOR-indexed variable rate leases terminating after 2021. We cannot predict the effect of any discontinuation or replacement of the LIBOR at this time and, consequently, we cannot assure you that these changes will not have an adverse effect on us.
In the context of our Chapter 11 proceedings, we will evaluate possible amendments to certain LIBOR-indexed financing agreements.
Risks Relating to
the ADSs and our Preferred Shares
Because our post-bankruptcy capital structure is yet to be determined, and any changes to our capital
structure may have a material adverse effect on holders of the ADSs or our preferred shares, trading in the ADSs or our preferred shares during the pendency of our Chapter 11 proceedings is highly speculative and poses substantial risks.
Our post-bankruptcy capital structure will be set pursuant to a reorganization plan that requires approval by the bankruptcy
court. The reorganization of our capital structure may include exchanges of new equity securities for existing equity securities or of debt securities for equity securities, which would dilute any value of our existing equity securities, or may
provide for all existing equity interests in us to be extinguished. In this case, amounts invested by holders of the ADSs or our preferred shares will not be recoverable and these securities will have no value.
As a result of our Chapter 11 proceedings, the New York Stock Exchange (the NYSE) applied to the SEC on May 27, 2020 in order to
delist the ADSs. As of the date of this annual report, the ADSs are traded in the over-the-counter market, which is a less liquid market. There can be no assurance that
the ADSs will continue to trade in the over-the-counter market or that any public market for the ADSs will exist in the future, whether broker-dealers will continue to
provide public quotes of the ADSs, whether the trading volume of the ADSs will be sufficient to provide for an efficient trading market, whether quotes for the ADSs may be blocked in the future or that we will be able to relist the ADSs on a
securities exchange.
Trading prices of the ADSs or our preferred shares bear no relationship to the actual recovery, if any, by their
holders in the context of our Chapter 11 proceedings. Due to these and other risks described in this annual report, trading in the ADSs or our preferred shares during the pendency of our Chapter 11 proceedings poses substantial risks and we urge
extreme caution with respect to existing and future investments in these securities.
BRW, Kingsland and United (if it has issued a United Approval
Notice), have veto power over certain strategic and operational transactions, and their interests may differ significantly from the interests of our other shareholders and holders of the ADSs.
We, our controlling shareholders, BRW, Kingsland and United are parties to the Amended and Restated Joint Action Agreement and the Share
Rights Agreement. These agreements give BRW, Kingsland as independent third party and United (if it has issued a United Approval Notice) veto power over significant strategic and operational transactions, including, among others:
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mergers, consolidations and dispositions of all or substantially all of the assets of Avianca Holdings or any of
its subsidiaries to a third party;
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the issuance or sale of voting common or preferred stock or other form of voting equity interest in Avianca
Holdings or any of its subsidiaries;
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except as specifically identified in our annual business plan and budget approved pursuant to the Amended and
Restated Joint Action Agreement, certain acquisitions of (i) securities or other interests in any joint venture, partnership or other person, (ii) assets related to the airline business or activities ancillary or related thereto, in each
case over $10 million in any single instance or over $25 million in the aggregate during any fiscal year, or (ii) assets not related to the airline business or activities ancillary or related thereto;
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changes to our annual business plan and budget that is approved from time to time pursuant to the Amended and
Restated Joint Action Agreement;
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capital expenditures over $10 million in the aggregate during any fiscal year, except as specifically
identified in our annual business plan and budget approved pursuant to the Amended and Restated Joint Action Agreement;
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certain changes to our organizational documents or those of our material subsidiaries;
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certain related party transactions or certain contracts outside the ordinary course of business;
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termination of the Joint Business Agreement (or any other joint business agreement entered into in connection
with the Joint Business Agreement) under certain circumstances;
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any action or omission which would cause Avianca Holdings to breach, or would constitute a default under, the
Joint Business Agreement (or other joint business agreements entered into in connection with the Joint Business Agreement);
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commencement of any bankruptcy or insolvency proceeding; and
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dissolution or liquidation of a material subsidiary of Avianca Holdings.
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In addition, pursuant to the Share Rights Agreement, if United notifies the other parties thereto that (i) United has determined that its
exercise of any or all of the rights that have been delegated to the Independent Third Party by Kingsland can be exercised by United or its designee without such exercise constituting control within the meaning of such term within any of
Uniteds collective bargaining agreements or other material agreements, or (b) United is otherwise prepared to exercise any or all of such rights (which is referred to herein as a United Approval Notice), then United or its designee can
assume some or all of the rights given to the Independent Third Party. Such United Approval Notice has not been issued as of the date of this annual report.
Furthermore, if all of the obligations under the United Loan are repaid in full, the Amended and Restated Joint Action Agreement provides that
there will be certain changes to the veto rights described above.
As a result of the foregoing veto rights, BRW, the Independent Third
Party and United (if it has issued a United Approval Notice) can prevent us from taking strategic and other actions that may be in your best interests, including transactions that may enhance the long-term value of the ADSs and/or provide you with
an opportunity to realize a premium on your investment in the ADSs.
Furthermore, we cannot assure you that the interests of BRW, the
Independent Third Party and United (if it has issued a United Approval Notice) will be aligned with those of ADSs holders, and cannot give you any assurance that BRW, the Independent Third Party and United (if it has issued a United Approval Notice)
will exercise their respective rights under the Amended and Restated Joint Action Agreement in a manner that is favorable to your interests as an ADS holder. In addition, any potential change in our control structure as a result of the United Loan
may cause corresponding changes in relation to management and control decisions and could alter our controlling shareholders objectives in a manner that is not favorable to holders of the ADSs (see Risks Relating to our
BusinessBRW has pledged its common shares of Avianca Holdings to secure its obligations under the United Loan Agreement. BRW is in breach of certain provisions of the United Loan and if United has commenced the exercise of remedies against BRW
and its holding company, BRW Holding.
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Our controlling shareholders can direct our affairs, and their interests may conflict with those of holders
of the ADSs.
Our controlling shareholders beneficially own almost all of our outstanding common shares. As a result, our
controlling shareholders have the ability to determine the outcome of substantially all matters submitted for a vote to our shareholders and thus exercise control over our business policies and affairs, including the composition of our board of
directors and, as a result, any determinations of our board with respect to our business direction and policy, including the appointment and removal of our executive officers, determinations with respect to mergers, acquisitions and other
transactions, including those that may result in a change of control, sales and dispositions of our assets and the amount of debt financing that we incur.
Our controlling shareholders may direct us to take actions that could be contrary to your interests and may be able to prevent other
shareholders, including you, from blocking these actions or from causing different actions to be taken. We cannot assure you that our controlling shareholders will act in a manner consistent with your best interests. Since May 24, 2019, one of
our common shareholders, Kingsland, has been appointed as the managing member of our other common shareholder, BRW, as a result of which Kingsland currently exercises voting control over almost all of our common stock.
Substantial future dispositions or conversions of our Class A shares by our controlling shareholder or other large holders of our shares could
cause the price of our ADSs to decline.
As of December 31, 2019, BRW, our controlling shareholder, owned 78.1% of our voting
common shares, representing 51.5% of our total outstanding shares. Although we are not aware of any current intention of BRW to sell or transfer its controlling interest in us, BRW may do so at any time in compliance with the conditions prescribed
by the Amended and Restated Joint Action Agreement and the Share Rights Agreement. The market price of the ADSs could drop significantly if our controlling shareholder (or other large holders of our shares) were to dispose of a significant amount of
our shares or the ADSs (including the sale of the BRW Pledged Shares referred to below) or convert a significant number of our common shares into our preferred shares, or if the market perceives that such a disposition or conversion is likely to
occur.
In the context of enforcement actions by United, potential transfers of BRW Pledged Shares to United and one or more third parties
could result in a change of control. Furthermore, pursuant to the terms of the Share Rights Agreement, call rights have been granted to United, which give United the right to call for the purchase by United of our common shares that are held by BRW
and Kingsland in the event of, among other things, certain terminations of the Joint Business Agreement (or any other joint business agreement entered into in connection with the Joint Business Agreement). A change of control may trigger a default
under certain of our debt instruments and other material agreements, which may materially and adversely affect us.
Holders of the ADSs have more
limited rights than holders of our preferred shares and may encounter difficulties in exercising certain rights.
Holders of the
ADSs may encounter difficulties in exercising certain rights as shareholders for as long as they hold the ADSs rather than the underlying preferred shares. For example, holders of the ADSs are not entitled to vote at shareholders meetings, and
they are only able to exercise their limited voting rights by giving timely instructions to the depositary in advance of a shareholders meeting, and only in respect of certain matters. Moreover, holders of the ADSs are only entitled to
exercise inspection rights through a representative designated for that purpose and such rights may only be exercised 15 business days prior to an ordinary shareholders meeting.
The depositary is the holder of the preferred shares underlying the ADSs and holders may exercise voting rights with respect to the preferred
shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. To the limited extent permitted by the deposit agreement, holders of the ADSs should be able to direct the depositary to vote the underlying preferred
shares in accordance with their individual instructions. Nevertheless, holders of the ADSs may not receive voting materials in time to instruct the depositary to vote the preferred shares underlying the ADSs. Also, the depositary and its agents are
not responsible for failing to carry out voting instructions of the holders of the ADS or for the manner of carrying out such instructions, unless such failure can be attributed to gross negligence, bad faith or willful misconduct on the part of the
depositary or its agents. Accordingly, holders of the ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the underlying preferred shares are not voted as requested.
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The ADSs are subject to certain foreign exchange regulations from the Colombian Central Bank which may
impose registration requirements upon certain events of the ADS program.
Colombias International Investment Statute
regulates the way foreign investors may participate in the Colombian securities market, prescribes registration of certain foreign exchange transactions before the Colombian Central Bank and specifies procedures under which certain types of foreign
investments are to be authorized and administered. A holder of the ADSs who withdraws preferred shares from the ADS deposit facility under certain circumstances may have to comply directly with certain requirements under Colombian foreign investment
regulations. Failure of a non-resident investor to comply with foreign exchange regulations may prevent the investor from obtaining remittance payments, including for the payment of dividends, may constitute
an exchange control violation and/or may result in a fine.
Our shareholders and the ADS holders are limited in their ability to receive cash
dividends.
Under Panamanian law, we may pay dividends only out of retained earnings and capital surplus. Our bylaws provide that
in principle all dividends declared by our general shareholders meeting will be paid equally to holders of preferred shares and common shares. Although there is a dividend policy that provides for the payment of dividends of at least 15% of
our annual consolidated net income, our board of directors may at any time, in its sole discretion and for any reason, amend or discontinue the dividend policy. If no dividends are declared, you will not have any right to participate in or override
that decision. The distribution of dividends with respect to our preferred stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, business opportunities,
provisions of applicable law and other factors that the holders of our common shares and board of directors may deem relevant. As a result, we cannot assure you that we will pay dividends in accordance with our current dividend policy or otherwise.
Holders of our preferred shares are not entitled to preemptive rights, and as a result you may experience substantial dilution upon future
issuances of stock.
Under our organizational documents, and in accordance with Panamanian law, holders of our preferred shares
are not entitled to any preemptive rights with respect to our future issuances of capital stock. Therefore, unlike companies organized under the laws of many other Latin American jurisdictions, we will be free to issue new stock without first
offering them to our existing preferred shareholders. We may sell common or preferred shares to persons other than our existing preferred shareholders at a lower price than that of the preferred shares traded as ADSs in the over-the-counter market
and, as a result, you may experience substantial dilution of your interest in us.
We are a controlled company within the meaning of the
NYSE corporate governance standards and qualify for and rely on exemptions from certain corporate governance requirements.
Certain of our shareholders control a majority of the combined voting power of all classes of our voting stock, and we are a controlled
company within the meaning of the NYSE corporate governance standards. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a controlled company and may
elect not to comply with certain corporate governance requirements of the NYSE, including the requirements that a majority of the board of directors comprise independent directors, we have a nominating/corporate governance committee that entirely
comprises independent directors with a written charter, and we have a compensation committee that entirely comprises independent directors with a written charter.
Accordingly, we do not provide the same protections afforded to shareholders of companies that are subject to all of the corporate governance
requirements of the NYSE.
The protections afforded to minority shareholders in Panama are different from, and more limited than, those in the
United States and may be more difficult to enforce.
Under Panamanian law, the protections afforded to minority shareholders are
different from, and more limited than, those in the United States and some other Latin American countries. For example, the legal framework regarding shareholder disputes, such as derivative lawsuits and class actions, is less developed under
Panamanian law than under U.S. law, mainly because of Panamas short history with these types of claims and the small number
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of successful cases in the country. In addition, there are different procedural requirements to initiate shareholder lawsuits. As a result, it may be more difficult for our minority shareholders
to enforce their rights against us, our directors or controlling shareholders than it would be for shareholders of a U.S. company.
Holders of the
ADSs may find it difficult to enforce civil liabilities against us or our directors, officers and controlling shareholders.
We
are organized under the laws of Panama, and our principal place of business (domicilio social) is in Panamá City, Panamá. All of our directors, officers and controlling shareholders reside outside of the United States, except
for two members of our board of directors. In addition, substantially all our assets are located outside of the United States. As a result, it may be difficult for holders of the ADSs to effect service of process within the United States on such
persons or to enforce judgments against them, including in any action based on civil liabilities under the U.S. federal securities laws. Based on the opinion of our Panamanian and Colombian counsel, there is doubt as to the enforceability against
such persons in Panama and Colombia, whether in original actions or in actions to enforce judgments of U.S. courts, of liabilities based solely on the U.S. federal securities laws.
Relative illiquidity of the Colombian securities markets may impair the ability of an ADS holder to sell preferred shares.
Our preferred shares are listed on the Colombian Stock Exchange, which is relatively small and illiquid compared to stock exchanges in major
financial centers. In addition, a small number of issuers represent a disproportionately large percentage of market capitalization and trading volume on the Colombian Stock Exchange. A liquid trading market for our securities might not develop or
continue on the Colombian Stock Exchange. A limited trading market could impair the ability of an ADS holder to sell preferred shares (obtained upon withdrawal of such shares from the ADS facility) on the Colombian Stock Exchange in the amount and
at the price and time such holder desires.
Exchange rate fluctuations may adversely affect the foreign currency value of the preferred shares
represented by the ADSs and any dividend or other distributions.
Preferred shares represented by the ADSs are quoted in Colombian
pesos on the Colombian Stock Exchange. Dividends and other distributions regarding our preferred shares, if any, will be paid in Colombian pesos. Fluctuations in the exchange rate between Colombian pesos and U.S. dollars will affect, among other
things, the foreign currency value of any such dividends or distributions.
It may be difficult to enforce your liquidation preference reimbursement
right if we enter into an insolvency, bankruptcy, liquidation or similar proceeding in Panama.
Panamas insolvency laws,
particularly as they relate to the priority of creditors, may be less favorable to your interests than the bankruptcy laws of the United States. Your ability to enforce your liquidation preference reimbursement right as a holder of the ADSs may be
limited if we become subject to an insolvency, bankruptcy, liquidation or similar proceeding in Panama.
Our ability to pay dividends may be limited
if any of our operating subsidiaries becomes subject to insolvency, bankruptcy, liquidation or similar proceedings in their home jurisdictions.
Our ability to pay dividends may be limited if any of our operating subsidiaries becomes subject to insolvency, bankruptcy, liquidation or
similar proceedings under the applicable laws of Colombia, the Bahamas, El Salvador, Costa Rica or Peru, as the case may be. These laws establish the events under which a company, its creditors or authorities may request a companys admission
to proceedings to reach an agreement with creditors as to the terms of its debt structure. In addition, if a debtor breaches an insolvency agreement, or if continuation of a debtors business is not economically feasible, the restructured
company may be liquidated. Applicable law may limit our ability in these cases to pay dividends.
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We are a holding company with no independent operations or assets, and our ability to repay our debt and
pay dividends to holders of the ADSs depends on cash flow generated by our subsidiaries, which are subject to limitations on their ability to make dividend payments to us.
We conduct no operations and our only material asset is our equity interests in our operating subsidiaries. Accordingly, our ability to repay
our debt and pay dividends to holders of the ADSs depends on the generation of cash flow by our subsidiaries and their ability to make such cash available to us through dividends, debt repayment or otherwise.
In addition, our subsidiaries may not be able to, or may not be permitted to, make distributions to us to enable us to make payments in
respect of our indebtedness or to pay dividends. Restrictions in our subsidiaries debt instruments and under applicable law limit their ability to provide funds to us, and if our subsidiaries are not able to provide funds to us, we may not be
able to repay our debt or pay dividends to our shareholders, including holders of the ADSs. In 2020, our management proposed that dividends not be distributed considering our net loss in 2019, which proposal was approved at our annual
shareholders meeting on March 27, 2020.
Item 4.
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Information on the Company
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A.
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History and Development of the Company
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Avianca Holdings
We are a holding
company incorporated in Panama following the combination of Avianca and Taca in October 2009.
In May 2011, we completed our initial
public offering in Colombia on the Colombian Stock Exchange. In connection with that public offering, we sold 100,000,000 preferred shares. In May 2013, we issued $300 million in aggregate principal amount of 8.375% senior notes due 2020, our
first offering in the international capital markets. In November 2013, we completed our initial public offering in the United States, listing ADSs representing our preferred shares on the NYSE. In April 2014, we issued $250 million in aggregate
principal amount of additional 8.375% senior notes due 2020.
In November 2018, in anticipation of the United Copa Transaction, Synergy,
then our controlling shareholder, transferred 489,200,000 of our common shares (corresponding to 74.0% of our total outstanding common shares and 48.9% of our total outstanding share capital) to BRW, a Delaware limited liability company and wholly
owned subsidiary of Synergy. This transfer was made in the context of an overall restructuring process at Synergy in connection with the United Copa Transaction and did not change our ultimate ownership structure. Synergy transferred 26,800,000 of
our common shares (corresponding to 5.1% of our voting share capital and 2.6% of our total outstanding share capital) to BRW. As a result of these transactions, BRW holds 515,999,999 of our common shares, or 78.1% of our voting share capital, which
represents 51.5% of our total outstanding share capital. BRW then transferred one common share to United.
Under the terms of the United
Loan Agreement, BRW pledged to Wilmington Trust, as collateral agent for the benefit of United, 78.1% of our common shares, among other assets, as security for BRWs obligations under the United Loan Agreement. In addition, on November 9,
2018, Kingsland pledged to Wilmington Trust, as collateral agent for the benefit of United, all of the common shares that it owns in us (representing 21.9% of our common shares) as security for the payment and performance of certain contractual
obligations owed by Kingsland to United under certain contractual arrangements, including an upside sharing agreement, a put option agreement and a cooperation agreement.
Following defaults by BRW under the United Loan Agreement, United accelerated the United Loan Agreement and, in May 2019, commenced the
exercise of remedies against BRW and BRW Holding. Pursuant to the terms of the United Loan Agreement, United appointed Kingsland as the Independent Third Party entitled to exercise voting control over BRW and, as a result, BRW Holding (and,
indirectly, Synergy) lost the right to direct the manner in which BRW votes the pledged shares. Through its ownership of our common shares and its authority as manager of BRW (with the right to direct the voting of the pledged shares), Kingsland
assumed voting control over us. Subsequently, in May 2019, certain members of our board of directors, including José Efromovich and Germán Efromovich, were replaced by our current directors.
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On May 10, 2020, Avianca Holdings S.A. and certain of its affiliated entities filed
voluntary petitions for chapter 11 relief under title 11 of the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the Southern District of New York, which cases are being jointly administered under Case No. 20-11133 (MG).
Avianca
Avianca is the second largest airline company in Latin America and the second oldest in the world and, in 2019, turned 100 years and is the
longest continuously operating airline in the world.
Avianca was organized in 1919 as SCADTA (Sociedad Colombo-Alemana de Transportes
Aéreos) by a group of Colombian and German investors that pioneered aircraft navigation in Colombia with Junkers F-13 hydroplanes. By the early 1920s, Avianca was offering international service to
Venezuela and the United States. During World War II, the German investors sold their stake to Pan American World Airways, a U.S. corporation. In 1940, Aerovías Nacionales de Colombia S.A. (Avianca), was incorporated in connection
with the merger of SCADTA and SACO (Servicio Aéreo Colombiano). In 1963, Avianca acquired SAM S.A. (Sociedad Aeronáutica de Medellín), a Medellín based passenger airline. In 1981, Avianca built and began
operating the Puente Aéreo terminal in Bogotá to service domestic routes in Colombia. Avianca remodeled this terminal in 2006 and enjoyed exclusive rights to use it for domestic routes in Colombia until May 2018, when
Operadora Aeroportuaria Internacional (OPAIN), provided Avianca the necessary space to have its domestic and international operations integrated under one terminal at El Dorado International Airport. In 2004, our indirect
controlling shareholder, Synergy, acquired Avianca, helping it emerge from its Chapter 11 reorganization. In 2005, Avianca changed its name to Aerovías del Continente Americano S.A. Avianca. In 2008, Avianca acquired Tampa Cargo, a
leading Colombian cargo airline, and, in 2010, it acquired Avianca Ecuador, formerly known as Aerogal, which is a direct subsidiary of Avianca Holdings S.A., and merged with SAM S.A., with Avianca as the surviving entity.
Taca
Taca was organized in 1931
in Honduras as Transportes Aéreos Centroamericanos TACA. In the 1930s and 1940s, Taca expanded throughout Central America, including Costa Rica, El Salvador, Guatemala, Nicaragua and Panama. By the 1950s, its operations had
consolidated into one airline, Taca International, based in El Salvador. In 1963, the Kriete family acquired a majority interest in Taca. In the 1990s, Taca began acquiring interests in the flag carriers of each of the other Central American
countries. In 1998, Taca modernized its fleet and redesigned its schedule into a dual hub and spoke network, with hubs in San Salvador and San José. In 1999, Taca launched Avianca Peru, formerly Trans American Airlines S.A., and added a hub
in Lima, Peru.
Recent Acquisitions, Divestments and Strategic Alliances
Joint Venture with CAE International Holdings Limited and Subsequent Sale
In January 2019, we entered into an agreement to sell to CAE International Holdings Limited (CAE Holdings) and to Avianca-CAE Flight Training El Salvador S.A. de C.V. (CAE El Salvador), a worldwide leader in training for the civil aviation, defense, security and healthcare markets, our participation in Avianca-CAE Flight Training S.A.S. (renamed CAE Colombia Flight Training S.A.S. after the sale) (Avianca CAE), previously a joint venture with CAE Holdings for pilot training with flight simulators,
which included the sale of certain of our assets in different jurisdictions and of all of our shares owned in Avianca CAE, as part of an exclusive 15-year commercial training services agreement. As a result of
this agreement, Avianca CAE will be the exclusive provider of training services and will provide support to Aviancas training needs in the region.
Sale of Turboprop Leasing Company Ltd. and Aerotaxis La Costeña S.A.
In April 2019, our subsidiaries Taca and NICA entered into an agreement to sell all of Tacas 68% interest in Turboprop Leasing Company Ltd. and all of
NICAs 68% interest in Aerotaxis La Costeña S.A. to Regional Airline Holding LLC, a third-party purchaser, for up to $11.7 million and variable earn-out consideration of up to
$3.8 million. We consummated this sale in May 2019.
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We are the market leader in terms of passengers carried in the Colombian domestic market (the third largest domestic market in Latin America),
and held a consolidated market share of 50.3% in 2019 according to the Curaçao Civil Aviation Authority (CCAA). We are also a leader in terms of passengers carried on international flights within the Andean region and Central
America (our home markets) according to internal data we derive from Travelport Marketing Information Data Tapes. Our strong presence within the Andean region and Central America enables us to consolidate regional passenger traffic in our hubs and
provide connectivity to international destinations, making us a leader in terms of international air passengers carried from our home markets to both North America and South America. In 2019, we generated revenue and Adjusted EBITDA of
$4,621.5 million and $511.3 million, respectively.
We operate an extensive route network from our strategically located hubs in
Colombia and El Salvador and our focus markets of Guatemala and Ecuador. We offer passenger and cargo service through approximately 5,379 weekly scheduled flights to more than 76 destinations in over 27 countries around the world. Our code share
alliances, together with our membership in Star Alliance, which we joined in 2012, provide our customers with access to a worldwide network of over 1,300 destinations. In 2019, 2018 and 2017, we transported approximately 30.5 million,
30.6 million and 29.5 million passengers, respectively, and 602 thousand, 563 thousand and 566 thousand metric tons of cargo, respectively.
As of December 31, 2019, we operated a modern fleet of 156 aircraft (130 jet passenger aircraft, 15 turboprop passenger aircraft and 11
cargo aircraft), mainly from the Airbus family. Our fleet modernization initiatives increased our jet passenger fleets capacity and made our jet passenger operative fleet one of the youngest among Latin American airlines, with an average
aircraft age of 7.33 years as of December 31, 2019. One of our main focuses in terms of fleet management is to increase the homogeneity of our fleet and, in the process, increase efficiency by decreasing the number of aircraft models we operate
and service.
We also provide other products and services that complement our passenger and cargo businesses and diversify our sources of
revenue. In March 2011, we launched our LifeMiles loyalty program, which has grown to become one of the largest and most recognized coalition loyalty programs in Latin America, particularly in its core markets of Colombia and Central America
(excluding Panama). In 2015, we sold a 30.0% stake in LifeMiles to Advent International. From 2011 to 2019, our LifeMiles loyalty program experienced a compound annual membership growth of 10.3%, increasing from approximately
4.4 million members as of December 31, 2011 to approximately 9.7 million members as of December 31, 2019. LifeMiles partners with nearly all of the leading banks in Colombia and Central America (excluding Panama),
including many of the largest financial institutions in each respective key region, based on actual credit card balances outstanding. Moreover, for the majority of those financial partners with which LifeMiles offers co-branded credit cards, we are the exclusive airline co-brand card partner. LifeMiles also maintains relationships with premier hotels, indirectly with major car
rental companies, popular restaurants and other commercial establishments such as gas stations, supermarkets and leading apparel brands. As of December 31, 2019, LifeMiles had 586 active commercial partners.
In the recent past and under previous management, we incurred substantial leverage to increase our capacity, which ultimately outpaced demand
in Colombia and our other principal markets, resulting in an unsustainable level of debt service. This situation culminated in the first half of 2019 in defaults under the United Loan Agreement by Synergy, which triggered cross-defaults under
certain of our indebtedness and ratings downgrades in mid-May 2019 and July 2019. Additionally, the shutdown of Oceanair Linhas Aéreas S.A. (Oceanair), a Brazilian airline that had a license
to use the trademark Avianca, and Avian Lineas Aereas S.A., an Argentinian airline that had a license to use the trademark Avianca, each of which is unaffiliated with us, also adversely affected our brand.
Upon default by our shareholder BRW under the United Loan, United enforced its remedies and exercised voting rights to implement new
management. In July 2019, our new board of directors adopted a transformation plan, which we refer to as our Avianca 2021 strategic plan, focused on profitability, operational efficiency,
re-prioritized capital expenditures, strengthened balance sheet and divestment of non-core assets, and supported by our four key strengths: our strategically located
Bogotá hub, our LifeMiles loyalty program, our respected brand with outstanding customer service and our membership in the Star Alliance network.
Our first objective, our board of directors appointed a new executive management team led by Mr. Anko van der Werff, as chief executive
officer, and Mr. Adrian Neuhauser, as chief financial officer. Our board of directors redirected our strategy to focus on Bogotá as our primary strategic hub, as well as to focus on our overall
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profitability and cost-efficiency, deleveraging our balance sheet and revising our aircraft fleet plans. As part of this strategy, we expect to continue our growth at a measured pace while
reducing overall complexity in our fleet, network and corporate operations. We plan to address overcapacity through aircraft sales, which we expect will provide us with additional liquidity.
Our Avianca 2021 strategic plan also included our reprofiling plan, which comprised the extension of our capital markets debt, the incurrence
of $375 million in additional convertible debt financings by our stakeholders and other financing parties and deferrals or other consents or waivers from creditors holding approximately $2,924 billion in debt, which refinancing plan we
completed in January 2020.
Our Avianca 2021 strategic plan focuses on our key strengths, which we believe include our Bogotá hub,
our LifeMiles loyalty program, our respected brand with outstanding customer service, our key strategic partners, including Kingsland and United, our membership in the Star Alliance network and, subject to regulatory approval, our joint
business agreement with United and Copa (the Joint Business Plan). Through the Joint Business Plan, we, United and Copa, each members of the Star Alliance, plan to integrate our complementary networks and expect to offer our customers a
broad portfolio of benefits. In addition to the United States, the Joint Business Plan is expected to cover certain operations in the following Latin American countries: Argentina, Belize, Bolivia, Chile, Colombia, Costa Rica, Ecuador, El Salvador,
Guyana, French Guyana, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Peru, Surinam, Uruguay and Venezuela.
We believe that the
ownership and management changes described above, together with our ongoing implementation of our Avianca 2021 strategic plan, will be key components of our path to success. With our new independent directors and persons with significant airline
industry experience, our new board of directors brings an enhanced level of corporate governance, which, along with our new executive leadership, will work to implement our strategic vision of right-sizing our
operations and becoming a highly-focused and profitable airline.
Our Strengths
We believe that our most important business strengths include the following:
Market leader in a dynamic Latin American region
We have a leading presence in the Colombian domestic market (50.3% market share in 2019, according to data from CCAA) and also in the market
for international passenger service within the Andean region and Central America, a region with approximately 164 million inhabitants as of December 31, 2019, encompassing what we believe to be dynamic and growing economies. We believe our
strong presence in the regions in which we operate positions us to benefit from economies of scale.
A strong brand associated with a superior
customer experience
We believe that our customers in our core Latin American markets associate the Avianca brand with
superior customer service. We have unified, strengthened and developed our service standards with the objective of providing an exceptional experience that connects us with our customers in Latin America and the rest of the world. In 2019, we were
recognized by TripAdvisor Travelers Choice Awards for Airlines as Best passenger comfort in Latin America. Kayak Awards elected us the best airline for Best Comfort and Best Entertainment on Board in Latin
America. APEX Passenger Choice Awards elected us the Best Regional Airline in South America and Airline with the Best Food and Drink in the region. In addition, APEX recognized us as a five-star airline.
Our Bogotá hub-focused operations
Our Bogotá hub, in which we are the market leader with a customer share of 50.3% in 2019, is the core of our operations and provides
coverage of Colombias large domestic market, which represented 49% of our total revenue in 2019. Through our membership in Star Alliance, the largest airline network in the world as of December 31, 2019 in terms of member airlines, daily
flights, destinations and covered countries, our Bogotá hub supports our broad international network connecting South America, Central America, the Caribbean, North America and Europe. We believe that the broad reach of our network, together
with our code share alliances and Star Alliance membership, provide our customers with a wide range of destination options and provide us with a geographically diversified source of revenue that affords us flexibility and adaptability with respect
to demand cycles in our industry while our Bogotá hub provides us with efficiency and streamlined operations. Upon regulatory approval, we expect our joint business agreement with United and Copa will offer our customers a broad portfolio of
benefits.
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World-class loyalty business
Launched in March 2011, our loyalty program LifeMiles has enhanced our brand recognition by providing superior customer service through
member engagement and an outstanding miles-to-rewards ratio. Our LifeMiles program has enhanced loyalty to Avianca with approximately 9.7 million members as
of December 31, 2019. With 13 Freddie Awards, LifeMiles is one of the most awarded programs in the Americas since 2013 and is the only Latin American program to have won a Freddie Award since 2012. LifeMiles 586 commercial
partners include thousands of retail stores in core markets such as Colombia, El Salvador, Costa Rica, Guatemala and Peru, where members can earn and redeem their miles at the point of sale. These local coalitions strengthen engagement with members
and allow members to earn miles on a higher percentage of their monthly spending. In addition, members using a LifeMiles credit card to pay for merchandise within the coalition can double dip (earn miles on their credit card and
earn miles through the retailer) on the same transaction. As of December 31, 2019, approximately 700,000 co-branded credit cards were active. In addition to accelerated program growth and increased
presence of both the Avianca and LifeMiles brands in the day to day lives of our members, our rapidly growing coalitions create increased demand for LifeMiles credit cards, as well as other LifeMiles products such as
Multiply Your Miles and Club LifeMiles. As of December 31, 2019, we held a 70.0% ownership stake in LifeMiles.
Strong corporate governance and experienced management
Following our changes in management, our corporate governance has been enhanced with a stronger board of directors representing decades of
industry experience and experience in complementary fields. In mid-2019, our board of directors appointed our chief executive officer and chief financial officer, which bring proven track records and decades
of experience in the airline industry and corporate finance, to establish our Avianca 2021 Plan and lead us to the next century of our operations.
Our
Strategies
Our goal is to position our superior customer service and leverage our leadership position to take advantage of
opportunities for profitability in the Latin American aviation market. Key elements of our business strategy include the following:
Enhance
customer loyalty through providing superior customer service and a culture of exceptional experience
Providing superior customer
service is a cornerstone of our business and we seek to create a culture that delivers an exceptional experience to our customers. We believe our culture differentiates us from our competitors by combining high-quality operating performance with a
world-class service culture that we believe caters to the preferences of passengers around the world. Our customer service strategy is based on engaging, training and rewarding dedicated personnel, implementing the latest technological platforms to
improve our personnels productivity, providing high-quality operations and enhancing customers digital experience by delivering products and services such as improved VIP lounges, self-service
check-in (over the internet, at kiosks or from mobile phones), mobile app, virtual assistance and a superior experience aboard modern aircraft with a varied selection of
in-flight entertainment options. We also intend to leverage our LifeMiles loyalty program to increase customer loyalty and attract new customers by providing competitive benefits, including priority
seat availability, check-in and baggage handling and VIP lounge access, as well as innovative technological solutions designed to make our members experience more seamless.
Focus on consolidating our operations in our core business areas to achieve greater business and operational efficiency, increase revenue, enhance
customer experience, improve our personnels productivity and reduce costs
We believe there is potential to increase our
revenue through the consolidation of our operations and improvement of our revenue management practices. We continually seek to increase our operational efficiency and achieve cost synergies by optimizing our operational and administrative
procedures related to fleet management, consolidating our maintenance procedures across the regions we serve and optimizing our flight operations by
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increasing aircraft utilization through interchangeability of aircraft, optimizing crew planning and using our regional hubs more efficiently. As part of our Avianca 2021 Plan, we are focusing on
our core airline operations and streamlining our network and our fleet plan. We have phased out certain aircraft and renegotiated our purchase agreements with aircraft suppliers as part of our focus on profitability above growth initiatives. We have
also launched our regional airline Regional Express Americas and deployed our short-haul ATR aircraft to serve domestic markets more efficiently. Regional Express Americas began its operations in March 2019 with two ATRs serving domestic
routes in Colombia, with additional ATRs to be deployed within Regional Express Americas. As of December 31, 2019, Regional Express Americas operated nine ATRs, mainly in the Colombian domestic market.
Pursue selective opportunities for profitable growth in our passenger segment, including through strategic alliances such as the United Copa Transaction
We seek to pursue selective growth opportunities in our passenger business by protecting and leveraging our strong presence and
optimizing our network in the markets we serve. We continue to maintain our presence in the region with domestic and international routes through our Bogotá hub, as well as by enhancing our connectivity for passengers traveling between South
and North America via our San Salvador hub, and we seek to take advantage of selective profitable growth opportunities. We align any growth initiatives in response to the prevailing macroeconomic environment, demand and other factors related to the
primary markets we serve in order to maintain our profitability. In 2019, we cancelled 19 underperforming international routes and all domestic routes except the Cuzco-Lima route. These changes are examples of
our strategy to optimize our network, reduce low-performance flights and prioritize our networks profitability, as well as redistribute the released capacity to meet customer demand within our key
markets. We also expect to continue to selectively evaluate additional profitable growth opportunities through strategic alliances with other airlines, such as the Joint Business Agreement with United and Copa that we entered into in November 2018
and is subject to regulatory approval as well as potential acquisitions and strategic opportunities that would complement our operations. We expect that the Joint Business Agreement will bring new service and innovation for passengers traveling
between the United States and 19 countries in Latin America via revenue sharing, service integration and coordination on pricing and scheduling.
Expand our LifeMiles loyalty business to enhance our overall value
We believe our LifeMiles loyalty program enhances our brand recognition, strengthens our position in strategic markets and provides
ancillary revenue opportunities. We intend to further enhance LifeMiles revenue growth by increasing the number of active members, increasing the accrual and redemption of miles per active member and strengthening the network of
commercial partners that allow their customers to earn LifeMiles, including by developing new co-branded products and partnerships and similar initiatives with hotel chains, car rental companies,
financial institutions, retail stores and other airlines. As we expand our commercial partner base, we expect to gain access to potential new members, in particular those who may travel infrequently, and increase engagement among our existing
members.
Recent Developments
Fleet Plan
Optimization
In January 2020, we reached agreements with Airbus and BOC Aviation to optimize our fleet plan as part of our
implementation of the Avianca 2021 Plan. We reduced our firm commitments with Airbus to 88 A320neo (from 108) for delivery in 2025 through 2028 (20 per year) and the remaining eight aircraft in 2029. We cancelled or deferred A320neo family
deliveries in 2020 through 2024. We also entered into 12-year leases for up to 12 A320neo aircraft with BOC Aviation for deliveries after 2023. Additionally, in December 2019, we reached a mutually beneficial
agreement with Boeing with regards to outstanding 787-9 deliveries and changed the delivery date for two aircraft from 2021 to 2024.
Additional Financing Facilities
In December 2019, we received a $250 million convertible secured stakeholder facility loan by United and an affiliate of Kingsland (the
Stakeholder Loan).
In January 2020, we closed additional secured financing facilities for $125 million, which comprised
(i) $50 million in aggregate principal amount of convertible loans, on substantially the same economic terms as
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the Stakeholder Loan, from a group of Latin American investors, and (ii) $75 million in aggregate principal amount of commitments for senior secured convertible loans and bonds, which
serve as a bridge financing to completion of a contemplated convertible bond offering to preferred shareholders (the Incremental Bonds), including (x) a commitment of $50 million from an investment vehicle managed by Citadel
Advisors LLC for senior secured convertible notes and (y) a commitment of $25 million for senior secured convertible loans from another group of Latin American investors, on substantially the same economic terms as the Stakeholder Loan.
These additional financing facilities are secured mainly by pledges in the equity interests in group entities.
The lenders under the Stakeholder Loan and the additional financing facilities (i) are also subject to an intercreditor agreement
governing the enforcement of the collateral securing financing and (ii) have been granted customary registration rights regarding the equity interests into which their financings are convertible.
Developments Relating to COVID-19
In December 2019, cases of COVID-19 were reported in Wuhan, China, and the virus has now spread
globally. The World Health Organization declared COVID-19 a pandemic and, in March 2020, the U.S. and Colombian governments declared a state of emergency and implemented measures to halt the spread
of the virus, including enhanced screenings, quarantine requirements and severe travel restrictions. The spread of COVID-19 and government measures to address it have already had a material and adverse effect
on the airline industry and us and have resulted in unprecedented revenue, demand and overall macroeconomic uncertainty.
On
March 13, 2020, we announced a temporary reduction of 30-40% in our capacity in order to manage the impact of reduced demand for air travel. Following the Colombian federal governments announcement
that it would close Colombian international airspace to passenger travel effective March 23, on March 19, we announced a further reduction in our capacity to cease international passenger operations for an initial period of 30 days and to
cancel flights to and within Peru, El Salvador and Ecuador until the end of April. Following the Colombian federal governments announcement that it would close Colombian airspace to passenger travel effective March 25, on March 24,
we announced that we were temporarily ceasing all Colombian domestic flight operations. We have maintained our cargo, freight, charter and courier operations.
In addition to reducing capacity, in order to mitigate the effects of these developments, we implemented additional cost savings and liquidity
preservation measures, including a suspension on hiring of new employees, implementation of voluntary unpaid leave of absence, which more than 14,000 employees have taken, and temporary deferral of labor contracts,
non-essential expenses, capital expenditures, payments on long-term leases and payments of principal on certain financing obligations, as well as negotiations with key suppliers, strategic lenders and other
creditors.
For more information, see Item 3. Key InformationD. Risk FactorsRisks Relating to the Airline
IndustryThe outbreak or the threat of an outbreak of a contagious disease has already and may further materially and adversely affect the airline industry.
Chapter 11 Proceedings
On
May 10, 2020, Avianca Holdings S.A. and certain of its affiliated entities filed voluntary petitions for chapter 11 relief under title 11 of the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the
Southern District of New York, which cases are being jointly administered under Case No. 20-11133 (MG). For information on the risks and uncertainties associated with our Chapter 11 proceedings, see
Item 3. Key InformationD. Risk FactorsRisks Relating to Our Chapter 11 Proceedings.
Ongoing Government Discussions
Like many airline companies around the world, as of the date of this annual report, we are seeking financial support from the
governments of the countries in which we operate. We have been and remain engaged in discussions with the government of Colombia, as well as those of our other key markets, regarding financing structures that would provide critical additional
liquidity to support us during our Chapter 11 proceedings and play a vital role in ensuring that we emerge from our court-supervised reorganization as a competitive and successful carrier.
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Going Concern and Financial Reporting in Reorganization
We have significant indebtedness. Our level of indebtedness has adversely affected and continues to adversely affect our financial condition.
As a result of our financial condition, the defaults under our debt and other agreements, the risks and uncertainties surrounding our Chapter 11 proceedings and the impact on us of developments relating to the spread of COVID-19, substantial doubt exists regarding our ability to continue as a going concern. Accordingly, the audit report issued by our independent registered public accounting firm regarding our financial statements
as of and for the year ended December 31, 2019 contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
Our audited consolidated financial statements included in this annual report have been prepared on a going concern basis of accounting, which
contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. As such, our audited consolidated financial statements included in this annual report do not include any
adjustments that might result from the outcome of our Chapter 11 proceedings. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and
expenses could be required and could be material.
Listing and Trading of the ADSs
As a result of our Chapter 11 proceedings, the NYSE applied to the SEC on May 27, 2020 in order to delist the ADSs. As of the date of this
annual report, the ADSs are traded in the over-the-counter market.
Additionally, the Colombian Stock Exchange notified us that
(i) as of May 26, 2020, our preferred shares would trade on the Colombian Stock Exchange by means of auction, (ii) our preferred shares continue to be ineligible for repo transactions and are inadmissible as collateral for margin calls in
other types of transactions and (iii) as of May 11, 2020, no futures or options contracts in respect of our preferred shares may be entered into.
For more information, see Item 3. Key InformationD. Risk FactorsRisks Relating to the ADSs and our Preferred
SharesBecause our post-bankruptcy capital structure is yet to be determined, and any changes to our capital structure may have a material adverse effect on holders of the ADSs or our preferred shares, trading in the ADSs or our preferred
shares during the pendency of our Chapter 11 proceedings is highly speculative and poses substantial risks.
Dissolution and Liquidation of
Avianca Peru
On May 18, 2020, we announced to the market that, following a general shareholders meeting of Avianca
Peru, the board of directors of Avianca Peru agreed to terminatee its operations and begin a voluntary dissolution and liquidation process under local Peruvian law in order to preserve and protect our businesses in the face of the COVID-19 crisis. In the future, we expect to continue to serve routes to and from Peru through our airlines in Colombia, El Salvador and Ecuador, once government flight restrictions permit us to do so.
Sources of Revenue
Our principal
product is scheduled passenger air transportation. We target business travelers, which in 2019 represented 30% of our domestic and Latin American traffic. We also target leisure travelers with our extensive network. Leisure traffic tends to coincide
with holidays, school schedules and cultural events and peaks in July and August and again in December and January, as well as during the Easter holiday in March/April.
In addition, we generate revenue through our LifeMiles loyalty program and through our cargo and courier transportation operations,
which comprise shipment of small parcels between countries, on a door-to-door basis and with defined transit time commitments from carriers. Our other revenue activities
include air transport-related services such as maintenance, crew training and other airport services provided to third party carriers through our Avianca Services division, as well as service charges and ticket penalties. We also generate revenue
from aircraft and property leases, marketing rebates, duty-free sales and charter flights.
Passenger Revenue
Our passenger revenue primarily comprises ticket sales, including revenue from redemption of miles under our LifeMiles loyalty program
and ancillary revenue, which includes additional charges that are billed to passengers, such as fees for excess baggage, date, destination and name changes and special services relating to empty seats, unaccompanied minors and lounge passes.
Our passenger revenue represented 84.5%, 83.3% and 79.9% of our total revenue in 2019, 2018 and 2017, respectively.
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Domestic Passenger Revenue
Domestic passenger revenue accounted for 51.2%, 49.1% and 53.5% of our total passenger revenue in 2019, 2018 and 2017, respectively. For
accounting purposes, we consider flights to be domestic or international flights based on origin, not destination.
Colombia
Our Colombian domestic passenger revenue accounted for 89.1%, 86.5% and 84.2% of our total domestic passenger revenue in 2019, 2018 and 2017,
respectively. In Colombia, in 2019, approximately 79% of our domestic passengers flew from or to Bogotá, 9% passed through Bogotá in transit to other points on our domestic route network and 12% were point-to-point travelers that did not travel to or through Bogotá. Bogotá is an important business center with a population of approximately 7.6 million, as are Medellín, Cali and
Barranquilla with populations of approximately 2.5 million, 2.2 million and 1.2 million, respectively, as of December 31, 2019.
Peru
Our Peruvian domestic passenger
revenue accounted for 3.6%, 6.9% and 8.8% of our total domestic passenger revenue for 2019, 2018 and 2017, respectively. As of April 2019, we repositioned our network strategy, reducing the services offered by our local subsidiary Avianca Peru
within Perus domestic market. Pursuant to this strategy, we maintained only our route between Limas Jorge Chávez International Airport and the Alejandro Velasco Astete International Airport in Cusco, which is a popular tourist
destination. Daily flights between Cusco and Bogotá were not affected by these plans. These network changes accompanied our strategy to prioritize profitability of our network and routes by reducing
low-performance flights, ensuring that our network is optimized and redistributing the capacity released to meet the demand of customers within our key markets. As of the date of this annual report, Avianca
Peru has initiated a voluntary dissolution and liquidation process. In the future, we expect to continue to serve routes to and from Peru through our airlines in Colombia, El Salvador and Ecuador, once government flight restrictions permit us to do
so.
Ecuador
Our Ecuadorian domestic
passenger revenue accounted for 7.3%, 6.7% and 7.0% of our total domestic passenger revenue in 2019, 2018 and 2017, respectively. As of December 31, 2019, we operated approximately 22 daily domestic flights on six routes.
International Passenger Revenue
We operate international routes through our airlines Avianca (Colombia), Taca International (El Salvador), Avianca Costa Rica S.A., Avianca
Ecuador S.A. and Avianca Peru S.A. Two of our subsidiaries, Aviateca S.A. (Guatemala) and Taca de Honduras, operate their international routes through charter flights and wet leases with other of our subsidiaries.
International passenger revenue accounted for 48.8%, 50.9% and 46.5% of our total passenger revenue in 2019, 2018 and 2017, respectively.
Regional Operations in Central America
We operate regional routes in Central America through our regional airlines: Isleña de Inversiones S.A. de C.V.Isleña
(Honduras) and Aviateca S.A. (Guatemala). Passenger revenue from our regional operations in Central America accounted for 0.5%, 1.2% and 1.6% of our total passenger revenue in 2019, 2018 and 2017, respectively. In May 2019, we sold Aerotaxis La
Costeña S.A. (Nicaragua) and Servicios Aéreos Nacionales S.A. (Costa Rica).
Route Network and Schedules
We operate 705 daily scheduled flights to 83 destinations in North America, Central America, South America and Europe. Our network combines
strategically located hubs in Bogotá and San Salvador, as well as strong point-to-point service from and to different major destinations in North America,
Central America, South America and Europe. We also provide our passengers with access to flights to 140 additional destinations worldwide through code-share arrangements with Aeroméxico, All Nippon Airways, Air China, Air India,
Air Canada, Azul, Copa, Etihad, EVA Airways, GOL Linheas Aéreas, Iberia, Lufthansa, Silver Airways, Singapore Airlines, Turkish Airlines and United Airlines. Our membership in Star Alliance since 2012 increased the reach of our
frequent flyer program, granting our clients access to more than 1,300 airports in 195 countries with 19,000 daily flights and more
40
than 1,000 VIP lounges throughout the world, as well as mileage accruals and redemptions with Star Alliances 26 carrier members. As part of our network streamlining and focus on
profitability, in 2019, we cancelled 19 of our international routes and nine of our domestic routes.
We connect city pairs with lower
passenger traffic through our hubs, which allows us to build density on our flights and serve these destinations with a higher frequency. When passenger demand for a particular city pair is sufficient, we provide point-to-point service, which reduces travel time and inconvenience for passengers. We believe that this mixed model allows us to efficiently allocate our resources among high and low-traffic destinations.
For international connections at our hubs, we operate a morning bank, an
evening bank and a midday bank of flights, with flights timed to arrive at the corresponding hub at approximately the same time and to depart a short time later. These banks allow us to provide more frequent service to many destinations, allow some
passengers more convenient connections and increase the flexibility of scheduling flights throughout our route network.
The following
table sets forth the distribution of our passenger revenue generated in each region for the periods indicated (considering destination):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Region
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Domestic Colombia
|
|
|
23.0
|
%
|
|
|
23.9
|
%
|
|
|
23.1
|
%
|
Domestic Ecuador
|
|
|
1.9
|
%
|
|
|
1.8
|
%
|
|
|
1.9
|
%
|
Domestic Peru
|
|
|
0.9
|
%
|
|
|
1.9
|
%
|
|
|
2.4
|
%
|
Central America & Caribbean
(non-regional)
|
|
|
7.7
|
%
|
|
|
7.7
|
%
|
|
|
8.0
|
%
|
Intra home markets(1)
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
|
|
10.4
|
%
|
Europe
|
|
|
13.9
|
%
|
|
|
13.4
|
%
|
|
|
12.2
|
%
|
North America(2)
|
|
|
29.0
|
%
|
|
|
27.1
|
%
|
|
|
26.0
|
%
|
South America
|
|
|
13.5
|
%
|
|
|
14.0
|
%
|
|
|
15.8
|
%
|
Regional Central America
|
|
|
0.0
|
%
|
|
|
0.2
|
%
|
|
|
0.3
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
The following table sets forth information regarding the number of revenue passengers we carried in each
region for the periods indicated (considering destination):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Domestic Colombia
|
|
|
15,508,518
|
|
|
|
52.4
|
%
|
|
|
14,834,728
|
|
|
|
50.0
|
%
|
|
|
14,362,599
|
|
|
|
50.3
|
%
|
Domestic Ecuador
|
|
|
771,831
|
|
|
|
2.6
|
%
|
|
|
816,336
|
|
|
|
2.8
|
%
|
|
|
755,934
|
|
|
|
2.6
|
%
|
Domestic Peru
|
|
|
565,691
|
|
|
|
1.9
|
%
|
|
|
1,229,285
|
|
|
|
4.1
|
%
|
|
|
1,286,546
|
|
|
|
4.5
|
%
|
Central America & Caribbean
(non-regional)
|
|
|
2,470,858
|
|
|
|
8.4
|
%
|
|
|
2,465,490
|
|
|
|
8.3
|
%
|
|
|
2,614,717
|
|
|
|
9.2
|
%
|
Intra home markets(1)
|
|
|
2,490,331
|
|
|
|
8.4
|
%
|
|
|
2,470,950
|
|
|
|
8.3
|
%
|
|
|
2,393,106
|
|
|
|
8.4
|
%
|
Europe
|
|
|
1,068,212
|
|
|
|
3.6
|
%
|
|
|
1,000,977
|
|
|
|
3.4
|
%
|
|
|
872,231
|
|
|
|
3.1
|
%
|
North America(2)
|
|
|
4,576,741
|
|
|
|
15.5
|
%
|
|
|
4,375,928
|
|
|
|
14.7
|
%
|
|
|
3,896,495
|
|
|
|
13.6
|
%
|
South America
|
|
|
2,038,280
|
|
|
|
6.9
|
%
|
|
|
2,097,985
|
|
|
|
7.5
|
%
|
|
|
2,130,340
|
|
|
|
7.5
|
%
|
Regional Central America
|
|
|
89,563
|
|
|
|
0.3
|
%
|
|
|
258,097
|
|
|
|
0.9
|
%
|
|
|
262,481
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,580,025
|
|
|
|
100.0
|
%
|
|
|
29,673,665
|
|
|
|
100.0
|
%
|
|
|
28,574,449
|
|
|
|
100.0
|
%
|
The following table sets forth ASKs (in millions) in each region for the periods indicated (considering
destination):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Region
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Domestic Colombia
|
|
|
8,285
|
|
|
|
15.2
|
%
|
|
|
7,859
|
|
|
|
14.7
|
%
|
|
|
7,546
|
|
|
|
15.6
|
%
|
Domestic Ecuador
|
|
|
599
|
|
|
|
1.1
|
%
|
|
|
594
|
|
|
|
1.1
|
%
|
|
|
564
|
|
|
|
1.2
|
%
|
Domestic Peru
|
|
|
406
|
|
|
|
0.7
|
%
|
|
|
923
|
|
|
|
1.7
|
%
|
|
|
1,023
|
|
|
|
2.1
|
%
|
Central America & Caribbean
(non-regional)
|
|
|
3,163
|
|
|
|
5.8
|
%
|
|
|
3,208
|
|
|
|
6.0
|
%
|
|
|
2,985
|
|
|
|
6.2
|
%
|
Intra home markets(1)
|
|
|
5,275
|
|
|
|
9.7
|
%
|
|
|
5,149
|
|
|
|
9.7
|
%
|
|
|
5,146
|
|
|
|
10.6
|
%
|
Europe
|
|
|
10,554
|
|
|
|
19.4
|
%
|
|
|
9,780
|
|
|
|
18.3
|
%
|
|
|
8,439
|
|
|
|
17.4
|
%
|
North America(2)
|
|
|
17,179
|
|
|
|
31.6
|
%
|
|
|
16,226
|
|
|
|
30.4
|
%
|
|
|
13,916
|
|
|
|
28.8
|
%
|
South America
|
|
|
8,923
|
|
|
|
16.4
|
%
|
|
|
9,488
|
|
|
|
17.8
|
%
|
|
|
8,697
|
|
|
|
18.0
|
%
|
Regional Central America
|
|
|
25
|
|
|
|
0.0
|
%
|
|
|
82
|
|
|
|
0.2
|
%
|
|
|
85
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54,410
|
|
|
|
100.0
|
%
|
|
|
53,310
|
|
|
|
100.0
|
%
|
|
|
48,401
|
|
|
|
100.0
|
%
|
41
(1)
|
International traffic between our home markets (Colombia, Ecuador, Peru, El Salvador, Costa Rica, Nicaragua,
Honduras, Guatemala, Belize, excluding Central American & Caribbean (non-regional)).
|
(2)
|
North America includes Mexico.
|
Network and Schedules
Bogotá Hub
As of December 31, 2019, we operated approximately 3,279 weekly scheduled flights through our Bogotá hub to 25
destinations in Colombia, eight in North America, 12 in South America, 10 in Central America and the Caribbean and four in Europe. Unlike in our international operations, we utilize a rolling hub system in our domestic operations whereby
our inbound and outbound connecting flights operate throughout the day, instead of during designated time banks.
San Salvador Hub
Our San Salvador hub connects, principally, passengers from different destinations in North America, Central America and South America. As of
December 31, 2019, we operated approximately 628 weekly scheduled flights through our San Salvador hub to 11 destinations in North America, four in South America and nine in Central America and the Caribbean.
San José
As of December 31,
2019, we operated approximately 139 weekly scheduled flights through our network in San José to two destinations in South America and three in Central America and the Caribbean. Our San José network connects, principally, passengers
from different destinations in South America and Central America.
Ecuador
We operate approximately 357 weekly scheduled flights through our network in Ecuador to six destinations in Ecuador, three in South America and
one in Central America.
Regional Operations in Central America
We operate approximately 559 weekly scheduled regional flights to 15 destinations in Central America through Sansa Airlines (Costa Rica) and
Isleña (Honduras).
Point-to-Point Service
In addition to the destinations served through our hubs, we provide domestic and international point-to-point service between destinations in North, Central and South America, as well as Europe.
Cargo and
Courier Operations
In addition to our passenger transportation operations, we generate revenue from our cargo and courier
transportation operations, primarily from the air transportation of goods, on an airport to airport basis, and other complementary services. In addition, we also generate cargo and courier revenues by domestic and international shipments of small
parcels, on a door-to-door basis and with defined transit time commitments.
42
Cargo
Our cargo business operates on most of the route network of our passenger business as we are able to efficiently use the belly capacity of our
passenger fleet. In addition, we strengthen our destination offering through 92 interline agreements with other airlines and we rely on freighter-only operations. We carry cargo for a variety of customers, including other international air carriers,
freight-forwarding companies, export oriented companies and individual consumers. Our cargo business is operated by both Avianca Cargo and DEPRISA. In 2019, Avianca Cargo represented the largest cargo carrier in gross tons in Colombia, with
39.3% of market share according to Aeronautica Civil of Colombia. Additionally, Avianca Cargo ranked in the top three carriers of international freight in/out of Miami, with a 13.5% market share as stated in Miami International Airports
Statistics.
Our international cargo operations are headquartered in Bogotá, and we also have significant cargo operations in
Medellín and Miami. The United States accounts for the majority of our cargo traffic to and from Latin America. In Latin America, our cargo operations focus on Colombia, Ecuador, Peru, Brazil, Mexico, Argentina and Chile. We operate in/out of
Europe through our passenger schedule services to Madrid, Barcelona, London and Munich and through our freighter service to Brussels. We also offer other destinations around the world through our block space, special prorate and commercial
agreements.
Cargo flows are unidirectional. This characteristic is a key determinant in the structure of our cargo operations and
especially relevant in markets featuring structural imbalances between inbound and outbound flows or during specific periods of disequilibrium. Lack of demand in one particular direction may force us to rely on different markets in order to maximize
loads on return flights. In recent years, we believe we have successfully diversified our cargo business origins and destinations, creating a larger network that permits us to decrease regional dependence and maximize asset utilization.
In 2019, our cargo capacity in terms of ATKs increased 11.3% and our RTKs increased 12.1% as compared to 2018. This resulted in a 0.4
percentage point increase in our cargo load factor, from 57.3% in 2018 to 57.7% in 2019. According to IATA, the load factor in 2019 in the international and the total market was 51.8% and 46.7%, respectively. Our performance reflects our strategy of
belly maximization and freighter schedule optimization.
The following table sets forth certain of our cargo operating statistics for
domestic and international routes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,(1)
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Total ATKs (millions)
|
|
|
2,739
|
|
|
|
2,460
|
|
|
|
2,489
|
|
Total RTKs (millions)
|
|
|
1,579
|
|
|
|
1,409
|
|
|
|
1,420
|
|
Weight of cargo carried (thousands of tons)
|
|
|
602
|
|
|
|
563
|
|
|
|
566
|
|
Total cargo yield (cargo revenue/RTKs, in $)
|
|
|
0.32
|
|
|
|
0.39
|
|
|
|
0.34
|
|
Total cargo load factor
|
|
|
57.7
|
%
|
|
|
57.3
|
%
|
|
|
57.0
|
%
|
Courier
In addition to our cargo operations, we also offer domestic and international courier services. Under our DEPRISA brand, which is widely
recognized throughout Colombia, we are committed to providing optimal logistics solutions in domestic and international delivery of documents, packages and other merchandise. DEPRISA is a significant player in the courier market with more
than 225 sales branches in Colombia and more than 50 abroad, with 1,200 domestic destinations and 220 international destinations (as a result of Avianca Cargos alliance with UPS). DEPRISA offers a wide portfolio of products and superior
delivery times, with premium service offering delivery in less than 24 hours and standard services ranging from 24 to 72 hours.
DEPRISA offers Avianca third-party logistics services complementary to transportation, such as storage, inventory control and global
distribution of uniforms to employees.
Our courier revenue represented 1.3%, 1.3% and 1.4% of our total revenue for the years ended
December 31, 2019, 2018 and 2017, respectively.
43
LifeMiles Loyalty Business
We believe that our strong loyalty business enhances customer loyalty and brand recognition and is one of our key strengths in improving our
profitability.
Launched in March 2011, our loyalty program LifeMiles has enhanced our brand recognition by providing superior
customer service through member engagement and an outstanding miles-to-rewards ratio. Our LifeMiles program has enhanced loyalty to Avianca with approximately
9.7 million members as of December 31, 2019. With 13 Freddie Awards, LifeMiles is one of the most awarded programs in the Americas since 2013 and is the only Latin American program to have won a Freddie Award since 2012.
LifeMiles 586 commercial partners include thousands of retail stores in core markets such as Colombia, El Salvador, Costa Rica, Guatemala and Peru, where members can earn and redeem their miles at the point of sale. These local
coalitions strengthen engagement with members and allow members to earn miles on a higher percentage of their monthly spending. In addition, members using a LifeMiles credit card to pay for merchandise within the coalition can double
dip (earn miles on their credit card and earn miles through the retailer) on the same transaction. As of December 31, 2019, approximately 700,000 co-branded credit cards were active. In addition to
accelerated program growth and increased presence of both the Avianca and LifeMiles brands in the day to day lives of our members, our rapidly growing coalitions create increased demand for LifeMiles credit cards, as well as
other LifeMiles products such as Multiply Your Miles and Club LifeMiles. As of December 31, 2019, we held a 70.0% ownership stake in LifeMiles.
LifeMiles contributes to the strength of our primary business in key commercial markets and supports yields through miles-based
voluntary up-sell incentives. LifeMiles generates revenue through the commercialization of miles, many of which we sell to banks. We have 25 co-branded credit
card partner banks, and active mileage sales agreements with approximately 100 financial institutions.
LifeMiles expenses
can be grouped into reward costs and overhead costs. Reward costs represent over 80% of LifeMiles cost base and the primary reward cost is airline tickets, in which LifeMiles is required to pay Avianca for tickets redeemed by
LifeMiles members to fly on Avianca or any of its air partners. Other reward costs include hotel nights, rental cars, tours and merchandise via the LifeMiles rewards catalog and directly in our retail partners stores, among
others. Overhead costs include, but are not limited to, investments in marketing, operational costs and information technology costs and salaries.
LifeMiles business model provides strong operating margins, positive working capital and minimal capital expenditure
requirements, which provides a unique ability to gain scale quickly. This business model includes an attractive cash flow cycle, with cash inflows from the sale of miles well in advance of the cash outflows corresponding to the redemption of those
miles, making it possible for LifeMiles to earn interest on its cash balance. In addition, LifeMiles unit costs are largely contracted with its main partners for extended periods, providing visibility and stability to a
significant portion of its total costs and gross margins.
Since the programs inception, LifeMiles members have generally
demonstrated a willingness to pay higher average fares than those paid by non-members. We believe this is in part because of high customer satisfaction, increased passenger loyalty and because many of our
business travelers, who frequently purchase more expensive, last-minute tickets, are typically also LifeMiles members. LifeMiles gross billings were $333 million, $354 million and $308 million in 2019, 2018 and
2017.
We believe that LifeMiles is a key strategic asset for us and plan to continue investing in its expansion and evaluating
opportunities to further unlock its value.
The following table sets forth certain operating statistics for LifeMiles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Gross billings (in millions of $)
|
|
|
333
|
|
|
|
354
|
|
|
|
308
|
|
Total members (in millions)
|
|
|
9.7
|
|
|
|
8.9
|
|
|
|
7.8
|
|
Active commercial partners (non-air)
|
|
|
586
|
|
|
|
515
|
|
|
|
335
|
|
The term of our agreement with LifeMiles is until 2040. This agreement includes, among other
provisions, a 20-year exclusivity with LifeMiles as the provider and operator of the frequent flyer program of Avianca and a formula that complies with the applicable transfer pricing rules in each
jurisdiction, to calculate (i) the price of miles sold from LifeMiles to Avianca (which, in turn, are used by Avianca to incentivize customer loyalty) and (ii) to determine the price paid by LifeMiles to Avianca for reward
tickets (when a member of the LifeMiles program redeems miles for air services with Avianca).
44
Ancillary Services
We provide certain ancillary services that complement our passenger and cargo business and further diversify our sources of revenue. Revenue
from ancillary services primarily comprises sales of LifeMiles program rewards to commercial partners and members of the program (net of the value of the underlying rewards which, when redeemed, are recognized as passenger revenue), air
transport-related services such as maintenance, crew training and other airport services provided to third party carriers through our Avianca Services division, service charges, ticket penalties, aircraft and property leases, marketing
rebates, duty-free sales and charter flights.
Revenue from ancillary services accounted for 3.2%, 4.0% and 7.7% of our total revenue for
the years ended December 31, 2019, 2018 and 2017, respectively.
Seasonality
Our operating results fluctuate from quarter to quarter due to seasonality. This fluctuation is the result of high vacation and leisure demand
occurring during the northern hemispheres summer season in the third quarter (principally in July and August) and during holidays in the fourth quarter (principally in December) and the southern hemispheres summer season in January. In
addition, our first and second quarter results are influenced by whether Holy Week falls in March or April.
Strategic Partnerships, Alliances and
Commercial Agreements
General
We have established strategic partnerships that allow us to improve our overall network, expand our international connectivity, offer more
attractive benefits to our LifeMiles customers, enhance our brand and build customer loyalty and revenue. These strategic partnerships provide for commercial cooperation agreements, codeshare and interline arrangements, as well as marketing
initiatives, loyalty program reciprocity or benefit sharing, enhanced service levels at airports and, potentially, equity or debt investments in us by our partners, or by us in our partners.
We are a member of Star Alliance, a global integrated airline network founded in 1997 and the largest and the most comprehensive airline
alliance in the world. As of December 31, 2019, Star Alliance carriers served more than 1,300 airports in 195 countries with 19,000 daily flights. Additionally, our bilateral commercial alliances with other airlines enhance travel options for
customers by providing better coverage to common destinations, additional mileage accrual and redemption opportunities and access to markets that we do not serve directly. These commercial alliances typically loyalty program reciprocity, code
sharing of flight operations (whereby seats on one carriers selected flights can be marketed under the brand name of another carrier), coordination of passenger services, including ticketing, passenger
check-in, baggage handling and passenger connection, and other resource-sharing activities.
We
have interline agreements with approximately 80 airlines worldwide and 17 codeshare agreements to provide connections on the basis of a single ticket, paid in a single transaction and currency, usually with baggage checked through to final
destinations and in some cases with boarding passes issued all the way through for all connecting flights. We have five intermodal agreements with Renfe trains in Spain, Great Western Railway in Britain, National Express intercity buses in Britain,
OEBB trains in Austria and Deutsche Bahn coach and bus services in Germany.
These alliances enhance our network, providing more options,
facilities and benefits to our customers and additional revenues to us.
United Copa Joint Business Arrangement
In November 2018, we entered into a three-way revenue-sharing joint business arrangement with United
and Copa to effect a strategic and commercial partnership that we expect will bring new service and innovation for passengers travelling between the United States and 19 countries in Latin America. This long-term revenue sharing
45
arrangement covers routes between the United States and Central and South America (excluding the Caribbean, Mexico and Brazil). The agreement allows us to share revenue, integrate services and
coordinate pricing and schedules with United and Copa for service between the United States and Latin America. For more information, see A. History and Development of the CompanyRecent Acquisitions, Divestments and Strategic
Alliances.
Pricing and Revenue Management
Our revenue management model is focused on effective pricing and yield management, which are closely linked to our route planning, and our
sales and distribution methods.
We maintain revenue management policies and procedures that are intended to maximize total revenue, while
keeping fares generally competitive with those of our major competitors. The fares and the number of seats we offer at each fare are determined by our proactive yield management system and are based on a continuous process of analysis and
forecasting. Past booking history, load factors, seasonality, the effects of competition and current booking trends are used to forecast demand. Current fares and knowledge of upcoming events at destinations that will affect traffic volumes are also
included in our forecasting model to arrive at optimal seat allocations for our fares on specific routes. We use a combination of approaches, taking into account yields and flight load factors, depending on the characteristics of the markets served,
to design a strategy to achieve the maximum revenue by balancing the average fare charged against the corresponding effect on our load factors.
Our model of fare segmentation seeks to maximize revenue per seat through dynamic inventory adjustment depending on demand. By increasing
price segmentation, we are able to ensure that we continue to attract and retain high-yield business traffic including last minute seat availability for late booking business travelers, which is integral to our revenue management, as well as leisure
travelers who usually pay lower fares for tickets purchased in advance. We charge higher prices for tickets on higher-demand flights, tickets purchased on short notice and tickets for itineraries suggesting a passenger would be willing to pay a
premium.
Sales and Distribution
We
strive to maintain a sophisticated sales process and a multichannel strategy with extended customer reach. We sell our products through the following primary distribution channels: (i) our website, (ii) our mobile app, (iii) call
centers, (iv) airport stations, (v) free-standing stores, (vi) direct agents and (vii) third parties such as travel agents, including through their websites. We strive to increase the share of more profitable corporate travel
agencies and to increase e-commerce penetration, thereby bypassing more expensive distribution. Direct internet bookings by our customers represent our lowest cost distribution channel. In addition, 22.9% of
all sales were generated by online channels in 2019, which creates significant cost savings for us. We intend to continue working to increase sales through online channels, in particular sales through our website and our mobile app, as these sales
are more cost-efficient and involve lower distribution costs than sales through travel agencies.
We intend to continue consolidating our
global agreements with major corporations, aiming to become the preferred corporate carrier in Latin America, and continue working closely with tourism boards to drive growth for both leisure and corporate travelers.
Set forth below is key data with respect to our main sales distribution channels in 2019:
|
|
|
Ticket and ancillary sales through direct ticket offices (airport ticket offices and city ticket offices) in
Colombia and abroad accounted for 6.1% of our sales.
|
|
|
|
Ticket and ancillary sales through our direct agents, which are third-party agents that work for us on an
exclusive basis, accounted for 2.0% of our sales.
|
|
|
|
Ticket and ancillary sales through our linked call centers, which are located in Colombia and El Salvador and
handle reservations and sales calls with a reliable 24/7 customer service model, accounted for 4.8% of our sales. These call centers are linked to Getcom and are dedicated as a direct sales channel.
|
|
|
|
Ticket and ancillary sales through our website portals and mobile app accounted for 22.6% of our sales.
|
|
|
|
Ticket and ancillary sales through indirect channels accounted for 64.1% of our sales.
|
46
Aircraft
Long-term Fleet Plan
As part of
our Avianca 2021 Plan, we are streamlining our fleet in order to increase efficiency and have renegotiated our aircraft purchase orders to align with our business strategy.
In December 2019, we amended our agreements with Airbus and Muisca Aviation Limited to reassign one A320neo aircraft and we amended our
agreements with Boeing and Valderrama Aviation Limited to reassign two B787-9 aircraft and postpone delivery from 2021 to 2024.
In January 2020, we reached agreements with Airbus and BOC Aviation to optimize our fleet plan as part of our implementation of the Avianca
2021 Plan. We reduced our firm commitments with Airbus to 88 A320neo (from 108) for delivery in 2025 through 2028 (20 per year) and the remaining eight aircraft in 2029. We cancelled or deferred A320neo family deliveries in 2020 through 2024. We
also entered into 12-year leases for up to 12 A320neo aircraft with BOC Aviation for deliveries after 2023. Additionally, in December 2019, we reached a mutually beneficial agreement with Boeing with regards
to outstanding 787-9 deliveries and changed the delivery date for two aircraft from 2021 to 2024.
The following table sets forth our firm contractual deliveries scheduled as of March 31, 2020 through 2029:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Type
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
Total
|
|
Boeing 787-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Airbus A320neo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
8
|
|
|
|
88
|
|
A320neo (BOC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
10
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
8
|
|
|
|
100
|
|
In the context of our Chapter 11 proceedings, certain of these agreements may be rejected.
General
As of December 31,
2019, we operated a fleet comprising 156 aircraft (145 passenger aircraft and 11 cargo aircraft), 99 of which were owned, 56 of which were subject to long-term leases and one under a short-term wet lease. For our freight operations, as of
December 31, 2019, we operated two 767F-200S, six Airbus A330F and three A300F. As of December 31, 2019, the average age of our operating passenger fleet was 7.33 years.
The following table sets forth the composition of our operating fleet as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Owned and
finance
leases
|
|
|
Operating
leases
|
|
|
Average age
(years)
|
|
|
Seating
capacity
|
|
Jets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airbus A319
|
|
|
15
|
|
|
|
11
|
|
|
|
4
|
|
|
|
11.41
|
|
|
|
120
|
|
Airbus A319S
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
5.07
|
|
|
|
120
|
|
Airbus A320
|
|
|
44
|
|
|
|
28
|
|
|
|
16
|
|
|
|
9.81
|
|
|
|
150
|
|
Airbus A320S
|
|
|
13
|
|
|
|
3
|
|
|
|
10
|
|
|
|
5.05
|
|
|
|
150
|
|
Airbus A320neo
|
|
|
10
|
|
|
|
3
|
|
|
|
7
|
|
|
|
1.27
|
|
|
|
153
|
|
Airbus A321
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
12.29
|
|
|
|
194
|
|
Airbus A321S
|
|
|
11
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5.14
|
|
|
|
194
|
|
Airbus A321neo
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
2.26
|
|
|
|
195
|
|
Airbus A330
|
|
|
10
|
|
|
|
3
|
|
|
|
7
|
|
|
|
8.25
|
|
|
|
252
|
|
Boeing B787
|
|
|
13
|
|
|
|
8
|
|
|
|
5
|
|
|
|
3.76
|
|
|
|
250
|
|
|
|
|
|
|
|
Number of aircraft
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Owned and
finance
leases
|
|
|
Operating
leases
|
|
|
Average age
(years)
|
|
|
Seating
capacity
|
|
Turboprop
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATR72
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
5.60
|
|
|
|
68
|
|
Cargo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airbus A330F
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
6.20
|
|
|
|
60 tons
|
|
Airbus A300F
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
26.19
|
|
|
|
40 tons
|
|
Boeing 767-200
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
32.59
|
|
|
|
40 tons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
156
|
|
|
|
99
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
The following table sets forth the scheduled expirations of our aircraft leases as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Type
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
2030
|
|
|
2031
|
|
|
Total
|
|
Airbus A319
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Airbus A320
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Airbus A320S
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
4
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Airbus A320neo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
7
|
|
Airbus A321
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Airbus A321S
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Airbus A321neo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Airbus A330
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Boeing B787-8
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Boeing B787-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
|
|
10
|
|
|
|
13
|
|
|
|
9
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
58
|
|
Our operating aircraft are subject to long-term leases, require monthly lease payments and have purchase
options at the end of the lease. In addition, we have one aircraft under a short-term wet lease. We are generally responsible for the maintenance, servicing, insurance, repair and overhaul of our leased aircraft. Under some of our lease agreements,
we are required to make supplemental rent payments to aircraft leasing companies as deposits to guarantee the performance of overhaul work on aircraft under lease and are disbursed to cover overhaul costs. These funds are refunded to us to pay for
scheduled overhauls. We record these payments as deposits and other assets under current and non-current assets in our consolidated financial statements. We are required to return leased aircraft in an agreed
upon condition at the end of the leases. In certain lease agreements, we have agreed to make an end-of-lease adjustment. The rates to calculate this adjustment are set
forth in the relevant lease agreement.
Of the 113 operating aircraft that we own or finance through financial debt, 88.5% are financed
through commercial bank financing and some of these aircraft are supported by ECA financing and others under a private placement vehicle through guaranteed notes and loans. The average rate of these financings was 4.31% as of December 31, 2019.
Maintenance
General
Aircraft maintenance, repair and overhaul are critical to the safety and comfort of our customers and the optimization of our fleet
utilization.
Our maintenance facilities are located in Bogotá, Rionegro, Guatemala City and Lima and can perform line maintenance,
heavy maintenance (except in Guatemala City), components maintenance, non-destructive tests and specialized services, which include scheduled and unscheduled aircraft maintenance checks, including pre-flight, daily and overnight checks, A-checks and any diagnostics and routine repairs, as well as heavy airframe checks, including C-checks and structural checks.
We provide line maintenance services at most of our local
stations. In addition, at our Rionegro facility, we provide heavy and components maintenance for other carriers through our Avianca Services business unit. Heavy maintenance comprises more complex inspections and C-checks, as well as aircraft servicing that cannot be completed overnight. Maintenance checks are performed as prescribed by aircraft manufacturers and approved and certified by international aviation
authorities. These checks are based on the number of hours flown or the number of take-offs or calendar days.
48
All major engine repairs and overhauls are conducted by certified outside maintenance providers,
including GE, Pratt & Whitney, IAI and Rolls Royce.
As of December 31, 2019, we employed 3,415 maintenance professionals,
including administrative staff engineers, supervisors, technicians and inspectors. Each of our certified maintenance professionals is trained in maintenance procedures, completes our in-house training program
and is licensed by the local authorities of the relevant country and, in many cases, by the FAA.
Maintenance Hangars
We have seven maintenance hangars, two of which are in Bogotá (one that can accommodate wide body planes such as a Boeing 767 and one
that can accommodate narrow body planes), three of which are at the Rionegro Airport, one of which is in Guatemala and one in El Salvador used for line maintenance. We provide third party maintenance in each of these hangars.
Certifications
Our satellite
repair station in Bogotá, our principal repair station in Rionegro, and our Aviateca repair stations in Guatemala City, Lima and El Salvador have certifications that allow us to perform maintenance on aircraft in these countries.
We are subject to approximately 250 annual audits by the aviation authorities in each of the countries in which we operate (including
self-audits), in order to ensure that our maintenance procedures comply with the best practices and standards in the industry.
Operational Training
Center
We use an operational training center located close to Bogotás El Dorado International Airport for pilots, flight
attendants and technicians, as well as for administrative employees. The student population is approximately 600 per day. The operational training center has four full-flight simulators for A320, A320neo A330, B787 and two bays available for growth,
one which is prepared to receive another A320 simulator in 2020. These simulators are operated by CAE, an independent third party that leases the space and services of the operational training center to us for approximately $323,000 per month. Upon
the conclusion of the lease agreements term in 2037, we have the option to repurchase the operational training center, which we sold to CAE in 2017.
Fuel
Aircraft fuel prices comprise a
variable and a fixed component. The variable component is set by the fuel refinery, reflects international price fluctuations for oil and exchange rates and is re-set monthly in the Colombian market. The fixed
component is a spread charged by the fuel supplier and is usually a fixed cost per liter during the term of the contract.
Fuel costs
represented 23.4%, 26.0% and 22.3% of our operating expenses in 2019, 2018 and 2017, respectively.
The following tables set forth certain
information regarding our fuel consumption for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Average price per gallon of jet fuel into plane (net of hedge) (in dollars)
|
|
|
2.23
|
|
|
|
2.34
|
|
|
|
1.91
|
|
Gallons consumed (in thousands)
|
|
|
534.0
|
|
|
|
518,248
|
|
|
|
483,512
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Average price per gallon of jet fuel into plane (net of hedge) (in dollars)
|
|
|
2.23
|
|
|
|
2.34
|
|
|
|
1.91
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons consumed (in thousands)
|
|
|
495,237
|
|
|
|
447,946
|
|
|
|
452,987
|
|
ASKs (in millions)
|
|
|
54,410
|
|
|
|
53,310
|
|
|
|
48,401
|
|
Gallons per ASK (in thousands)
|
|
|
9.1
|
|
|
|
9.2
|
|
|
|
9.4
|
|
Except for ASKs, data in the table does not include regional operations in Central America or cargo operations.
Our fuel distributors in Bogotá are Puma Energy and Terpel. Terpel supplied us with 85.1%, 85.0% and 98.0% of our fuel needs in
Colombia in 2019, 2018 and 2017, respectively, and 38.0%, 37.0% and 42.6% of our total fuel consumption. While Terpel is our primary fuel supplier in Colombia, there are three additional suppliers in certain Colombian regional airports, which
distribute approximately 15% of the remaining volume in the country. We have a fuel supply agreement with Puma Energy for our fuel needs in El Salvador. We also have a fuel supply agreement with Repsol Marketing S.A.C., pursuant to which Repsol
Marketing S.A.C. supplied us 96.5% of our fuel needs in Peru in 2019. Our fuel supply contracts have terms until October 31, 2020.
For information on the volatility of fuel prices, see Item 3. Key InformationD. Risk FactorsRisks Relating to the Airline
IndustryVolatility in our fuel costs or disruptions in our fuel supply would materially and adversely affect our operating results Item 11. Quantitative and Qualitative Disclosures About Market RiskFuel. In order to
protect ourselves against volatile fuel prices, we have entered into derivative futures, forwards or options contracts in the past and may do so again. We also may negotiate customized hedging products with fuel distributors. As of December 31,
2019, we had hedges in place for approximately 2.5% of our projected consumption for 2020 through derivative instruments.
Marketing, Customer
Experience and Advertising and Promotional Activities
The Avianca brand represents our forward-looking vision and we strive to
be the preferred Latin American airline of our customers. In furtherance of this objective, we seek to continuously improve the quality of our marketing based on knowledge of travelers preferences and building on our relationships with our
communication partners. Our brand vision is based on our key values of effort, innovation, connection and the importance of quality service and customer experience.
Beginning in May 2013, Avianca became the sole, unified brand for all of our commercial airline operations. We seek to enhance customer
experience by delivering high quality professional service and connecting to our customers emotionally. Moreover, we have worked on improving our communication effectiveness and integration with sales activities, which enable us to drive demand and
strengthen brand loyalty while maintaining a strong emotional bond built upon Latin American and Colombian heritage in our core markets and to expand it globally to other countries in which we operate.
We strive to achieve the highest marketing impact at the lowest cost through efficient and effective marketing and advertising strategies with
activities that include television, print, radio, billboards and digital media (including social media), as well as targeted public relations events in the cities to which we fly. As corporate travelers constitute an important segment of our
clientele, representing 24.9% of our revenue in 2019, we promote our services to these customers by conveying the reliability, convenience and consistency of our services and offering value-added services such as convention and conference travel
arrangements. We also target large Colombian and multinational corporations that do business in Colombia by offering rewards that may be used towards the purchase of Avianca tickets, upgrades, excess baggage fees and other services. As
travelers habits evolve and the technologies they use change, we continuously adjust our marketing and advertising techniques and tools. We invest in innovative digital marketing tools to efficiently reach current and prospective customers and
maximize our sales and returns.
Some of our promotional activities include (i) low fare promotions for domestic and international
travel, pursuant to which special rates are available during certain time frames, (ii) travel packages that consist of airfare, hotel, car rental and activities bundles, (iii) ancillaries promotions to increase average spending of
passengers on additional services such as upgrades to business cabin, additional luggage and preferential seats and (iv) network and destination promotional activities, based on our or third party budgets to increase demand to specific
destinations (with low fares, activities of interest, hotels and tour operator alliances).
We seek to improve customer experience, cut
costs, optimize decision-making, increase earnings and transform daily operation processes and activities through our digital innovations. Our goal is to increase revenue through
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increased ticket sales through digital channels and, in so doing, enhance customer loyalty and engagement. We expect that better digital marketing management and
e-commerce practices will increase our ancillary sales and we hope that our digitization efforts will reduce sales costs by migrating sales from commissioned channels to
non-commissioned digital platforms, and by partially replacing call center support with less costly support through our digital channels.
In 2019, we were chosen as the airline with the Best Comfort for the Passenger in Latin America in the TripAdvisor Travelers Smart
Choice Awards for Airlines. We were also awarded by Kayak Awards for the Best Airlines in the categories Best Comfort and Best In-flight Entertainment in Latin America, besides being
chosen as one of the two best in the category Best Airline and Best Food in the region. In January 2020, the Airline Passenger Experience Association (APEX) awarded us as one of 13 five-star major airlines in the
world and the best overall airline in South America.
Competition
General
We face intense
competition on our domestic and international routes from competing airlines, charter airlines and potential new entrants and also with regards to our loyalty program LifeMiles. Airlines compete mainly in the areas of pricing, scheduling
(frequency and flight times), on-time performance, on-board experience, frequent flyer programs and other services.
The airline industry is highly sensitive to price discounting and the use of aggressive pricing policies. Other factors, such as flight
frequency, schedule availability, brand recognition and quality of offered services (such as loyalty programs, VIP airport lounges, in-flight entertainment and other amenities) also have a significant impact
on airline competitiveness. See Item 3. Key informationD. Risk FactorsRisks Relating to the Airline IndustryWe operate in a highly competitive industry and actions by our competitors could adversely affect us.
Low-cost carrier business models have been gaining market share in Latin America in recent years,
particularly as challenging regional macroeconomic conditions persist and effect consumer purchasing power. The success of VivaAir Group and Wingo in Colombia, GOL Linhas Aéreas and Azul in Brazil, Viva Aerobus and Volaris in Mexico, JetSMART
in Chile and Flybondi in Argentina are evidence of this trend.
Low-cost carriers operations
are typically characterized by point-to-point route networks focusing on the highest-demand city pairs, high aircraft utilization, single-class service and fewer in-flight amenities. Our business model is significantly different from that of low-cost carriers and is predicated on providing a level of service that we consider superior
and charging higher prices for this service. However, as low-cost carriers continue to penetrate our markets, downward pressure on the fares we charge could have a material adverse effect on our financial
condition and results of operations and even compel us to reconsider our business model to adapt it to evolving passenger preferences. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Airline IndustryWe expect
to face increasing competition from low-cost carriers offering discounted fares.
Commercial Airlines
Domestic Competition in Colombia
In the domestic Colombian passenger market, we compete primarily with LATAM, VivaAir, EasyFly, Satena and Wingo. We are the largest carrier
with a share of 50.3% of the domestic Colombian passenger market in 2019, according to data provided by the CCAA.
According to the CCAA,
in 2019, the market share of our largest competitor, LATAM, was approximately 21.1%; VivaAir had approximately 15.6%; Wingo had approximately 1.5%; Easyfly had approximately 7.0%; and Satena (a government-owned regional carrier) had approximately
4.3%.
Domestic Competition in Ecuador
In the domestic Ecuadorian passenger market, we compete primarily with LATAM and Tame Airlines. As of December 31, 2019, we operated six
routes to six destinations and in 2019 we had 23.9% of market share, while LATAM had 40.2% and Tame Airlines had 34.8%.
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International
In the international passenger market, we compete with a number of airlines (full-service and low-cost
carriers), including Aeroméxico, Aerolíneas Argentinas, Air Canada, Air Europa, American Airlines, Copa Airlines, Delta Air Lines, Iberia, Interjet, JetSmart, Jet Blue Airways, LATAM, GOL Linhas Aéreas, Sky Airline, Spirit
Airlines, United Airlines, Viva Air, Volaris and Wingo.
The global airline industry has been adapting to an increase in liberalized or
open skies air transport agreements between nations. Open skies air transport agreements exist between the countries of the European Union and between Europe and the United States; in Latin America, multilateral open
skies agreements exist between Colombia, Ecuador, Peru and Bolivia and bilateral open skies agreements between some of these countries and the United States. El Salvador also has an open skies policy. As a general
matter, these liberalized or open skies air transport agreements serve to (i) reduce (or, in the case of open skies, eliminate) restrictions on route rights, designated carriers, aircraft capacity or flight frequencies
and (ii) promote competitive pricing.
As a result of this continuing trend toward liberalized or open skies air
transport agreements, a number of countries to which we fly have been negotiating to further liberalize or provide more flexibility to their agreements, which may change to the competitive environment. It is likely that the Colombian government will
eventually liberalize restrictions on international travel to and from our Bogotá hub by, among other things, granting new route rights and flights to competing airlines and generally promoting increasing numbers of market participants on the
routes we serve. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Airline IndustryWe face increasing competition from other international airlines due to the continuing liberalization of restrictions
traditionally affecting airlines and consolidation in the industry.
Cargo and Courier
Our main cargo network hubs are located at El Dorado Airport in Bogotá and at Miamis international airport. With respect to our
international cargo operations, our main competitor is LATAM and other competitors include Atlas Air, Sky Lease, UPS, Cargolux, Amerijet and American Airlines.
With respect to our domestic Colombian cargo operations, our main competitor is LATAM Cargo, which has large cargo operations at El Dorado
Airport and provides similar coverage as us. In 2019, we were market leaders in domestic Colombian operations with 40.5% market share, according to Aeronáutica Civil data from December 2019.
The Colombian courier market is highly competitive and dispersed, largely due to the presence of informal and urban messenger players such as
Rappi, Mensajeros Urbanos and Cabify Express. Our main competitors in the domestic Colombian courier market are Servientrega, Coordinadora, TCC, Envia and 4/72. DEPRISA also competes with FedEx, UPS and DHL in the international courier
market.
LifeMiles
LifeMiles direct competitors in Latin America are other loyalty programs in the travel, retail banking and retail sectors. Each of
the airlines that have a significant presence in our core markets have frequent flyer programs that compete with LifeMiles, maintaining co-branded credit card portfolios with a variety of banks
throughout Latin America that compete with LifeMiles co-branded credit cards. LifeMiles main competitors include the loyalty programs of Latin American-based Copa Airlines and LATAM and
major U.S. airlines such as American Airlines, Delta Air Lines and United Airlines.
In addition to airlines, a few major Latin American
banks and retailers have established separate entities to own and manage loyalty programs, which remain relatively fragmented in our core markets and most of which are single proprietary in-house programs.
Bank loyalty programs have been growing on the back of strong partnerships with commercial partners other than airlines, leveraging
well-established relationships to boost proprietary rewards credit card products.
The formal retail sector in our core markets is
relatively concentrated and most major players have well-established customer loyalty programs that are embedded within their retail operations. In Colombia, Exito, the countrys largest retailer, has the Puntos Colombia loyalty program in
partnership with Bancolombia. Similar to proprietary rewards credit card programs, we expect LifeMiles to compete and simultaneously partner with Puntos Colombia generating gross billings through miles conversion. We have similar arrangements
with Bonus in Peru and other proprietary retail loyalty programs and service providers in the region. We compete with other key retailers including Olímpica, La 14, D1 and Jerónimo Martins in Colombia, Falabella, InRetail and Cencosud
in Peru and Walmart in Central America.
52
Additionally, there are a variety of advertising agencies and marketing services companies that
provide white-label loyalty program operations to companies in the region. These white-label loyalty marketing companies typically charge markups on redemptions, customer service fees, systems delivery costs and other ancillary services. They
normally do not own the loyalty point liability and do not generate revenue for points that expire. White-label loyalty program operators work in a part of the market with lower barriers to entry and are generally small.
Safety
We are committed to the safety of
our customers and ground and flight operations employees. In 2019, we implemented safety performance indicators to improve decision-making processes based on data. As part of this initiative, our flight operations implemented a flight data analysis
software based on cloud services, our ground operations implemented a ground risk management program and our maintenance operations implemented a maintenance risk management program.
The effectiveness and relevance of our safety management system has been evaluated and validated by different civil aviation authorities in
Central and South America and by different industry organizations such as IATA and Bureau Veritas, assuring that our guidelines and procedures are in compliance with the requirements established by ICAO and within the best industry practices.
Our airlines that are part of IATA have been implementing the IOSA and ISAGO standards since 2003 and have continuously achieved
recertification.
The FAA periodically audits the civil aviation authorities of other countries, and each country is given an IASA rating
and an IOSA audit implemented for the industry by IATA. The IASA rating for Colombia, El Salvador, Costa Rica and Peru is Category 1, which is the highest rating and indicates a strong level of confidence in the safety regulation of each
countrys respective civil aviation authority.
We are an active member of IATAs Safety Group, IATAs Accident
Classification Group, ALTA/IATAs Safety Group (regional), Star Alliance, Safety Committee and the Colombian Safety Group.
We
continuously invest in the safety training of our employees and, as part of our implementation of an operational safety culture program, in 2019, we partnered with IATA to conduct a survey on our operational safety culture.
Security
We are subject to the security
regulations of each of the countries in which we operate.
Our security director reports to our safety, security, risks and compliance
general director and works within the framework of the security management system designed by IATA. Our director of aviation and corporate security works closely with all areas to ensure regulatory compliance in security matters, as well as with
authorities to identify and neutralize internal drug trafficking and money laundering related schemes.
As part of our security measures,
we have (i) adopted a code of conduct that is signed by all employees (ii) adopted a hiring process that includes background checks, home visits, psychological evaluations, integrity tests and polygraph tests; (iii) implemented
periodic dissemination of corporate security policies and communications of security matters to personnel; (iv) restructured procedures related to baggage, passenger identification, screening of transit passengers and inspection of baggage on
United States-bound flights; (v) increased the level of supervision and training for security coordinators, increased the training for interviewers and increased the presence of security personnel in areas such as catering and baggage;
(vi) increased the use of inspection technicians under the supervision of security agents and, as often as possible, the Colombian anti-narcotics police, to conduct detailed inspections of aircraft before departing to the United States;
(vii) improved the training of x-ray operators; and (viii) implemented a response procedure for security incidents on flights to the United States, including investigations, depositions sanctions and
polygraph tests for specific cases, including the creation of an internal investigations office with personnel and support from the Colombian police and judicial authorities.
53
We work with Central American, South American, European and U.S. authorities to implement
interdiction measures, which, in 2019, resulted in the seizure of 965.7 kilograms of illegal substances our security operating procedures are periodically subject to internal and external audits. For more information, see Item 3. Key
InformationD. Risk FactorsRisks Relating to Our BusinessWe may incur substantial compliance costs and face sanctions if we fail to comply with U.S. and other international drug trafficking laws.
Airport Facilities
Our operations are
focused out of our hubs at Bogotás El Dorado International Airport and El Salvadors International Airport. In 2019, we operated from 76 airports in the Americas and Europe, including 26 airports in Colombia. We lease check-in space, gates, crew lounges, maintenance, warehouses, sales and VIP lounge space throughout our network.
Colombia: El Dorado International Airport
In April 2018, we fully migrated our domestic operations to El Dorado International Airport which, in 2019, operated 219,114 domestic flights
and 94,360 international flights. In 2019, we operated an average of 331 domestic flights and 125 international flights per day, representing approximately 78% of our Colombian domestic flights and approximately 45% of our total international
flights that either departed from or arrived at El Dorado International Airport.
El Dorado International Airport is undergoing a
multi-phase expansion plan and implementing additional infrastructure and technology enhancements intended to improve schedule punctuality as well as passenger and baggage connecting times. The airport has two runways with a combined capacity of 40
departures and 34 arrivals per hour (weather permitting). Night operations are subject to reduced capacity due to noise abatement procedures. The airport is located at a high altitude (approximately 2,600 meters above sea level), which,
together with temperature conditions, result in payload restrictions and require lower takeoff weight as a result of reduced aircraft performance.
We lease airport space for our check-in counters, ticket sales facilities, VIP lounges and back office
operations from OPAIN.
El Salvador: El Salvador International Airport Monseñor Oscar Arnulfo Romero y Galdámez
El Salvador International Airport is located approximately 41 kilometers from the countrys capital San Salvador. Avianca carried nearly
2.5 million passengers in El Salvador in 2019, 44% of which connected to one of our 24 destinations offered from this hub.
This
airport comprises a single passenger terminal with 14 boarding bridges and nine remote positions, one cargo terminal and separate maintenance facilities. The El Salvadorian government is evaluating a plan that would significantly increase the number
of gates and add a second runway. We are actively participating in the logistics and efforts to modernize the current terminal and are proactively contributing expertise in the development of the master plans for the construction of a new terminal.
We are also participating in the governmental project to transform the areas next to the airport into an aeronautical cluster.
The El
Salvador International Airport is government-owned and operated by an autonomous port authority entity, Comisión Ejecutiva Portuaria Autónoma (CEPA). We have entered into an operations contract with CEPA regarding
access fees, landing rights and allocation of terminal gates. We lease airport space for our check-in counters, offices, warehouses and maintenance operations.
54
Insurance
We maintain insurance policies covering damage to our property and third-party liability, among other liabilities, with reputable insurance
companies. We have obtained the insurance coverage required by the terms of our leasing and financing agreements and believe our insurance coverage is consistent with airline industry standards and appropriate to protect us from material loss in
light of the activities we conduct. In 2019, we paid $24.5 million in insurance premiums and had a total insured value of $9.5 billion.
We have also contracted liability insurance with respect to our directors and officers.
Intellectual Property
We believe the
Avianca brand is a household name in Colombia. We have registered the trademark Avianca with the trademark office in Colombia as well as in other countries, including the United States. Avianca Holdings is the owner of the figurative
trademark while Avianca remains the owner of the nominative trademark. Both the figurative and the nominative trademark Avianca are used to identify, from a commercial standpoint, all or operating airlines. As discussed below, as of the date
of this annual report, our intellectual property rights, including the Avianca brand, are pledged to creditors.
To identify our Colombian
courier services, we use the DEPRISA trademark under a license agreement with our Panamanian subsidiary company, International Trade Marks Agency Inc. To identify international courier services from the United States to Colombia, we use the
Avianca Express trademark under a license agreement; we also have a franchise agreement by which we use this trademark to commercialize courier services from Spain to some Andean countries. We began using the Avianca Cargo trademark to
identify international cargo services provided by our subsidiary company Tampa Cargo and by the different airlines of Grupo Taca. We use the LifeMiles trademark, a registered trademark of our subsidiary LifeMiles Ltd., to identify our loyalty
program. In 2019, we terminated our trademark agreements with Oceanair (which operated as Avianca Brasil) and with Avian Lineas Aereas S.A. in Argentina. As of the date of this annual report, we do not license our trademarks to any third parties.
In 2019, we registered the Avianca Express trademark in Colombia and licensed this trademark to our subsidiary Regional Express
Americas S.A.S. to identify our regional air passenger transportation services.
Our obligations under our senior secured notes due 2023
are secured by, among other things, security interests in, and pledges or mortgages over, the following intellectual property rights:
(A)
the Avianca trademark and variations thereof owned by Avianca;
(B) the Aerogal, Air Galapagos, Air Guayaquil, Galapagos Air
and related trademarks owned by Avianca Ecuador S.A.;
(C) the DEPRISA trademark owned by International Trade Marks Agency Inc.;
(D) the Flybox trademark owned by Latin Logistics, LLC; and
(E) the Tampa, Tampa Cargo, Cargo Link, Aerolineas Tampa trademarks owned by Tampa Cargo S.A.S.
For more information on our intellectual property, see Item 3. Key InformationD. Risk FactorsRisks Relating to Our
BusinessIf we are unable to protect our intellectual property rights, specifically our trademarks and trade names, we could be adversely affected.
Regulation
Colombia
Overview
Avianca is a sociedad
anónima organized and existing under the laws of Colombia. It is qualified to hold property and transact business as a sociedad anónima and holds all licenses, certificates and permits from governmental authorities necessary
for the conduct of its business as now conducted. All consents, licenses, approvals, registration and authorizations as may be required in connection with providing carrier services under applicable Colombian laws have been obtained and are in full
force.
55
Tampa Cargo is a sociedad por acciones simplificada organized and existing under the laws
of Colombia. It is qualified to hold property and transact business as a sociedad por acciones simplificada and holds all licenses, certificates and permits from governmental authorities necessary for the conduct of its business as now
conducted. All consents, licenses, approvals, registration and authorizations as may be required in connection with providing carrier services under applicable Colombian laws have been obtained and are in full force. Regional Express Américas
S.A.S. is a sociedad por acciones simplificada organized and existing under the laws of Colombia. It is qualified to hold property and transact business as a sociedad por acciones simplificada and holds all licenses, certificates and
permits from governmental authorities necessary for the conduct of its business as now conducted. All consents, licenses, approvals, registration and authorizations as may be required in connection with providing carrier services under applicable
Colombian laws have been obtained and are in full force.
The aeronautical policy of the Civil Aeronautical Regulatory Body of Colombia
(Aeronáutica Civil de Colombia) applies to passengers and cargo flying in the open skies in both the domestic market and the international market. There are no governmental policies that materially restrict our airline services in
Colombia.
Colombia is not a declared open skies country internationally except in certain of the countries of the American
continent and with regards to air operations in certain international airports such as San Andrés and Cartagena. Colombia is subject to multilateral and/or bilateral air transport agreements that provide for the exchange of air traffic rights
between Colombia and various other countries, among others.
Notwithstanding these agreements, we are subject to permits, laws,
regulations and operational restrictions provided by each of the different aviation authorities of countries in which we operate, and the ongoing operational costs that local or regional authorities apply.
Authorizations and Licenses
The
Colombian aviation market is heavily regulated by the Colombian Civil Aviation Authority (CCAA). For domestic and international aviation, airlines must present feasibility studies to obtain specific traffic rights. In Colombia, Avianca operates air
transport services on international and domestic routes, Avianca Express is a domestic carrier of air transport services on secondary routes and Tampa Cargo is a carrier of commercial cargo air transport service. Under Colombian law, Avianca Costa
Rica, Avianca Ecuador, Avianca Perú and Taca International Airlines are considered foreign airlines and thus have to meet the requirements established by their respective countries and the bilateral agreements between Colombia and these
countries.
To provide commercial air transport service, it is necessary to own or lease at least five certified aircraft and have a paid-in minimum capital equal to 10,000 monthly legal minimum wages (approximately $2.5 million). To provide air transport services on secondary routes, it is necessary to own or lease at least three certified
aircraft and have a paid-in minimum capital equal to 7,000 monthly legal minimum wages (approximately $1.7 million). To provide commercial cargo air transport service, it is necessary to own or lease at least
two certified aircraft and have a paid-in minimum capital equal to 1,750 monthly legal minimum wages (approximately $0.5 million).
In the past, the CCAA established a mandatory fuel surcharge with minimum fares for each route. However, by means of Resolution 904 of
February 28, 2012, the CCAA established (i) fuel surcharge freedom for national and foreign passengers or cargo carriers operating in Colombia, which are included in airfares, and (ii) tariff freedom for air transportation services.
Airlines must inform all public tariffs, as well as their conditions, to CCAA at least one day after their publication, and promotional fares prior to their application. Since November 2006, all customers are charged an administrative fee in
connection with the purchase of airline tickets (although this fee is at the discretion of the seller for internet sales).
Our airlines
have private carriers status, which means they are not required under Colombian law to serve any particular route and are free to withdraw their services from any of the routes they currently serve, subject to domestic law, and, in the case of
international service, subject to bilateral agreements. Our airlines are also free to determine the frequency of the services that they offer across their route network, without any minimum frequencies imposed by law or Colombian authorities.
Colombian law requires airlines providing commercial passenger service in Colombia to maintain an Operation and Air Transportation Certificate
(Certificado de Operación y Transporte Aéreo) and Operational Specifications issued by the CCAA. The Operation and Air Transportation Certificate lists the airlines routes, equipment used and capacity and frequency of
flights. This certificate must be updated each time a carrier acquires new aircraft, or when routes or the frequency of service to a particular destination are modified. A public hearing before the director of the
56
CCAA and the members of the Commercial Aviation Projects Evaluating Group (Grupo Evaluador de Proyectos Aerocomerciales) of the CCAA is required to determine the necessity of modifying an
airlines Operation and Air Transportation Certificate, except in the Andean region. Colombian law also requires airlines providing commercial passenger service in Colombia to maintain for each aircraft an Airworthiness Certificate
(Certificado de Aeronavegabilidad) issued by the CCAA.
Colombian law requires that aircraft operated by national carriers be
registered with the Colombian National Aviation Registry (Registro Aeronáutico Nacional) kept by the CCAA, and that the aforementioned certify the air-worthiness of each aircraft in
Aviancas fleet.
Furthermore, Colombian airlines are subject to the authority of the Colombian Transportation and Ports
Superintendency (Superintendencia de Puertos y Transportes), which is part of the Ministry of Transportation (Ministerio de Transporte). The Colombian Transportation and Ports Superintendency is in charge of the evaluation of the
financial and managerial aspects of each airline, among other things.
Under Colombian commercial law, air transportation is considered a
public service and, therefore, certain elements of the general conditions of carriage entered into by airlines and passengers are expressly covered under law and/or approved by the CCAA. For instance, if a carrier decides to include a new condition
on its general conditions of carriage, it must request the approval of the CCAA. However, some elements cannot be modified, such as carrier liability with respect to domestic service, regulated by Article 1180 of the Colombian Commercial Code and
the Convention for the Unification of Certain Rules for International Carriage by Air, signed in Montreal, Canada on May 28, 1999 (Montreal Convention) for International Service.
Passengers in Colombia are also entitled by law to compensation in cases of excessive delays, over-bookings and cancellations. Furthermore,
local law establishes sanctions for more than one-hour delays and for flight cancellations, regardless of the compensatory measures that the airlines may adopt, which trigger the obligation to compensate
passengers and increases the compensatory amounts.
The main airports in Bogotá, Cali, Cartagena, Barranquilla, Bucaramanga, Santa
Marta and Medellín, among others, are privately operated through concessions. The government, however, has stated its intention to continue privatizing the operations of other airports in order to finance expansion projects and increase the
efficiency of operations. Increased privatization may lead to increases in landing fees and facility rentals at such airports.
The
Montreal Convention, as approved and adopted by Colombia by means of Law 701 of 2001, imposes duties upon Colombian airlines with respect to their international services. Under these rules, airlines are responsible for compliance with certain
obligations regarding quality and passenger security, as well as for damages sustained in case of any death of, or bodily injury to, a passenger, which occurs on board, as well as for baggage loss or damage. This convention applies to international
transportation between Colombia and the territory of another party to the convention, regardless of whether there is an interruption in the transportation or a trans-shipment, or whether, prior to arriving in, or departing from, Colombia, there is
an agreed stop-over within the territory of another state. Under Article 17 of the convention, a carrier is liable for damages sustained in case of death or bodily injury of a passenger under the condition that the accident, which caused the death
or injury, took place on board the aircraft or in the course of any of the operations of embarking or disembarking. Air carriers are responsible, even if not at fault, for proven damages up to 128,821 Special Drawing Rights (SDRs), which
represent a mix of currencies established by the International Monetary Fund. For damages above 128,821 SDRs, the airline may avoid liability by showing that the accident that caused the injury or death was not due to its negligence or was the fault
of a third party. In the case of cargo business, the liability of the carrier is absolutely limited to 22 SDRs/Kg. These provisions also cover baggage and delays.
Security
Chapters 160 and 175 of
the Colombian Civil Aviation Regulations encompass all aspects of civil aviation security, including (i) implementation of certain security measures by carriers and airports, such as the requirement that all passenger luggage be screened for
explosives, (ii) designation of restricted areas, (iii) systems of airport controls for identification of passengers, (iv) inspection of vehicles and (v) transportation of firearms, explosives and dangerous goods.
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Environmental Regulation
We are subject to general environmental regulations of Colombia, such as Law 99 of 1993, as amended, and other laws, decrees and local
resolutions which regulate the management, use and exploitation of natural resources and their contamination. Pursuant to these regulations, we prepared Environmental Management Programs (Programas de Manejo Ambiental) detailing the
procedures to be followed in connection with any activity that has any environmental impact, including solid and liquid waste management, hazardous waste management and the management of effluents and noise, among others. Additionally, we must
maintain certain permits and authorizations for the use and management of natural resources, such as a concession for the use of drinking water. If we fail to abide by the environmental regulations or administrative acts issued by the relevant
environmental authorities, we may be subject to penalties or fines.
In addition, Colombian regulations (Reglamentos
Aeronáuticos de Colombia, RAC) set forth a general environmental policy establishing that the CCAA must comply with Colombian environmental regulations, including the environmental license issued by Colombias National Authority of
Environmental Licenses (ANLA), and must require the compliance of parties involved in the Colombian civil aviation industry. The RAC includes provisions and guidelines relating to noise and effluents that must be respected when providing aviation
services. The RAC requires that noise levels be kept on or below the levels established under Colombian law. Compliance is evidenced by means of a certificate (certificado de homologación de ruido) that must be obtained for each
aircraft from the CCAA or the competent authority of each country member of ICAO. If noise levels exceed the limits, the CCAA has the power and authority to sanction and penalize carriers with fines.
If the CCAA determines that our operations or facilities do not meet the RAC standards or otherwise fail to comply with Colombian
environmental regulations, we could be subject to a fine. In December 2019, we confirmed the ISO 14.001:2015 certificate of our MRO hangar and support facilities at Rionegro, Colombia by the Colombian standardization body ICONTEC, as a duly
accredited entity. In the coming years we expect to maintain these environmental quality certifications and increase the number of certified facilities. We have also prepared environmental management programs designed to ensure our compliance with
environmental regulations, including the requirements of the RAC. While we do not believe that compliance with these or other environmental regulations that may be applicable to us will expose us to material expenditures, compliance could increase
our costs and adversely affect our operations and financial results. In addition, failure to comply with these regulations could adversely affect us in a variety of other ways.
Currently, there is an operational restriction on overflight in Bogotá between 12 p.m. and 6 a.m. For this reason, the South and North
runways of El Dorado International Airport are limited to takeoffs in the East West direction and landings in the West East direction. In addition, operations from the South runway of the El Dorado International Airport have limited
overflights in Bogotá between 10:00 p.m. and 12:00 p.m., with certain exceptions, in order to protect flight operations.
In
January 2017, Colombia established a carbon tax on fossil fuels, which affects, among others, the airline industry. The Colombian Tax Authority (Dirección de Impuestos y Aduanas Nacionales DIAN) issued an interpretation
indicating that fuel used for international flights constitutes an export, and therefore is not subject to the carbon tax.
In 2019, the
period for monitoring and reporting of emissions of international flights under the Carbon Offsetting and Reduction Scheme for International Aviation by the members states of ICAO began, pursuant to which emission reports must comply with approved
monitoring emissions plans.
Bilateral Agreements
Bilateral or multilateral agreements between countries regulate other aspects of our commercial cargo and passenger air transport relations,
including the designation of carriers and aircraft capacity restrictions and requirements. They may also establish minimum safety, security, customs and environmental requirements for each designated carrier. These agreements can be modified upon
the agreement of the relevant countries at any time prior to their expiration dates. We consider Colombias principal bilateral agreements to include those with the United States, the United Kingdom, Spain, the Andean Pact countries (Ecuador,
Peru and Bolivia), Mexico, Brazil, El Salvador, Costa Rica, Guatemala, Germany, Cuba, Aruba, Curaçao and Argentina. The bilateral agreement with the United States was modified and, since the beginning of 2013, is an open skies
agreement that allows foreign scheduled and charter air transportation of persons, property and mail via Colombia and intermediate points to the
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United States and beyond. On December 14, 2018, the United States and the Colombian authorities agreed to permit open skies operations for cargo flights on the basis of comity
and reciprocity. In the bilateral agreement with Spain, which was modified in June 2018, the authorities agreed to grant, for passenger and cargo flights, between Colombia and Spain third and fourth freedom rights, a free frequencies capacity and 37
frequencies with fifth freedom rights for each of the parties. In late 2019, Colombia and Chile agreed to extend their bilateral agreement up to fifth freedom rights for cargo operations within South America and to include seven new weekly
frequencies to points beyond South America.
The CCAA allocates rights obtained pursuant to bilateral agreements to specific airlines. In
2019, the CCAA authorized Avianca S.A., among others, to operate from Bogotá to Asunción with Seven weekly frequencies, to Cuzco with seven weekly frequencies, to San José with 21 weekly frequencies, to Toronto with seven weekly
frequencies, to Paris with four weekly frequencies and to Porto Alegre with seven weekly frequencies. If we do not use these rights within nine months (or 18 months if a nine-month extension is granted) from their effective date, they will expire.
Colombia has open skies agreements with the Andean Pact countries, El Salvador, Costa Rica and the United States, among
others, pursuant to which there are no regulations on the numbers of flights. The bilateral agreement with Argentina provides for 37 weekly flights by each countrys designated carrier. At this time, the bilateral agreement with Brazil provides
70 weekly flights by each countrys designated carrier, 21 of them with fifth freedom air rights.
Colombia is party to a
multilateral agreement known as Andean Community CAN, between Bolivia, Ecuador, Peru and Colombia, which, among other things, allows airlines from these countries to operate between them without limitation on international flights. No cabotage is
allowed. Colombia is also party to an Air Transport Agreement and/or Memorandum of Understanding with the following countries: Germany, French Antilles, Saudi Arabia, Argentina, Aruba, Australia, Austria, Bahamas, Barbados, Belgium, Brazil, Cabo
Verde, Canada, Chile, China, Korea, Costa Rica, Cuba, Curaçao, Denmark, Norway, Sweden, Ecuador, El Salvador, United Arab Emirates, Spain, Ethiopia, Finland, France, Greece, Guatemala, Holland, India, Iceland, Israel, Italy, Jamaica, Jordan,
Kenya, Luxemburg, Morocco, Mexico, New Zealand, Panama, Paraguay, Portugal, Qatar, United Kingdom, United States, Dominican Republic, Rwanda, Seychelles, Singapore, Switzerland, South Africa, Surinam, Turkey, Uruguay, Latvia, Czech Republic, Cyprus,
Poland, Kwait, Ghana, Antigua and Barbuda, Guyana, Zambia and Venezuela.
We believe that it is likely that the Colombian government will
eventually liberalize the current restrictions on international travel to and from Colombia by, among other things, granting new route rights and flights to competing airlines and generally promoting increased numbers of market participants on
routes we serve. As a result of this liberalization, we could face substantial new competition, which may erode our pricing and market share and have a material adverse effect on our financial position and results of operations. See Item 3.
Key InformationD. Risk FactorsRisks Relating to the Airline IndustryWe face increasing competition from other international airlines due to the continuing liberalization of restrictions traditionally affecting airlines and
consolidation in the industry.
Ownership and Control
The Colombian State Council (Consejo de EstadoSala de Consulta y Servicio Civil), in an opinion dated April 6, 2000, declared
that article 1426 of the Commerce Code, which established a 40% limitation on foreign investment in Colombian airlines, was no longer applicable as it is considered to have been tacitly overturned by Decree 1068 of 2015 (Foreign Investment Statute),
and stated that, from a Colombian law perspective, there are no restrictions on foreign investment in Colombian airlines. However, some of Colombias bilateral agreements do restrict foreign investment in Colombian airlines. For example,
bilateral agreements entered into by Colombia with the United States, Canada, the United Kingdom, France, China and Germany contain requirements that each designated airline remain substantially owned and effectively controlled by a Colombian
governmental entity or Colombian nationals. Nevertheless, United States, Canada and China granted a waiver to the Colombian airlines under certain conditions.
Currently, in those bilateral agreements it is established that each of the countries may deny, revoke or impose any conditions deemed
necessary upon an airlines operating permit in the event it determines that there is not sufficient evidence that a substantial proportion of ownership and effective control of the airline is held or exercised by Colombia or its nationals.
These ownership and control restrictions have not been expressly defined in the bilateral agreements, in terms of percentage thresholds or otherwise, and therefore should be interpreted according to the Vienna Convention on the Law of Treaties.
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Taking the above into account, certain aviation authorities have interpreted these ownership and
control restrictions as follows:
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The DOT policy on substantial ownership and effective control is to examine the relationships of the
airline in depth and determine who actually controls the airlines key decisions (examining composition of the board, management and control and special voting majorities, among other factors), rather than simply looking at the airlines
ownership; and
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France, United Kingdom and Germany consider that the aeronautical authority of each party may revoke, suspend, or
limit the authorizations granted to any airline where substantial ownership and effective control of that airline are not vested in Colombia, individuals of Colombian nationality, or both.
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Agreements entered into by Colombia with countries such as Spain, the Netherlands, Portugal, Bolivia, Ecuador, Peru, Panama, Chile, the
Dominican Republic, Cuba, and Costa Rica, among others, require that Colombian designated airlines are incorporated, have principal domicile, management, operation and offices within the Colombian territory and that its oversight and control is
performed by the national aeronautical authority.
Although we believe Avianca is currently in compliance with such substantial ownership
and effective control requirements, we cannot assure you that Colombians, directly or indirectly, will continue to own and control a majority of our capital stock indefinitely. If for any reason, Colombian citizens cease to have at least 51% of
Avianca, or the national aeronautical authority ceases to exercise effective regulatory control, or if Avianca fails to continue to have its corporate domicile, administrative headquarters, and base of operations within Colombian territory, Avianca
may no longer comply with the requirements of Colombias bilateral agreements and, as a result, its route and landing rights in a number of important countries may be adversely affected, which could have a material adverse effect on our
business, financial condition and results of operations.
As an additional protection to ensure compliance with our principal bilateral
agreements, the Amended and Restated Joint Action Agreement provides that, subject to certain exceptions, no holder of common shares shall, or shall permit any of its affiliates or owners to directly or indirectly transfer or otherwise dispose of
its shares to a non-permitted holder. For this purpose, a non-permitted holder is (among other things) a person whose ownership of securities of the Company would
violate applicable law or would cause the Company or any of its subsidiaries to no longer comply with local ownership restrictions or aviation bilateral treaties that govern the Companys or its subsidiaries operations.
Even though it is possible that we may be able to obtain waivers of any future non-compliance with
these requirements under our bilateral agreements, their mere existence may deter a non-Colombian entity from acquiring control of us as well as limit our future flexibility to sell additional shares or
conduct a recapitalization.
El Salvador
Overview
Taca International is a
sociedad anónima duly organized and validly existing under the laws of El Salvador. It is duly qualified to hold property and transact business as a sociedad anónima, and holds all licenses, certificates and permits from
governmental authorities necessary for the conduct of its business as now conducted. All consents, licenses, approvals, registration and authorizations as may be required in connection with providing airline services under applicable Salvadorian
laws have been obtained or affected and are in full force and effect.
By means of Legislative Decree No. 126 dated September 1972,
Taca International was named as a national air carrier, for the effect of being considered as such in the countries where it provides or is willing to provide air transport services. Effective legal control and principal place of business is remains
in El Salvador.
Any failure to maintain the required foreign and domestic governmental authorizations would adversely affect our
operations. We are subject to national and international regulations that may vary frequently and are beyond of our control. These may result in an increase in costs and/or operational requirements and restrictions. Also, there is instability
concerning governmental policies, due to a highly polarized political environment.
The government of El Salvador has declared an
open skies policy when negotiating air transport agreements and traffic rights. The civil aviation law provides for an open skies regime and, as a result, is now open skies based on reciprocity. This new regime includes up to seventh air
freedom rights for cargo operations.
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Authorizations and Licenses
The civil aviation law of El Salvador requires that airlines authorized to operate national or international air transport services possess an
operation certificate and an operating permit issued by the AAC. An operating permit sets forth the routes, rights and the frequency of the flights that are permitted to be flown. An operating permit is valid for five years and must be modified each
time a carrier intends to add or cancel new routes or flight frequencies. In addition, a carrier is also required to present revised itineraries to the AAC each time it intends to change its schedules, the aircraft servicing its routes and flight
and route frequencies. We have the required operating certificates and permits and are in compliance with all regulations requiring the presentation of revised itineraries.
The civil aviation law of El Salvador requires that carriers register their aircraft with the Salvadorian Civil Aviation Registry
(RAS), which is maintained by the AAC, and that aircraft be subject to periodic inspection by the AAC. The AAC is responsible for certifying that each aircraft in a carriers fleet meets the safety standards required by the
AACs aeronautical regulations. Each of our aircraft that flies to El Salvador is properly registered and certified with the AAC.
Safety
Rating
El Salvador has FAA Category 1 status, which allows Salvadorian airlines to operate flights to and from the United States.
Category 1 status signifies that a nations aeronautical regime fulfills all necessary standards of operational safety established by ICAO. Category 1 status is based upon the FAAs review of various safety standards with respect to the
regulations, licensing of personnel, condition of the aircraft, airline monitoring, pilot training, maintenance, repair and overhaul facilities and aeronautical organizations.
Bilateral and Open Skies Agreements
El Salvador is subject to multilateral and/or bilateral air transport agreements that provide for the exchange of air traffic rights between El
Salvador and various other countries. Until recently, El Salvador has been actively negotiating these agreements. Operations to countries where there is no air transport agreement have been negotiated under reciprocity, such as with Costa Rica and
Peru.
El Salvador is party to a multilateral agreement known as CA-4 with Guatemala, Honduras and
Nicaragua, which allows airlines from these countries to operate between them as if they were domestic flights. No cabotage is allowed. El Salvador is also party to air transport agreements or memoranda of understanding with the following countries:
Spain, Mexico, United Kingdom, Cuba, China (Taiwan), Ecuador, the United Arab Emirates, Turkey, Chile, Colombia, Canada (agreement already ratified by El Salvador, pending to be ratified and published by Canada), United States, Panamá and
Qatar, as well as of the Caribbean States Association (Asociación de Estados del Caribe).
Peru
Overview
Peruvian law requires
that all airlines organized in Peru that provide commercial services to and from Peru hold an operations permit valid for a maximum period of four years and an Air Services Operator Certificate (ASEC), issued by the Peruvian DGAC without
an expiration term (it can, however, be revoked by the Peruvian DGAC under certain circumstances). Both must be modified each time a carrier modifies the characteristics of its service or operation. An operations permit specifies a carriers
designated routes, the equipment it may use, its permitted capacity and its flight frequencies.
Peruvian law requires that carriers
register their aircraft or aircraft utilization agreements in the Public Aircraft Registry of the Registry Office of the National Superintendency of Public Registrar (SUNARP). The Peruvian DGAC is responsible for issuing a conformity
certification of airworthiness for each aircraft in a carriers fleet, which is valid for two years and must be renewed thereafter. Additionally, the Peruvian DGAC approves all technical aspects of a carriers operation and any
modifications or changes. We have the required operations permit and ASEC as required by the Peruvian DGAC and our aircraft which fly in Peru are properly registered with the SUNARP and have all other permits required by Peruvian law.
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Safety
Peru has FAA Category 1 status, which allows Peruvian airlines to operate flights to and from the United States.
Bilateral and Open Skies Agreements
Peru has entered into 64 bilateral agreements and other memoranda of understanding, several of which are open sky agreements, which allow
Peruvian airlines to fly to the United States and various countries in South America, Central America, Europe, Africa and Asia.
Foreign Ownership
Peruvian law requires that national airline services can only be provided by Peruvian natural persons and legal
entities.
A Peruvian legal entity is an entity that complies with the following requirements:
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the entity has its principal domicile in Peru;
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a majority plus one of the directors, managers and persons who control the entitys management must
be Peruvian nationals or must be permanently domiciled in Peru;
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the legal entitys property must substantially be Peruvian; and
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at least 51% of the entitys stock must be under the control of stockholders that are Peruvian nationals who
are permanently domiciled in Peru during the first six months of operations, thereafter the participation can be modified up to 70% for the foreigners participation.
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In addition, Peruvian law further requires that a Peruvian legal entity:
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must be organized in accordance with Peruvian law; and
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must indicate that its legal purpose is providing airline service.
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Antitrust Regulation and Competition
The National Institution of Competition Defense and Intellectual Property (INDECOPI) does not restrict or penalize dominant market
positions or monopolies, but regulates behaviors that might constitute an abuse of these positions in detriment of competitors. It regulates anticompetitive practices between airlines, the registry of tariffs and the modification, cancellation or
suspension of operations. INDECOPI also has authority to regulate protection of passenger rights.
A business concentration is subject to
the prior control procedure of INDECOPI when (i) the total sum of the annual sales value or gross income of the companies involved in the business concentration within Peru, reached a value of approximately $149, 235,294.11 or more during the
preceding tax year in which the operation is reported; (ii) the value of annual sales or gross receipts in Peru of at least two of the companies involved in the concentration reached a value equal to or greater than approximately $22,764,705.88
each during the fiscal year preceding the fiscal year in which the transaction is reported.
Noise Regulations
Peru has adopted noise regulations applicable to the airline industry. These regulations provide that no person can operate an aircraft to or
from an airport in Peru that does not comply with the applicable noise regulations. Our aircraft which fly in Peru comply with applicable noise regulations.
Ecuador
Overview
Avianca Ecuador, formerly known as Aerogal, is a private carrier organized under the laws of Ecuador. In 2017, the aviation authority of
Ecuador approved the name change and both the AOCR and the operation permit were updated to replace Aerogal with Avianca Ecuador S.A.
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Authorizations and Licenses
The aviation market in Ecuador is heavily regulated by the Ecuadorian DGAC. For domestic aviation, airlines must present feasibility studies to
secure specific route rights, and no airline may serve city pairs without an Airline Operation Certificate (AOC). In Ecuador, there is a surcharge for fuel on ticket prices and an administrative fee in connection with purchases of
airline tickets.
Avianca Ecuadors status as a private carrier means that it is not required under Ecuadorian law to serve any
particular route and is free to withdraw service from any of the routes it serves as it sees fit, subject to bilateral agreements in the case of international service. Avianca Ecuador is also free to determine the frequency of the services it offers
across its route network without any minimum frequencies imposed by the Ecuadorian authorities, but the number of frequencies must be set forth on the respective permit.
Ecuadorian law requires airlines providing commercial passenger service in Ecuador to maintain an AOC issued by the Ecuadorian DGAC. The AOC
lists the airlines routes, equipment used, capacity and frequency of flights. The AOC must be updated each time a carrier acquires new aircraft, or when routes or the frequency of service to a particular destination are modified.
Ecuadorian law also requires that aircraft operated by us be registered with the Ecuadorian National Aviation Registry (Registro
Aeronautico Nacional) kept by the Ecuadorian DGAC, and that the Ecuadorian DGAC certify the air-worthiness of each aircraft in our fleet.
Furthermore, Ecuadorian airlines are subject to the authority of the Ecuadorian Civil Aviation Counsel (CNAC). The CNAC is in
charge of granting operations permits for routes and frequencies and evaluating the financial, technical and managerial aspects of each airline, among other things.
Under Ecuadorian commercial law, certain of the standard terms and conditions of air transportation agreements entered into by airlines and
passengers are covered by law. Passengers in Ecuador, for example, are entitled by law to compensation in cases of delays in excess of four hours, over-bookings and cancellations.
The Montreal Convention was approved and adopted by Ecuador by means of Law 701 of 2001. For information on the main terms of the Montreal
Convention, see Colombia.
Security
Parts 107 and 108 of the Ecuadorian regulaciones técnicas de la DAC (RDAC) regulate all aspects of civil aviation
security, including, (i) implementation of certain security measures by airlines and airports, such as the requirement that all passenger luggage be screened for explosives, (ii) designation of restricted areas, (iii) systems of
airport controls for identification of passengers, (iv) inspection of vehicles and (v) the transportation of explosives and dangerous goods. In addition, RDAC 1544 regulates civil aviation security.
Environmental Regulation
We are
subject to the general environmental regulations of Ecuador and other laws, decrees and local resolutions which regulate the management of natural resources and their contamination. Pursuant to these regulations, we prepared Environmental Management
Programas (Programs de Manejo Ambiental), detailing the procedures to be followed in connection with any activity that has any environmental impact, including solid and liquid waste management, hazardous waste management and the management of
effluents and noise. If we fail to abide by applicable environmental regulations, we may be subject to penalties or fines.
In addition,
the RDAC contains a general environmental policy establishing that the Ecuadorian DGAC must comply with Ecuadorian environmental regulations and must require the compliance of parties involved in the Ecuadorian civil aviation industry. The RDAC
includes provisions and guidelines relating to noise and effluents that must be followed in the provision of aviation services. The RDAC requires that noise levels be kept below levels established under Ecuadorian law. Compliance is evidenced by
means of a certificate (Certificado de Homologación de Ruido) that must be obtained for each aircraft from the Ecuadorian DGAC or the competent authority of each country member of ICAO. If noise levels exceed the limits, the Ecuadorian
DGAC has the power and authority to impose fines on us.
In December 2019, our ISO 14.001:2015 certificate for our maintenance and support
facilities at Quito and Guayaquil in Ecuador was confirmed by the Colombian standardization body ICONTEC. We expect to maintain
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these environmental quality certifications and increase the number of certified facilities. We have also prepared environmental management programs designed to ensure our compliance with
environmental regulations. While we do not believe that compliance with these or other environmental regulations that may be applicable to us will expose us to material expenditures, compliance could increase our expenses and adversely affect our
operations and financial results. If the Ecuadorian DGAC determines that our operations or facilities do not meet the RDAC standards or otherwise fail to comply with Ecuadorian environmental regulations, we could be subject to fines.
In 2019, the period for monitoring and reporting of emissions of international flights under in the Carbon Offsetting and Reduction Scheme for
International Aviation by the members states of ICAO began, pursuant to which emission reports must comply with approved monitoring emissions plans.
Bilateral Agreements
In December
2017, the President of Ecuador issued Decree No. 256 adopting an open skies policy in Ecuador on international flights.
Bilateral
agreements between countries regulate our commercial cargo and passenger air transport relations, including the designation of carriers and aircraft capacity restrictions and requirements. They may also establish minimum safety, security, customs
and environmental requirements for each designated carrier. These agreements can be modified upon the agreement of the relevant countries at any time prior to their expiration dates. Ecuadors principal bilateral agreements include those with
the United States, Spain, the Andean Pact countries (Colombia, Peru and Bolivia), Venezuela, Brazil, the Netherlands, Argentina, Panama, Mexico and Chile. The bilateral agreement with the United States, which granted 120 weekly flights to Ecuadorian
carriers and 120 weekly flights to U.S. carriers, was modified on June 4, 2010. The following routes were added: (i) from Ecuador via 15 intermediate points to Miami, Orlando, Washington, New York, Chicago, Los Angeles and four additional
points in the United States and beyond Madrid, Montreal and Toronto; and five additional points in Europe via code share; (ii) as of July 1, 2011, five additional points in the United States that were selected by Ecuador and five
additional points in the United States that were selected by Ecuador for code share only; and (iii) as of July 1, 2012, five additional points in the United States that were selected by Ecuador for code share only. There is an open
skies policy for all cargo services. The bilateral agreement with Spain, which was modified in October 2006, grants 21 weekly flights. The following routes are to be determined: from Ecuador via points in Colombia, Venezuela and points in the
Caribbean to Madrid and/or Barcelona, and points in France, Italy and Germany in both directions.
Since 2016, Ecuador and United States
have been negotiating an open skies agreement, which, as of the date of this annual report, has not been signed.
The Ecuadorian CNAC
allocates rights obtained pursuant to bilateral agreements to specific airlines. The Ecuadorian CNAC authorized us to operate international flights, including flights within the Andean Pact Operation Permit. We have authorization to operate routes
from Quito or Guayaquil to Bogotá, from Quito or Guayaquil to Lima with the following points from Santa Cruz, La Paz and Bogotá, and flights to Panama and Aruba through Bogotá. Ecuador has open skies agreements with
the Andean Pact countries pursuant to which there are no restrictions on the numbers of flights to such destinations. Ecuador has an open skies policy by law.
Ownership and Control
The
Ecuadorian Civil Aviation Law was changed in 2001 eliminating a 40% limitation on foreign investment in Ecuadorian airlines. From an Ecuadorian law perspective, there are no restrictions on foreign investment in Ecuadorian airlines. However, certain
of Ecuadors bilateral agreements do restrict foreign involvement in Ecuadorian airlines. For example, bilateral agreements entered into by Ecuador with the United States, Spain, the United Kingdom, France, Germany and Switzerland contain
requirements that each designated airline remain substantially owned and effectively controlled by an Ecuadorian governmental entity or Ecuadorian nationals.
These bilateral agreements establish that each of the countries may deny, revoke or impose any conditions deemed necessary upon an
airlines operating permit in the event it determines that there is not sufficient evidence that a substantial proportion of ownership and effective control of the airline is held or exercised by Ecuador or its nationals. These ownership and
control restrictions have not been expressly defined in the bilateral agreements, in terms of percentage thresholds or otherwise, and therefore are interpreted according to the Vienna Convention on the Law of Treaties.
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Agreements entered into by Ecuador with Bolivia, Colombia, Peru and United Kingdom, among others,
require that our relevant operating subsidiaries be incorporated and have their principal domicile, management, operation, technical maintenance operations and offices within the Ecuadorian territory.
U.S. Regulation of Airline Flights
The
provision of foreign air transportation (i.e., the transportation of persons, property or mail by aircraft as a common carrier between a place in the United States and a place outside the United States) by
non-U.S. airlines is subject to several U.S. laws and regulations and falls under the jurisdiction of a number of federal agencies. In order for a non-U.S. airline to
provide scheduled or charter service to the United States, it must have economic route authority from the DOT (in the form of a foreign air carrier permit or exemption authority), safety authority from the FAA (in the form of operations
specifications) and a Transportation Security Administration (TSA) approved model security program addressing aviation security. Additionally, non-U.S. airlines serving the United States are
subject to extensive aviation consumer protection regulations of the DOT under its statutory authority to prohibit unfair and deceptive practices and unfair methods of competition in air transportation or the sale of air transportation, as well as
various civil rights requirements of the DOT, including access to air travel for persons with disabilities and anti-discrimination laws. Moreover, non-U.S. airlines are subject to ongoing aviation security
directives imposed by the TSA, and border security, customs, immigration and agriculture inspection requirements administered by U.S. Customs and Border Protection (CBP) and the Animal Plant and Health Inspection Service
(APHIS). Both TSA and CBP are agencies within the U.S. Department of Homeland Security, while APHIS is within the U.S. Department of Agriculture (DOA). Each of the DOT, FAA, TSA, CBP and DOA have authority to investigate and
institute proceedings to enforce their regulations and assess civil penalties and/or suspend or revoke permits, licenses or authorizations for violations of those regulations. Our carriers serving the United States, including Avianca (Colombia),
Tampa Cargo (Colombia), Taca International (El Salvador), Avianca Costa Rica (Costa Rica) and Avianca Peru (Peru), hold various permits, licenses and authorizations issued by the foregoing federal agencies, and the modification, suspension or
revocation of the could have a material adverse effect on us.
Authorizations, Licenses and Other Requirements
DOT
The DOT primarily regulates economic
matters pertaining to air services, including the provision of foreign air transportation by non-U.S. airlines. Our carriers serving the United States hold all required economic route authorities from the DOT,
allowing each such carrier to engage in foreign air transportation from points behind its homeland via its homeland and intermediate points to a point or points in the United States and beyond, to the full extent permitted under the open
skies bilateral air services agreement between each carriers homeland government and the government of the United States. These authorities are held either in the form of a foreign air carrier permit or exemption authority.
Avianca, Taca, Avianca Costa Rica and Avianca Peru also hold exemption authority from the DOT permitting them to jointly use the trade name
Avianca and use the AV designator code in their services in foreign air transportation to and from the United States.
Foreign air carrier permits are issued for an indefinite duration and, before they become effective, are subject to presidential review for
U.S. foreign policy and national security considerations. Exemption authority is issued for a shorter duration, typically between one and two years, and is not subject to presidential review. Exemptions must periodically be renewed upon submission
of a renewal application, and may be amended, modified or suspended by the DOT at any time without having to first give the airline notice and a hearing. In contrast the DOT generally may not amend, suspend or revoke a foreign air carrier permit
without providing the subject carrier the opportunity for a hearing. Exemptions and foreign air carrier permits carry a number of conditions, including compliance with DOT, FAA, TSA and other federal government agency regulations.
A number of our carriers serving the United States also participate in code-sharing operations on such flights, wherein a carriers
designator code is used to identify a flight operated by another carrier. For example, a number of scheduled flights that our carriers operate to and from the United States display the UA designator code of United Airlines and, as noted
above, Taca, Avianca Costa Rica and Avianca Peru, when operating scheduled flights to and from the United States, display the AV designator code of Avianca. To engage in code-sharing on flights to and
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from the United States, the operating carrier must hold a DOT statement of authorization issued under 14 C.F.R. Part 212, with such approval subject to various conditions. Our carriers that
display the code of another carrier on flights operated to and from the United States hold all required DOT statements of authorization to engage in such arrangements. We believe the operations of our carriers serving the United States are in
material compliance with DOT requirements.
FAA
The FAA primarily regulates aviation safety matters, including aircraft maintenance and operations, equipment, aircraft noise, ground
facilities, dispatch, communications, personnel, training, weather observation, air traffic control and other matters affecting air safety. Our carriers serving the United States hold operations specifications issued by the FAA pursuant to
14 C.F.R. Part 129. The FAA can amend, suspend or revoke those specifications, including in cases where the carrier fails to comply with FAA regulations.
Additionally, under the FAAs International Aviation Safety Assessments (IASA) program, the FAA periodically assesses another
countrys oversight of its air carriers that operate, or seek to operate, into the United States, or engage in code-sharing with a U.S. carrier, to determine whether the oversight complies with safety standards established by the ICAO and, if
so, assigns the country a Category 1 rating. Each of the homelands for our carriers that operate to and from the United States has been rated Category 1 by the FAA, except as listed below. As a result, carriers from Category 1 rated homelands
may continue or expand their U.S. services without restriction and engage in reciprocal code-sharing arrangements with U.S. carriers.
On
May 13, 2019, the FAA announced that it had downgraded Costa Rica to Category 2 status under the IASA program. Until such time as Costa Rica is restored to Category 1 status, Avianca Costa Rica will not be permitted to expand its operations to
or from the United States beyond those in place at the time of the downgrade. Additionally, Guatemala does not hold any rating under the IASA program, as no Guatemalan carrier has operated to or from the United States for several years. As a
consequence, Aviateca cannot operate flights to or from the United States until the FAA has completed an aviation safety assessment of, and assigned a Category 1 rating to, Guatemala under the IASA program. If the IASA rating of any of the homelands
of our other carriers operating flights to or from the United States were to be downgraded, it could prohibit us from adding new aircraft and from increasing service to the United States and would lead United Airlines to suspend the placement of its
code on flights operated by the carrier from the downgraded homeland country. We believe the operations of our carriers serving the United States are in material compliance with FAA requirements.
Security
In November 2001, the
Aviation and Transportation Security Act (ATSA) allocated substantially all aspects of civil aviation security under direct federal control and created the Transportation Security Administration (TSA), an agency within the
Department of Homeland Security (DHS), which assumed the aviation security responsibilities previously held by the FAA. The ATSA requires, among other things, the implementation of certain security measures by airlines and airports, such
as the requirement that all passenger bags be screened for explosives. Pursuant to the ATSA, the TSA issues regulations governing foreign air carrier security. The regulations require foreign air carriers to adopt and implement a security program
that covers security for operations and threat response. Our carriers serving the United States have adopted and implemented a security program in accordance with those regulations. The TSA also requires our passenger carriers serving the United
States to implement the Secure Flight Program, which requires these carriers to collect certain personal information from passengers and transmit that information to TSA for comparison against watch lists maintained by the U.S. federal government.
We believe the operations of our carriers serving the United States are in material compliance with TSA requirements.
Other Regulations
Our carriers serving the United States are subject to other regulations promulgated by CBP within DHS as well as APHIS within DOA.
CBP agents inspect baggage and cargo to ensure, among other things, that items meet APHIS regulations related to the importation of animal and plant products. Also, CBP officers are responsible for immigration controls and other security controls,
such as the transmittal of passenger information via the Advanced Passenger Information System. We believe the operations of our carriers serving the United States are in material compliance with CBP and APHIS requirements.
66
European Regulation
Carriers must obtain individual operational permits or equivalent documents related to traffic rights in the framework of
agreements between E.U. Member States and third countries.
Notwithstanding, the European Parliament and the European Council tasked the
EASA to manage a single European system for vetting the safety performance of foreign air carriers. In doing so, EASA issues safety authorizations to foreign air carriers known as third country operators when satisfied that they comply with minimum
international safety standards.
Because we operate flights to Spain, we are subject to Spanish DGAC regulation and authorizations. Our
license to operate to certain destinations in Spain and the frequency of our operations is reviewed on a semi-annual basis. We must also comply with special noise abatement procedures required by the Madrid airport and with a tax on nitrogen oxide
emissions to the atmosphere caused by commercial aviation enacted by the Catalan authority (Generalitat de Cataluña).
Because we operate fights to London, we are subject to Englands Civil Aviation Authority regulation and authorizations. Our license to
operate to certain destinations in the United Kingdom and the frequency of our operations is reviewed on a semi-annual basis.
Because we
operate fights to Munich, we are subject to Germanys Civil Aviation Authority regulation and authorizations. Our license to operate to certain destinations in Germany and the frequency of our operations is reviewed on a semi-annual basis.
We also are authorized by EASA to perform commercial and transport operations into, within or out of the E.U. territory subject to the
provisions of the Union Treaty and applicable governmental authorizations.
Other Jurisdictions
We are also subject to regulation by aviation regulatory bodies which set standards and enforce national aviation legislation in each of the
other jurisdictions to which we fly. These regulators may exercise powers associated with their duties, potentially including the ability to set fares, enforce environmental and safety standards, levy fines or restrict operations within their
respective jurisdictions. We cannot predict how these regulatory bodies will act, and the evolving standards enforced by any of them could have a material adverse effect on our operations.
C.
|
Organizational Structure
|
The following is a simplified organizational chart showing our principal subsidiaries as of December 31, 2019:
67
We are a holding company and operate through Avianca, Tampa Cargo, Avianca Costa Rica, Avianca Peru,
Avianca Ecuador and Taca International, which are our operating airline subsidiaries in Colombia, Costa Rica, Peru, Ecuador and El Salvador, respectively. Grupo Taca Holdings Limited is a holding company positioned between Avianca Holdings and
certain of our operating subsidiaries.
For a description of our loyalty business, operated by LifeMiles, see B.
Business OverviewCargo and Courier Operations LifeMiles Loyalty Business.
D.
|
Property, Plant and Equipment
|
We lease our principal administrative offices and operational training center in Bogotá and our maintenance center in Rionegro. The
duration of our lease agreements varies but in most cases are long-term leases with monthly rent obligations. For more information on our property, plant and equipment, see note 4 to our audited consolidated financial statements as of and for the
year ended December 31, 2019, included elsewhere in this annual report.
Item 4A.
|
Unresolved Staff Comments
|
None.
Item 5.
|
Operating and Financial Review and Prospects
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited
consolidated financial statements and the notes thereto included elsewhere in this
68
annual report, as well as the information presented under Presentation of Financial and Other Information in this annual report. The following discussion and analysis contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this
annual report, particularly as set forth in Item 3. Key InformationD. Risk Factors and Forward Looking Statements in this annual report.
Principal Factors Affecting our Results of Operations
Chapter 11 Proceedings
Our results
of operations and our ability to continue as a going concern depend on developments relating to our Chapter 11 proceedings. On May 10, 2020, Avianca Holdings S.A. and certain of its affiliated entities filed voluntary petitions for chapter 11 relief
under title 11 of the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the Southern District of New York, which cases are being jointly administered under Case No. 20-11133 (MG). For information on the
risks and uncertainties associated with our Chapter 11 proceedings, see Item 3. Key InformationD. Risk FactorsRisks Relating to Our Chapter 11 Proceedings.
Developments Relating to COVID-19
Our results of operations and our ability to continue as a going concern also depend on developments relating to the spread of COVID-19 and
government measures to address it, which have already had a material and adverse effect on the airline industry and us and have resulted in unprecedented revenue, demand and overall macroeconomic uncertainty. For more information on the risks and
uncertainties associated with the COVID-19 pandemic, see Item 3. Key InformationD. Risk FactorsRisks Relating to the Airline IndustryThe outbreak or the threat of an outbreak of a contagious disease has already and may
further materially and adversely affect the airline industry.
Macroeconomic Factors
We are generally affected by economic conditions in the main countries in which we operate: Colombia, Peru, El Salvador and Ecuador.
Macroeconomic conditions in these countries affect demand for our services and exchange rates, especially against the U.S. dollar, affect our financing costs and our exposure to fuel prices, which are denominated in U.S. dollars.
The following table sets forth real GDP growth, inflation rates, average interest rates and foreign exchange rates in Colombia, Ecuador, Peru
and El Salvador for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year
ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
GDP growth
|
|
|
|
|
|
|
|
|
|
|
|
|
Colombia
|
|
|
3.3
|
%
|
|
|
2.5
|
%
|
|
|
3.3
|
%
|
Ecuador
|
|
|
(0.5
|
)%
|
|
|
1.4
|
%
|
|
|
2.4
|
%
|
Peru
|
|
|
2.2
|
%
|
|
|
4.0
|
%
|
|
|
2.5
|
%
|
El Salvador
|
|
|
2.5
|
%
|
|
|
2.5
|
%
|
|
|
2.3
|
%
|
Inflation
|
|
|
|
|
|
|
|
|
|
|
|
|
Colombia
|
|
|
3.5
|
%
|
|
|
3.2
|
%
|
|
|
4.3
|
%
|
Ecuador
|
|
|
0.4
|
%
|
|
|
(0.2
|
)%
|
|
|
0.4
|
%
|
Peru
|
|
|
2.1
|
%
|
|
|
1.3
|
%
|
|
|
2.8
|
%
|
El Salvador
|
|
|
0.9
|
%
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
Interest rates
|
|
|
|
|
|
|
|
|
|
|
|
|
Colombia
|
|
|
4.3
|
%
|
|
|
4.3
|
%
|
|
|
4.8
|
%
|
Ecuador
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
Peru
|
|
|
2.3
|
%
|
|
|
2.8
|
%
|
|
|
3.3
|
%
|
El Salvador
|
|
|
4.4
|
%
|
|
|
4.2
|
%
|
|
|
4.2
|
%
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Currency appreciation/(depreciation) in relation to the U.S. dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Colombia
|
|
|
0.8
|
%
|
|
|
8.9
|
%
|
|
|
(0.6
|
)%
|
Ecuador*
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru
|
|
|
(1.6
|
)%
|
|
|
4.0
|
%
|
|
|
(3.5
|
)%
|
El Salvador
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Period-end exchange rate per $1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Colombia
|
|
$
|
3,277.14
|
|
|
$
|
3,249.75
|
|
|
$
|
2,984.00
|
|
Ecuador*
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru
|
|
$
|
3.31
|
|
|
$
|
3.37
|
|
|
$
|
3.24
|
|
El Salvador
|
|
$
|
8.75
|
|
|
$
|
8.75
|
|
|
$
|
8.75
|
|
Average exchange rate per $1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Colombia
|
|
$
|
3,281.01
|
|
|
$
|
2,956.43
|
|
|
$
|
2,951.32
|
|
Ecuador*
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru
|
|
$
|
3.34
|
|
|
$
|
3.29
|
|
|
$
|
3.26
|
|
El Salvador
|
|
$
|
8.75
|
|
|
$
|
8.75
|
|
|
$
|
8.75
|
|
Sources: SFC
and Bloomberg LLP.
*
|
Ecuadors currency is the U.S. dollar
|
For additional information on how macroeconomic conditions in these key countries affect us, see Item 3. Key InformationD. Risk
FactorsRisks Relating to Colombia, Peru, Central America, and Other Countries in which We Operate.
70
Changes in Foreign Exchange Rates
Our consolidated financial statements are presented in U.S. dollars. However, a portion of our operating revenue and expenses is denominated in
currencies other than the U.S. dollar, thereby exposing us to foreign exchange variation in translating our results denominated in other currencies into U.S. dollars, mainly in relation to the Colombian peso. Depreciation of these foreign currencies
against the U.S. dollar affect our results of operations because many of our expenses, including aircraft and fuel expenses, are denominated in U.S. dollars. For more information, see Item 3. Key InformationD. Risk FactorsRisks
Relating to Colombia, Peru, Central America, and Other Countries in which We OperateFluctuations in foreign exchange rates and restrictions on currency exchange could adversely affect us.
Fuel Prices
Aircraft fuel
expenses constitute a significant portion of our total operating expenses, representing 23.3%, 26.0% and 22.3% of our total operating expenses in 2019, 2018 and 2017, respectively. International and local fuel prices are subject to wide price
fluctuations and, in some cases, sudden disruptions, based on geopolitical issues and supply and demand as well as market speculation. When fuel prices decrease, we may be exposed to losses on our hedge contracts, which can partially offset savings
in fuel expenses. On the other hand, our aircraft fuel purchase agreements do not protect us against price increases or guarantee the availability of fuel. We may not be able to adjust our fares adequately or otherwise respond quickly to protect us
from volatility in fuel prices.
Principal Components of Our Results of Operations
Operating Revenue
Passenger
Revenue. We recognize passenger revenue when we provide the transportation service, which we refer to as flown revenue. Passenger revenue is a function of the capacity of our aircraft on the routes we fly, our load factors and our
yields. Our passenger capacity is measured in terms of ASKs. Our passenger usage is measured in terms of RPKs. We calculate load factors, or the percentage of our capacity that is actually used by paying customers, by dividing RPKs by ASKs. Our
passenger yield is the average amount that one passenger pays to fly one kilometer. Within passenger revenue we generate other revenue deemed ancillary revenue, which includes additional charges that are billed to passengers, such as fees for
changes of date, destination and name. These are not considered separate performance obligations but are combined with the existing performance obligation and accounted for as if they were part of the original ticket sale transaction.
We recognize fares for unused tickets that are expected to expire as revenue based on historical data and experience. We perform periodic
evaluations of our air traffic liability relating to unused tickets, and we record any resulting adjustments to revenue, which can be significant, in our consolidated statement of comprehensive income. These adjustments relate primarily to the
differences arising from actual events and circumstances such as historical fare sale activity and customer travel patterns, which may result in refunds, exchanges or forfeited tickets differing significantly from estimates. We evaluate these
estimates and assumptions and adjust air traffic liability and passenger revenues as necessary.
Under IFRS 15, we recognize revenue
associated with our LifeMiles loyalty program upon the redemption of miles by customers, as this represents the point in time where the performance obligation is satisfied. Prior to 2018, we recorded separately the value of marketing and
branding activities from the fair value of the miles earned by our customers.
For additional information, see Critical
Accounting Policies and New and Amended Standards and InterpretationsRevenue Recognition Revenue from Contracts with Customers.
Cargo and Other Revenue. We recognize cargo and courier revenue when we provide the transportation and/or services. We carry cargo in
our dedicated freighter fleet and, to the extent we have excess capacity, in the bellies of our passenger aircraft. We operate our domestic Colombian courier operations primarily through our DEPRISA brand. Our cargo yield is the average price paid
per one kilometer to fly one metric ton of cargo. Cargo revenue is a function of the total metric tons of cargo carried and cargo yield. Courier revenue is a function of the number of packages shipped and the price per package. Our cargo capacity is
measured in terms of ATKs. Our cargo usage is measured in terms of RTKs. Our cargo load factor is determined by dividing RTKs by ATKs.
71
Our other revenue-generating activities primarily comprise sales of LifeMiles program
rewards to commercial partners and members of the program (net of the value of the underlying rewards, which, when redeemed, are recognized as passenger revenue). We recognize revenue upon the signing of a commercial agreement. Our other revenue
also includes air transport-related services such as maintenance, crew training and other airport services provided to other carriers through our Avianca Services division, service charges, ticket penalties, aircraft and property leases, marketing
rebates, duty-free sales, charter flights and other general operating revenue.
For additional information, see Critical
Accounting Policies and New and Amended Standards and InterpretationsRevenue Recognition Revenue from Contracts with Customers.
The following table sets forth certain passenger and cargo data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Passenger:
|
|
|
|
|
|
|
|
|
|
|
|
|
ASK (in millions)
|
|
|
54,410
|
|
|
|
53,310
|
|
|
|
48,401
|
|
RASK
|
|
|
8.5
|
|
|
|
9.2
|
|
|
|
9.2
|
|
CASK
|
|
|
9.5
|
|
|
|
8.7
|
|
|
|
8.6
|
|
Load factor
|
|
|
81.7
|
%
|
|
|
83.0
|
%
|
|
|
83.1
|
%
|
Yield (in U.S. cents)
|
|
|
8.8
|
|
|
|
9.2
|
|
|
|
8.8
|
|
Total passengers (in millions)
|
|
|
30,538
|
|
|
|
30,628
|
|
|
|
29,459
|
|
Cargo*
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity (in ATKs, in millions)
|
|
|
2,739
|
|
|
|
2,460.2
|
|
|
|
2,489.0
|
|
Load factor
|
|
|
57.7
|
|
|
|
57.3
|
|
|
|
57.0
|
|
Yield (in U.S. cents)
|
|
|
0.32
|
|
|
|
0.395
|
|
|
|
0.340
|
|
Cargo (in thousands of metric tons)
|
|
|
601.8
|
|
|
|
563.1
|
|
|
|
566.0
|
|
RASK (in U.S. cents)
|
|
|
8.5
|
|
|
|
9.2
|
|
|
|
9.2.
|
|
*
|
Includes courier services.
|
Operating Expenses
Aircraft fuel
expense is the main component of our operating expenses. In 2019, aircraft fuel expense represented 23.3% of our total operating expenses and 26.1% of our total operating revenue. In addition to aircraft fuel expense, our principal operating expense
categories comprise salaries, wages and benefits, sales, ground operations, air traffic, maintenance and repairs, depreciation and amortization, impairment, administrative expenses, passenger services and flight operations. A common measure of per-unit costs in the airline industry is CASK.
Flight Operations. Our flight operations expense
primarily comprises insurance coverage for hull and liabilities (passenger liability and third-party liability), hull war, hull deductible and war excess and also includes hotel accommodation, per diem expense and training costs. We insure in
the London reinsurance market. From 2017 to October 2018, we also included short-term aircraft crew maintenance and insurance contracts to mitigate effects of the 2017 pilots strike under this line item.
Aircraft Fuel. Our aircraft fuel expenses refer to our into-plane fuel cost (which includes the fuel price, taxes and
distribution costs). These expenses are variable and fluctuate based on global oil prices and vary significantly from country to country primarily due to local distribution and transportation costs and taxes. In 2019, we purchased 29% of our fuel at
our largest hub in Bogotá, where we were able to obtain better fuel distribution prices relative to other locations due to volume discounts. We have 30 fuel suppliers across our international network and seek to fuel our aircraft in cities
where fuel prices are lower. From 2018 to 2019, the price of WTI crude oil, a benchmark widely used for crude oil prices that is measured in barrels and quoted in U.S. dollars, decreased 12.6% from an average of $65.2 per barrel in 2018 to an
average of $57.0 per barrel in 2019.
72
The following table sets forth certain summary information relating to our fuel expenses for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Average price per gallon of jet fuel into plane (net of hedge) (in U.S. dollars)
|
|
|
2.23
|
|
|
|
2.34
|
|
|
|
1.91
|
|
Gallons consumed (in thousands)
|
|
|
538,990
|
|
|
|
518,248
|
|
|
|
483,512
|
|
Available seat kilometers (in millions)
|
|
|
54,410
|
|
|
|
53,310
|
|
|
|
48,401
|
|
Gallons per ASK (in thousands)
|
|
|
9.1
|
|
|
|
9.1
|
|
|
|
9.4
|
|
*
|
Data does not include regional operations in Central America or cargo operations.
|
Our total fuel costs are also affected by settlements of our fuel hedge instruments. Our fuel hedging strategy contemplates hedging between 0%
to 50% of our projected fuel consumption over the next 12 months and in recent years we have generally hedged between 20% to 30% of our projected fuel consumption. As of December 31, 2019, we had hedges in place for approximately 2.6% of our
projected fuel consumption for 2020 through mechanisms such as futures, forwards and option contracts. See Quantitative and Qualitative Disclosures About Market RiskFuel below.
Ground Operations. Ground operations expenses primarily comprise landing and parking fees, air navigation fees, ramp services and
passenger security related costs. These expenses are generally correlated with the number of departures and passengers carried.
Rentals. Our rentals expenses comprise leases of aircraft, engines and other equipment, and are generally fixed by the terms of our
lease agreements. As of December 31, 2019, we held 58, or 34%, of our total 171 aircraft under leases, the majority of which had fixed interest rates and therefore were not exposed to interest rate fluctuations during their term. Of these
aircraft, one is under a wet lease for approximately two months and the others have an average lease term of 62 months.
One A330-200 that was subleased to Oceanair was returned at the end of February 2019 and one A330-200F was returned in March 2019.
As part of our strategy in recent years we have replaced some of the financed aircraft in our fleet with leased aircraft. As of
December 31, 2019, we owned 113, or 66%, of our total 171 aircraft, of which 58.5% is debt-financed.
Passenger Services. Our
passenger services expenses primarily comprise expenses related to meals and beverages, baggage handling, in-flight entertainment and other expenses related to aircraft and airport handling services. These
expenses are directly related to the number of passengers we carry and the number of flights we operate, as well as the type of service provided.
Maintenance and Repairs. Our maintenance and repairs expenses primarily comprise repairs of aircraft components, engines and equipment
and routine maintenance for aircraft. We account for engine and other aircraft components overhaul expenses by using the deferral method pursuant to which we capitalize the cost of the overhaul and then amortize it until the shorter of the period to
the next overhaul (based on total flying hours of each overhauled engine or estimated cycles for other aircraft components) and the end of the lease term. Maintenance of flight and aircraft equipment costs is generally correlated with departures and
block hours.
For certain leases, we are contractually obligated to return aircraft in a defined condition. We establish reserves for
restitution costs related to aircraft held under leases at the time the asset does not meet return conditions criteria and throughout the remaining duration of the lease. With effect from January 1, 2018, we establish reserves for restitution
costs based on our assessment of restitution costs that are probable. Restitution costs are based on the net present value of the estimated average costs of returning the aircraft. We review these costs annually and adjust as appropriate. We perform
our line maintenance for all fleet types at our hubs in Bogotá and San Salvador. Line maintenance at other domestic and international destinations is carried out by third-party contractors. We outsource all of our engine and certain other
heavy maintenance on aircraft components.
Air traffic. Our air traffic expenses primarily comprise expenses relating to airport
facilities, airport outsourced personnel, outsourced customer call center services and passenger compensation for interrupted or over-booked flights.
Selling expenses. Our selling expenses comprise commissions paid to travel agencies, credit card fees, GDS costs, which are fees
related to reservation systems and global distribution, and advertising expenses.
73
Salaries, wages and benefits. Our salaries, wages and benefits expenses relate to
personnel, including cockpit crew, flight attendants and maintenance, airport and commercial and administrative personnel). In some cases, we adjust salaries of our employees based on changes in the cost of living in the countries where these
employees work, usually based on inflation.
Fees and other expenses. Our fees and other expenses primarily comprise expenses
related to administrative functions, general services, legal and other professional fees and the gain or loss from the sale of assets. They also include local taxes, such as a turn over tax, which is a Colombian municipal tax that levies
gross income due to the rendering of services. Each municipality has a different rate which varies depending on the kind of service, but the average tax rate is approximately 1.0%. Likewise, the tax paid within the fiscal year is considered a
deductible expense for income tax purposes. Sales in Colombia are subject to value added tax which we withhold on behalf of the government. Revenue from certain of our domestic routes and all cargo revenue are not subject to this tax. We pay value
added taxes on most of the services and products that we purchase but do not apply a tax credit on our value added tax accounts to all such value added tax payments. The value added tax payments that are not registered as tax credits are registered
as additional expenses in our Colombian accounting.
Depreciation and amortization. Our depreciation and amortization expense
includes depreciation of aircraft owned or leased, depreciation of non-aircraft assets, amortization of capitalized projects owned or leased and amortization of intangible assets.
Impairment. Our impairment expense comprises fleet retirement charges and extends to spare parts.
Interest income, interest expense, derivative instruments, foreign exchange and equity method income
Interest income. Interest income comprises interest income on funds invested and changes in the fair value of financial assets. We
recognize interest income as accrued using the effective interest rate method.
Interest expense. Interest expense comprises
interest expense on borrowings, unwinding of the discount on provisions and changes in the fair value of financial assets. We recognize borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying
asset using the effective interest method.
Derivative instruments. Derivative instruments include the net effect of changes in
fair value of our financial instruments as a result of variation in their market value.
Foreign exchange, net. Foreign exchange,
net primarily comprises the net non-cash gain or loss on our assets and liabilities related to the appreciation or depreciation of the Colombian peso against the U.S. dollar.
Equity method income. Equity method income comprises an increase in assets in the form of a
non-controlling participation in subsidiary income.
Income Taxes
Set forth below are certain highlights relating to the determination of our income tax rate in certain countries relevant to our operations, in
each case as of December 31, 2019.
Colombia. The corporate income tax rate in 2019 was 33%. The income taxable base is the
higher of the presumptive income based on taxable net worth and the ordinary base of taxable net profits. There was no surcharge on income tax in 2019, while in 2018 it was 4%. In the following years no surcharge rate will apply.
Our income tax payment is calculated after considering costs, expenses, tax credits originated by advance payments and withholdings. Our
effective income tax rate could be lower than the statutory rate due to the application of two mechanisms: first, a tax credit based on the proportion of revenue generated by international flights over total operating revenue; and second, the
application of a special deduction based on the value of our investment in productive fixed assets. Both mechanisms are protected from tax reforms until March 2028 through a legal stability contract signed with the Colombian government.
A tax bill enacted in December 2018 and confirmed in December 2019 provided for changes in income tax and value-added tax, among other
changes. Among the major changes that are applicable as of January 1, 2019 and for following years are: (i) decrease in the corporate income tax rates from 37% for fiscal year 2018 to 33% for fiscal year 2019, 32% for fiscal year 2020, 31%
for fiscal year 2021 and 30% for fiscal year 2022 and onwards, and (ii) gradual elimination of the presumptive income taxable base to 1.5% for fiscal year 2019, 0.5% for fiscal year 2020 and 0% for fiscal year 2021 and onwards, among others. In
addition, tax reforms allow for VAT paid on the acquisition, import, creation or construction of real productive fixed assets to be treated as a credit for income tax purposes. The decrease in the corporate income tax rates in Colombia resulted in a
decrease in our deferred tax and an increase in our income tax expense in 2019 as compared to 2018.
74
El Salvador. The corporate income tax rate in 2019 was 30.0%. The taxable base is net
profit for the year (which includes certain permanent adjustments between accounting and tax rules). The effective income tax rate for our local legal entity is lower than the statutory rate due to the application of a percentage based on the
proportion of flights taking off from El Salvador and other domestic gross revenue items over total revenue (considering Salvadorian source income). This percentage is applied to the total costs and expenses to obtain the total deductions. The total
deductions are then subtracted from taxable income to obtain the taxable net profits subject to the 30.0% tax rate. A special tax (contribución especial) of 5.0% of the annual net income applies for large taxpayers. The income tax
payment is calculated after the application of the tax credits originated by advance payments and withholdings.
Peru. The
corporate income tax rate in 2019 was 29.5%. The taxable base is net profit for the year (that includes certain permanent adjustments between accounting and tax rules). The income tax payment is calculated after the application of the tax credits
originated in advance payments and withholdings. A temporary tax on net assets applies, based on the tax value of the net assets booked at the previous tax year closing. This tax rate is 0.4%, which is applied to the net assets which value exceeds
an exempted threshold.
Costa Rica. The corporate income tax rate in 2019 was 30.0%, and the taxable base is the net profit for the
year (which includes certain permanent adjustments between the accounting and tax rules). The effective income tax rate for our local legal entity is lower than the statutory rate due to the application of a percentage based on the proportion of
flights taking off from Costa Rica and other domestic gross revenue items over total revenue (considering Costa Rican source income). This percentage is applied to the total costs and expenses to obtain the total deductions. As a result, the total
deductions are subtracted from the taxable income to obtain the taxable net profits subject to the 30.0% tax rate. The income tax payment is calculated after application of the tax credits originated in advance payments and withholdings.
In December 2018, the Costa Rican Congress enacted the Law in Support of Strengthening Public Finances that includes two major amendments to
the Costa Rican tax legislation. The tax reform substituted the application of a sales tax with a value added tax of 13% with respect to almost all goods and services (for local air transportation services, a reduce rate of 4% applies, by contrast
for international air transportation services the tax rate is 0.4%). In addition, from July 1, 2019, any revenue obtained from the sale, lease, or assignment of rights over real estate, goods, intellectual property and other intangibles that
are not part of the taxpayer ordinary business, is going to be taxed at the general rate of 15%. Any surplus of revenue distributed as dividends or that resembles dividends will also be taxed as capital gains at the rate of 10%. However, taxpayers
that sell any of these goods or rights before the law comes into force can choose to pay a 2.25% rate over the first sale that amounts to any capital gain.
Mexico. The corporate income tax rate in 2019 was 30%. The taxable base is net profit for the year (that includes some permanent
adjustments between accounting and tax rules), and the taxable base is the higher of the presumptive income based on taxable net worth and the ordinary base of taxable net profits.
Ecuador. The corporate income tax rate in 2019 was 25%. However, for Ecuadorian entities with a headquarter located in a tax haven
jurisdiction (such as Panamá), the corporate income tax rate was 28%. This country also has an income tax advance payment that can be offset on the income tax return at the end of the fiscal year.
Panama. Revenue at our holding company generated by foreign operations are not subject to taxation in Panama in accordance with
Panamanian legislation since it is not deemed to be earning active income from Panamanian sources.
Bahamas. The Commonwealth of
the Bahamas does not impose income taxes on companies organized under its jurisdiction. Revenue of our subsidiary Grupo Taca Holdings generated by foreign operations are not subject to taxation in accordance with the legislation of the Bahamas.
However, the subsidiaries of Grupo Taca Holdings are subject to local taxes in the jurisdictions in which they operate.
Bermuda.
Currently, Bermudas government grants a Tax Insurance Certificate to permit companies, permanent establishments, unit trusts and partnerships until March 31, 2035, which imposes no taxes on profits, income, dividends, or capital gains
and has no requirement to distribute dividends. An annual government fee, based on the assessable capital, is imposed on companies.
75
United States. Under President Trumps administration, a tax reform was enacted on
December 22, 2017, in which the corporate tax rate was reduced to 21%. The reform also established a mandatory repatriation of accumulative foreign earnings with a reduced tax rate of 15.5% payable in 8 installments (one per year) as incentive.
For those entities that repatriate their foreign earnings, they will have a territorial income tax for the following years, and not a worldwide income tax as was applicable for 2017 and previous years. The reform also allows for indefinite net
operating loss carryforwards that can offset up to 80% of taxable income.
Deferred income tax. Deferred tax is generated by
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is calculated using the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantially enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will
be realized simultaneously.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized. We book this difference in our income statement as deferred income tax. For the year ended December 31, 2019, we determined that we would generate sufficient taxable income to realize our deferred tax
assets. According to our financial forecasts no taxable income will be generated during the next four to five years. Therefore, the deferred tax assets (of our subsidiaries that would allow for the realization of such deferred tax assets) have only
been recognized by an amount up to the concurrence of the deferred tax liabilities.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. The preparation of financial statements
in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. Actual results may differ from these estimates. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. We believe that our estimates and judgments are reasonable; however, actual results
and the timing of recognition of such amounts could differ from those estimates.
The following discussion describes those areas that
require considerable management judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. For more information, see notes 2.d. and 3 to
our audited consolidated financial statements included elsewhere in this annual report.
Leased Assets
We have applied IFRS 16, which sets out the principles for the recognition, measurement, presentation and disclosure of leases, from
January 1, 2019. We record leases in our statement of financial position and treat all leases as financial leases. Short-term leases (less than 12 months) and leases of low-value assets are exempt from
these requirements.
To determine the value of our lease liability, we measure the value of the right-of-use assets and include the value of the payments made before the start of the lease. Because we adopted the modified retrospective approach to account for the introduction of IFRS 16, we did not
adjust the comparable figures for prior years, and all adjustment effects as of January 1, 2019 have been presented as adjustments to retained earnings. For more information, see note 4.1 to our audited consolidated financial statements
included elsewhere in this annual report.
Intangible Assets
We initially measure intangible assets acquired separately at cost in accordance with IAS 38 Intangible Assets. The cost of
intangible assets acquired in a business combination is their fair value as of the date of acquisition. We do not capitalize internally generated intangible assets, excluding capitalized development costs, and we record the related expenditure in
our consolidated statement of comprehensive income in the year in which we incur the expenditure.
76
We assess the useful lives of intangible assets as either finite or indefinite. We amortize
intangible assets with finite lives over their useful economic lives and assess them for impairment whenever there is an indication that the intangible asset may be impaired. We review the amortization period and the amortization method for an
intangible asset with a finite useful life at least at the end of each reporting period. We account changes in the expected useful life or in the expected pattern of consumption of future economic benefits embodied in the asset by changing the
amortization period or method, as appropriate, and treat them as changes in accounting estimates. We record the amortization expense on intangible assets with finite lives in the consolidated statement of comprehensive income within depreciation and
amortization and impairment.
We do not amortize intangible assets with indefinite useful lives, but we test them for impairment annually,
either individually or at the cash-generating unit level. We review the assessment of indefinite life annually to determine whether the indefinite life continues to be supportable. If not, we make the change in useful life from indefinite to finite
on a prospective basis.
We measure gains and losses arising from the de-recognition of an
intangible asset as the difference between the net disposal proceeds and the carrying amount of the asset and we record any such gain or loss in our consolidated statement of comprehensive income when we derecognize the asset.
Revenue Recognition Revenue from Contracts with Customers
We recognize revenue from two main sources: (i) passenger revenue and (ii) cargo and other revenue.
We recognize passenger revenue, which includes transportation, baggage fees, fares and other associated ancillary revenue, when transportation
is provided. We recognize cargo revenue when shipments are delivered. We recognize other operating revenue when the related performance obligations are met.
We initially defer the tickets and other revenue related to transportation that have not yet been provided and record these as air
traffic liability in our consolidated statement of financial position, deferring the revenue recognition until the trip occurs. For trips that have more than one flight segment, we consider each segment as a separate performance obligation and
recognize the revenue of each segment as the trip takes place. We recognize revenue from tickets sold by other airlines where we provide transportation as passenger revenue at the estimated value that will be billed to the other airline when the
trip is provided.
Reimbursable tickets usually expire after one year from the date of issuance.
Non-refundable tickets generally expire on the date of the intended trip, unless the date is extended by customer notification on or before the scheduled travel date. We recognize rates for unused tickets that
are expected to expire as revenue, based on historical data and experience, supported by a third party valuation specialist to assist management in this process. We periodically evaluate this liability and we record any significant adjustment in our
consolidated statement of comprehensive income. These adjustments are mainly due to differences between actual events and circumstances such as historical sales rates and customer travel patterns that may result in refunds, changes or expiration of
tickets that differ substantially from our estimates. We evaluate our estimates and adjust deferred revenue for unearned transportation and revenue for passenger transport when necessary.
We collect the various taxes and fees calculated on the sale of tickets to customers as an agent and send collections to the tax authorities.
We record a liability when taxes are collected and deregister it when the government entity is paid.
Under our LifeMiles program,
we recognize liabilities for accumulated miles are under frequent flyer deferred revenue until the miles are redeemed. We recognize the revenue for the redemption of miles at the time of the exchange of miles. We calculate the revenue
based on the number of miles redeemed in a given period multiplied by the cumulative weighted average yield which leads to the decrease of frequent flyer deferred revenue. We review breakage estimates every six months. If a change in the
estimate is presented, we account for the adjustments prospectively through income, with an adjustment of update to the corresponding deferred income balances.
Under IFRS 15, we do not consider ancillary revenue a separate performance obligation and we combine it with the existing performance
obligation and account for it as if part of the original ticket sale transaction. Thus, we combine the original price of the ticket and the amount paid for the ancillary service and consider them one single performance obligation, which we defer and
recognize as passenger revenue when the related consideration is satisfied.
77
Useful Life of Property and Equipment
We estimate useful lives and residual values of property and equipment, including fleet assets based on network plans and recoverable values.
Useful lives and residual values are reassessed annually, taking into consideration the latest fleet plans and other business plan information.
We measure flight equipment, property and other equipment at cost less accumulated depreciation and accumulated impairment losses in
accordance with IAS 16 Property, Plant and Equipment. Property, operating equipment, and improvements that are being built or developed for future use by us are recorded at cost as under-construction assets. When under-construction
assets are ready for use, the accumulated cost is reclassified to the respective property and equipment category. We derecognize property and equipment upon disposal or when no future economic benefits are expected from its use or disposal. Gains
and losses on disposal of property and equipment are determined by comparing the proceeds from disposal with the carrying amount.
The
costs incurred for major maintenance of an aircrafts fuselage and engines are capitalized and depreciated over the shorter period to the next scheduled maintenance or return of the asset. The depreciation rate is determined according to the
assets expected useful life based on projected cycles and flight hours. Routine maintenance expenses of aircraft and engines are charged to income as incurred.
We calculate depreciation over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual
value. Depreciation is recognized in the consolidated statement of comprehensive income on a straightline basis over the estimated useful lives of flight equipment, property and other equipment, since we believe this method most closely
reflects the expected pattern of consumption of the future economic benefits embodied in the asset. We depreciate rotable spare parts for flight equipment on the straight-line method, using rates that allocate the cost of these assets over the
estimated useful life of the related aircraft. The estimated useful life for aircraft ranges between 10 to 30 years and for aircraft components and engines, the useful life of fleet associated with component or engines is taken as the reference
point.
Residual values, amortization methods and useful lives of the assets are reviewed and adjusted, if appropriate, at each reporting
date. The carrying value of flight equipment, property and other equipment is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable and the carrying amount is written down immediately
to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount.
We receive credits from
manufacturers on acquisition of certain aircraft and engines that may be used for the payment of maintenance services, training, acquisition of spare parts and others. These credits are recorded as a reduction of the cost of acquisition of the
related aircraft and engines and against other accounts receivable. These amounts are then charged to expense or recorded as an asset, when the credits are used to purchase additional goods or services. These credits are recorded within other
liabilities in the consolidated statement of financial position when awarded by manufacturers.
We do not depreciate land. Administrative
property in Bogotá, Medellín, San Salvador and San Jose are recorded at fair value less accumulated depreciation on buildings and impairment losses recognized at the date of revaluation. We believe that valuations are performed with
sufficient frequency to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. A revaluation reserve is recorded in other comprehensive (loss) income and credited to the asset revaluation reserve in
equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognized in profit or loss, the increase is recognized in profit and loss. A revaluation deficit is recognized in the other comprehensive (loss)
income, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.
Leased Aircraft Return Provisions
Our aircraft lease contracts establish certain conditions in which aircrafts shall be returned to the lessor once the contractual period
terminates. To comply with these return conditions, we incur costs due to certain payments made to the lessor which reflect the use of certain components throughout the term of the lease contract, maintenance deposits, or overhaul costs of
components. Under certain contracts, if the asset is returned to the lessor in a better
78
maintenance condition than the one in which the asset was originally delivered, we are entitled to receive compensation from the lessor. We accrue a provision to comply with the return conditions
at the time the asset does not meet the return condition criteria under the conditions of each lease contract. The recognition of return conditions requires management to make estimates of the costs of return conditions and use inputs such as hours
or cycles flown of major components, estimated hours or cycles at redelivery of major components, projected overhaul costs and overhaul dates of major components. Upon redelivery of aircraft, any difference between the provision recorded and actual
costs is recognized in the result of the annual period.
Derivative Financial Instruments and Hedging Activities
Changes in the fair value of our financial instruments that are intended to reduce the levels of foreign currency risk and interest rates risk
are recognized through profit or loss when the derivative contracts are not designated as hedges for accounting purposes.
Liabilities on
derivatives which are not designated as hedges are recognized under Other Liabilities in our Consolidated Statement of Financial Position.
Foreign currency risk. Certain financial derivatives contracts are measured at fair value through profit or loss and are not designated
as hedging instruments for accounting purposes. The foreign currency forward contract balances vary with the level of expected foreign currency sales and purchases and changes in foreign currency forward rates.
Interest rate risk. We are exposed to interest rate risk primarily on financial obligations to banks and aircraft lessors. Certain
financial derivative instruments are recognized at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The interest rate contracts vary according to the level of expected interest payable and
changes in interest rates of financial obligations. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps and options. Under these agreements, the Group pays a fixed
rate and receives a variable rate.
Deferred Income Tax
We recognize deferred tax for temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax assets are recognized to the extent that it is probable that the temporary differences, the carry forward of unused tax credits and any unused tax losses can be utilized, except (i) where the deferred tax
liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss or
(ii) in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in
the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax laws enacted or substantively enacted at the reporting date. Significant management judgment is
required to determine the amount of deferred tax assets that can be recognized, and the tax rates used, based upon the likely timing and the level of future taxable profits together with future tax planning strategies and the enacted tax rates in
the jurisdictions in which the entity operates.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to
the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax relating to items recognized outside profit or loss is recognized in correlation to the underlying transaction either
in OCI or directly in equity. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity,
or on different taxable entities, but we intend to settle current tax liabilities and assets on a net basis.
Recent Accounting Pronouncements
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to determine whether an acquired
set of activities and assets is a business or not. The amendments clarify the
79
minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to assess whether an acquired process is
substantive, narrow the definitions of a business and of outputs and introduce an optional fair value concentration test. The amendments apply prospectively to transactions or other events that occur on or after January 1, 2020.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors to align the definition of material across the standards and to clarify certain aspects of the definition. The new definition states that information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. We do not
expect these amendments to have a significant impact on our consolidated financial statements.
Results of Operations for the Year Ended
December 31, 2019 and December 31, 2018
The following discussion of our results of operations is based on the financial
information derived from our audited consolidated financial statements. In the following discussion, references to increases or decreases in any year are made by comparison with the corresponding prior year, as applicable, except as the context
otherwise indicates. The following table sets forth certain income statement data for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
% Change
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2018 to
2019
|
|
|
|
(in $ millions)
|
|
|
(as a % of operating revenue)
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
3,904.8
|
|
|
|
4,074.4
|
|
|
|
84.5
|
%
|
|
|
83.4
|
%
|
|
|
(4.2
|
)%
|
Cargo and other
|
|
|
716.7
|
|
|
|
816.4
|
|
|
|
15.5
|
%
|
|
|
16.6
|
%
|
|
|
(12.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
4,621.5
|
|
|
|
4,890.8
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
(5.5
|
)%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight operations
|
|
|
75.7
|
|
|
|
153.6
|
|
|
|
1.6
|
%
|
|
|
3.1
|
%
|
|
|
(50.7
|
)%
|
Aircraft fuel
|
|
|
1,204.1
|
|
|
|
1,213.4
|
|
|
|
26.1
|
%
|
|
|
24.8
|
%
|
|
|
(0.8
|
)%
|
Ground operations
|
|
|
478.0
|
|
|
|
474.8
|
|
|
|
10.3
|
%
|
|
|
9.7
|
%
|
|
|
0.7
|
%
|
Rentals
|
|
|
11.8
|
|
|
|
267.7
|
|
|
|
0.3
|
%
|
|
|
5.5
|
%
|
|
|
(95.6
|
)%
|
Passenger services
|
|
|
176.5
|
|
|
|
188.7
|
|
|
|
3.8
|
%
|
|
|
3.9
|
%
|
|
|
(6.5
|
)%
|
Maintenance and repairs
|
|
|
257.6
|
|
|
|
206.5
|
|
|
|
5.6
|
%
|
|
|
4.2
|
%
|
|
|
24.8
|
%
|
Air traffic
|
|
|
279.0
|
|
|
|
269.6
|
|
|
|
6.0
|
%
|
|
|
5.5
|
%
|
|
|
3.5
|
%
|
Selling expenses
|
|
|
500.2
|
|
|
|
530.9
|
|
|
|
10.8
|
%
|
|
|
10.9
|
%
|
|
|
(5.8
|
)%
|
Salaries, wages and benefits
|
|
|
717.3
|
|
|
|
760.8
|
|
|
|
15.5
|
%
|
|
|
15.6
|
%
|
|
|
(5.7
|
)%
|
Fees and other expenses
|
|
|
411.6
|
|
|
|
203.3
|
|
|
|
8.9
|
%
|
|
|
4.2
|
%
|
|
|
102.4
|
%
|
Depreciation and amortization
|
|
|
593.4
|
|
|
|
350.5
|
|
|
|
12.8
|
%
|
|
|
7.2
|
%
|
|
|
69.3
|
%
|
Impairment
|
|
|
470.7
|
|
|
|
38.9
|
|
|
|
10.2
|
%
|
|
|
0.8
|
%
|
|
|
1,110
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,175.8
|
|
|
|
4,658.7
|
|
|
|
112.0
|
%
|
|
|
95.3
|
%
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
% Change
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2018 to
2019
|
|
|
|
(in $ millions)
|
|
|
(as a % of operating revenue)
|
|
|
|
|
Operating (loss) profit
|
|
|
(554.3
|
)
|
|
|
232.1
|
|
|
|
(12.0
|
)%
|
|
|
4.7
|
%
|
|
|
|
|
Interest expense
|
|
|
(299.9
|
)
|
|
|
(212.3
|
)
|
|
|
(6.5
|
)%
|
|
|
(4.3
|
)%
|
|
|
41.3
|
%
|
Interest income
|
|
|
9.0
|
|
|
|
10.1
|
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
(10.6
|
)%
|
Derivative instruments
|
|
|
(2.2
|
)
|
|
|
(0.3
|
)
|
|
|
(0.0
|
)%
|
|
|
(0.0
|
)%
|
|
|
732.3
|
%
|
Foreign exchange, net
|
|
|
(24.2
|
)
|
|
|
(9.2
|
)
|
|
|
(0.5
|
)%
|
|
|
(0.2
|
)%
|
|
|
162.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method profit
|
|
|
1.5
|
|
|
|
0.9
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
69.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before income tax
|
|
|
(870.0
|
)
|
|
|
21.4
|
|
|
|
(18.8
|
)%
|
|
|
0.4
|
%
|
|
|
|
|
Total income tax expense
|
|
|
(24
|
)
|
|
|
(20.2
|
)
|
|
|
(0.5
|
)%
|
|
|
(0.4
|
)%
|
|
|
18.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit for the year
|
|
|
(894.0
|
)
|
|
|
1.1
|
|
|
|
(19.3
|
)%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Operating Revenue
Our operating revenue in 2019 was $4,621.5 million, a 5.5% decrease from $4,890.8 million in 2018, mainly due to a decrease in
passenger revenue reflecting a 0.2% decrease in transported passengers and a 4.0% decrease in average fare across our network. In addition, passenger revenue from charter flights decreased because we terminated operations of certain domestic routes
from and to San Andres, Cali and Leticia. Cargo revenue decreased due to volatility present in global markets in the first half of 2019.
In addition, in 2019, loyalty revenue increased $16.5 million compared to 2018. Our operating revenue per ASK was 8.49 cents in 2019, a
7.7% decrease from 9.2 cents in 2018.
Passenger Revenue. Our passenger revenue was $3,904.8 million in 2019, a 4.2% decrease
from $4,074.4 million in 2018, mainly due to a 4.0% decrease in our average fare and a 0.2% decrease in transported passengers. In addition, passenger revenue from charter flights decreased because we terminated operations of certain domestic
routes from and to San Andres, Cali and Leticia, which effects were partially offset by an increase in ancillary revenue, including from excess baggage and date change penalties. Loyalty revenues increased 5.9% due to the accounting impact in
relation to reclassification in miles redemption and miles cash in 2019 from other revenue. Additionally, miles redeemed increased 4.2%, and our revenue recognition rate increased 5.9%, from 0.34 in 2018 to 0.36 in 2019.
Our passenger load factor decreased, from 83.1% in 2018 to 81.7%, in 2019, while our capacity increased 2.4%. Meanwhile, our passenger yield
decreased 4.9%, from 9.3 cents in 2018 to 8.8 cents in 2019. Our transported passenger volume decreased 0.2%, from 30,594 million in 2018 to 30,538 million in 2019.
Cargo and Other Revenue. Our revenue from cargo and other was $716.7 million in 2019, a 12.2% decrease from $816.4 million in
2018, mainly due to a decrease in volume transported relative to 2018, as we terminated our partnership agreement with Etihad, and due to volatility present in global markets during the first half of 2019, and because strong competition and
macroeconomic conditions have resulted in a decrease in average cargo fares. Additionally, there was a decrease in mail revenues and other cargo related revenues. Other revenues decreased due to reclassifications, recovery of provisions and other
effects presented, such as the reclassification of compensation received from Rolls Royce due to Trend 1000 engines malfunctions in B787 aircraft. Also, there was a decrease in aircraft lease revenues as a result of returns of two aircraft leased to
Ocean Air. Additionally, operative and administrative services revenues decreased due to reduction in ramp and traffic operations revenue. Finally, non-passenger loyalty revenues decreased, due to less fee
revenues, which effect was partially offset by higher non-air partners redemptions revenue due to a redeemed mile increase.
Our cargo revenue was $568.4 million in 2019, a 8.1% decrease from $618.8 million in 2018, mainly due to a decrease in average cargo
fares. In 2019, our cargo capacity increased 11% in terms of ATKs, as compared to 2018, while our cargo load factor increased from 57.3% in 2018 to 57.8% in 2019.
Our other operating revenue was $148.4 million in 2019, a 25% decrease from $197.7 million in 2018, mainly due to the factors
discussed above.
Operating Expenses
Operating expenses were $5,175.8 million in 2019, a 11.1% increase from $4,658.7 million in 2018, mainly due to an increase in
depreciation and amortization expense, impairment expense, maintenance expenses relating to engine and airframe line maintenance and landing gear expenditures, air traffic costs and fees and other expenses from legal and financial advisory as a part
of our debt reprofiling and implementation of our Avianca 2021 Plan. As a percentage of operating revenue, operating expenses increased from 95.3% in 2018 to 112.0% in 2019.
LifeMiles operating expenses were $44.2 million in 2019, a 9.1% increase from $40.6 million in 2018, mainly due to a
$1.4 million increase in selling and marketing expenses and a $3.9 million increase in salaries, wages and benefits, which effects were partially offset by a decrease of $1.0 million in depreciation and amortization expenses and a
decrease of $0.7 million in general, administrative and other expenses.
81
In 2019, our operating expenses excluding aircraft fuel expenses increased 15.3% compared to 2018
and our capacity in ASKs increased 2.4% compared to 2018. As a result, our CASK excluding fuel increased 12.9% in 2019 compared to 2018. The following table sets forth the breakdown of our CASK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
(in U.S. cents, except for
percentages)
|
|
CASK
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight operations
|
|
|
0.14
|
|
|
|
0.29
|
|
|
|
(51.7
|
)%
|
Aircraft fuel
|
|
|
2.21
|
|
|
|
2.28
|
|
|
|
(2.8
|
)%
|
Ground operations
|
|
|
0.88
|
|
|
|
0.89
|
|
|
|
(1.4
|
)%
|
Rentals
|
|
|
0.02
|
|
|
|
0.50
|
|
|
|
(95.7
|
)%
|
Passenger services
|
|
|
0.32
|
|
|
|
0.35
|
|
|
|
(8.4
|
)%
|
Maintenance and repairs
|
|
|
0.47
|
|
|
|
0.39
|
|
|
|
22.3
|
%
|
Air traffic
|
|
|
0.51
|
|
|
|
0.51
|
|
|
|
1.4
|
%
|
Sales and marketing
|
|
|
0.92
|
|
|
|
1.00
|
|
|
|
(7.7
|
)%
|
General, administrative and other
|
|
|
0.76
|
|
|
|
0.38
|
|
|
|
98.4
|
%
|
Salaries, wages and benefits
|
|
|
1.32
|
|
|
|
1.43
|
|
|
|
(7.6
|
)%
|
Depreciation and amortization
|
|
|
1.09
|
|
|
|
0.66
|
|
|
|
65.2
|
%
|
Impairment
|
|
|
0.87
|
|
|
|
0.07
|
|
|
|
1,142.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9.51
|
|
|
|
8.74
|
|
|
|
8.9
|
%
|
Total excluding fuel
|
|
|
7.30
|
|
|
|
6.46
|
|
|
|
12.9
|
%
|
Flight operations. Flight operations expense decreased 50.7% from $153.6 million in 2018 to
$75.7 million in 2019, mainly due to a decrease in lease expenses for cargo space and other outsourced services expenses driven by less wet leases expenses. Additionally, pilot, copilot and cabin crew initial training expenses decreased due to
less hiring in 2019. In addition, pilot travel expenses decreased due to less operations and renegotiation of hotel rates. These effects were partially offset by an increase in aircraft and other insurance expenses. In terms of unit cost per ASK,
flight operations decreased from 0.29 cents in 2018 to 0.14 cents in 2019.
Aircraft Fuel. Aircraft fuel expenses decreased 0.8%
from $1,213.4 million in 2018 to $1,204.1 million in 2019, mainly due to a 4.6% fuel price decrease, from $2.34/gallon in 2018 to $2.23/gallon in 2019, which effect was partially offset by hedge settlement losses. Additionally, consumed
gallons increased 4.0%. In terms of unit cost per ASK, aircraft fuel decreased from 2.28 cents in 2018 to 2.21 cents in 2019.
Ground
Operations. Ground operations expense was $478.0 million in 2019, representing a 0.7% increase from $474.8 million in 2018, mainly due to an increase in landing and parking expenses as a result of an increase in operations with A320
and A321 aircraft and an increase in handling and airport expenses relating to navigation and ground service. In terms of unit cost per ASK, ground operations expense decreased 1.4%, from 0.90 cents in 2018 to 0.88 cents in 2019.
Rentals. Rentals expense was $11.8 million in 2019, representing a 95.6% decrease from $267.7 million in 2018, mainly due to
the effects of our adoption of IFRS 16 as of January 1, 2019. Engine rentals expense decreased as a result of our reduced and simplified fleet strategy. In terms of unit cost per ASK, rentals expense decreased 95.7%, from 0.50 cents in 2018 to
0.02 cents in 2019.
Passenger Services. Passenger services expense was $176.5 million in 2019, representing a 6.5% decrease
from $188.7 million in 2018, mainly due to a decrease in on-board food, beverage and entertainment expenses resulting from adjustments to options offered to passengers. In terms of unit cost per ASK,
passenger services decreased by 8.4%, from 0.35 cents in 2018 to 0.32 cents in 2019.
Maintenance and Repairs. Maintenance and
repairs expense was $257.6 million in 2019, representing a 24.8% increase from $206.5 million in 2018, mainly due to lower engine maintenance and repair expense in 2018 as a result of adjustments in the return provisions for CFM engines,
pursuant to which we excluded overhaul provisions in 2018, an increase in airframe and line maintenance expense and an increase in the costs of line maintenance materials.
82
In terms of unit cost per ASK, maintenance and repairs, expense increased 22.3%, from 0.39 cents
in 2018 to 0.47 cents in 2019.
Air Traffic. Air traffic expense was $279.0 million in 2019, representing a 3.5% increase from
$269.6 million in 2018, mainly due to an increase in outsourcing expenses under our call center agreements with Getcom, which we previously recorded in salaries, wages and benefits and as general and administrative expenses.
Additionally, airport facilities expenses increased due to price increases in customs and migration services and due to accounting
reclassifications which were previously registered in security services. This was partially offset by (i) lower baggage handling service expenses as a result of the decrease in operations and (ii) a decrease in compensations due to
optimizations and initiatives implemented in 2019 to improve service and reflected in performance indicators, including with regards to schedule completion, mishandled baggage and changes in the compensations policy. Security services expenses also
decreased in line with the reduction in departures principally in Colombian domestic routes, Peru and routes in Central America. In terms of unit cost per ASK, air traffic increased 1.4%, from 0.51 cents in 2018 to 0.51 cents in 2019.
Selling Expenses. Selling expenses were $500.2 million in 2019, representing a 5.8% decrease from $530.9 million in 2018,
mainly due to a decrease in interline commissions as a result of an extraordinary adjustment in 2019 and a decrease in marketing expenses as a result of lower advertising and promotional miles costs, which effect was partially offset by an increase
in passenger and cargo commissions, as a result of an increase in travel agency incentives, an increase in credit card commissions and an increase in miles redemption costs as a result of an increase in miles redeemed in 2019. In terms of unit cost
per ASK, sales and marketing expenses decreased 7.7%, from 1.00 cents in 2018 to 0.92 cents in 2019.
Salaries, Wages and Benefits.
Salaries, wages and benefits expenses were $717.3 million in 2019, representing a 5.7% decrease from $760.8 million in 2018, mainly due to the sale of Getcom and a decrease in administrative and airport personnel, as well as due to the
depreciation of the peso against the U.S. dollar, which effects were partially offset by salaries, wages and benefits expenses relating to Regional Express Americas and Latin Logistic operations. In terms of unit cost per ASK, salaries, wages and
benefits decreased 7.6%, from 1.43 cents in 2018 to 1.32 cents in 2019.
Fees and Other Expenses. Fees and other expenses were
$411.6 million in 2019, representing a 102.4% increase from $203.3 million in 2018, mainly due to an increase in administrative and financial advisory expenses as part of the Avianca 2021 reprofiling plan, an increase in provisions for
certain tax proceeds which risk of loss was reclassified and an increase in losses on fixed assets as a result of asset sales and retirement. In terms of unit cost per ASK, general, administrative and other expenses increased 98.4%, from 0.38 cents
in 2018 to 0.76 cents in 2019.
Depreciation and amortization. Depreciation and amortization expense was $593.4 million in
2019, representing a 69.3% increase from $350.5 million in 2018, mainly due to an increase in software and other intangibles amortization of $18.8 million as well as an increase in depreciation expense of $210.3 million mainly due to an
increase in maintenance events in 2019 and the implementation of the IFRS 16 accounting standard on aircraft under operating leases. These effects were partially offset by lower aircraft depreciation expense as a result of an overall aircraft
reduction. In terms of unit cost per ASK, depreciation and amortization expense increased 65.2%, from 0.66 cents in 2018 to 1.09 cents in 2019.
Impairment. Impairment expense was $470.7 million in 2019, representing a 1,110% increase from $38.9 million in 2018, mainly due to the
fleet impairment of $431.5 million related to aircraft sales (10 A318, 10 E190 and 4 A320) in 2019. In terms of unit cost per ASK, impairment expense increased 1,142.9%, from 0.07 cents in 2018 to 0.87 cents in 2019.
Interest Expense, Interest Income, Derivative Instruments, Foreign Exchange and Equity Method Profit
Interest Expense. Our interest expense was $299.9 million in 2019, representing a 41.3% increase from $212.3 million in 2018,
mainly due to an increase of $65.8 million as a result of our adoption of IFRS 16 and an increase of $21.5 million related to an increase in our outstanding debt and an increase in the average interest rate of aircraft debt.
Interest Income. Our interest income was $9.0 million in 2019, representing a 10.6% decrease from $10.1 million in 2018,
mainly due to a decrease in interest recovery in relation to equity taxes and a decrease in our balance of cash and cash equivalents and, consequently, in our ability to make new investments.
Derivative Instruments. Our derivative instruments expense was $2.2 million as compared to derivative instruments income of
$0.3 million in 2018, mainly due to the expiration and non-renewal of certain hedge instruments and the decrease in LIBOR, which resulted in losses on our interest rate swaps.
Foreign Exchange, Net. Foreign exchange, net decreased from a loss of $9.2 million in 2018 to a loss of $24.2 million in
2019, mainly due to depreciation of the Colombian peso, Argentine peso and Brazilian real against the U.S. dollar.
83
Equity Method Profit. Our equity method profit was $1.5 million in 2019, representing
a 69.5% increase from $0.6 million in 2018, mainly due to profits reported by Viajes Éxito in which Avianca Holdings holds a stake of 49%.
Income Tax Expense
The major
components of our income tax expense are provisions for current taxes, prior periods adjustments and origin and reversal of temporary differences (deferred tax).
In order to reconcile our nominal and effective tax rates on our deferred income tax, we consider permanent differences. These may include
consolidation of special purpose entities, property, plant and equipment losses and special over deductions applicable in different jurisdictions.
In 2019, income tax expense was $24.0 million as compared to $20.2 million in 2018, representing an increase of 19%. The current
income tax expense was $26.5 million in 2019 compared to $27.2 million in 2018, representing a decrease of 2.5%. Deferred income tax expense was $2.5 million in 2019, compared to a tax expense of $6.9 million in 2018. In 2019,
because we generated a net loss, the effective tax rate was (2.8)%. In 2018, the effective tax rate was 33.6%.
Net Profit (Loss)
Our net profit (loss) decreased from net profit of $1.1 million in 2018 to net loss of $894.0 million in 2019, mainly due to a
$786.4 million decrease in operating (loss) profit and a $87.6 million increase in interest expense in 2019. Our net profit excluding foreign exchange translation adjustment loss and derivative instrument expense decreased from net profit
of $10.6 million to net loss of $867.6 million. Our RASK was 8.5 and 9.2 cents in 2019 and 2018, respectively.
Results of Operations for the
Year Ended December 31, 2018 and December 31, 2017
Please see our annual reports on Form
20-F for the fiscal years ended December 31, 2018 and December 31, 2017, as filed with the SEC on April 29, 2019 and May 1, 2018, respectively.
B.
|
Liquidity and Capital Resources
|
Ability to Continue as a Going Concern
We have significant indebtedness. Our level of indebtedness has adversely impacted and continues to adversely impact our financial condition.
As a result of our financial condition, the defaults under our debt and other agreements, the risks and uncertainties surrounding our Chapter 11 proceedings and the impact on us of developments relating to the spread of COVID-19, substantial doubt exists regarding our ability to continue as a going concern. Accordingly, the audit report issued by our independent registered public accounting firm regarding our financial statements
as of and for the year ended December 31, 2019 contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
Our audited consolidated financial statements included in this annual report have been prepared on a going concern basis of accounting, which
contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. As such, our audited consolidated financial statements included in this annual report do not include any
adjustments that might result from the outcome of our Chapter 11 proceedings. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and
expenses could be required and could be material.
For more information on risks to our liquidity, see Item 3. Key
InformationD. Risk Factors.
Sources and Uses of Cash
Our primary sources of cash are our operations and financing activities. Our primary uses of cash are working capital, capital expenditures,
aircraft leases and general corporate purposes. Historically, we have been able to fund our short-term capital needs with cash generated by our operations. Our long-term capital needs relate to aircraft purchases. Our cash and cash equivalents were
$342.5 million as of December 31, 2019 and $273.1 million as of
84
December 31, 2018. As a result of developments in 2020 relating to the spread of COVID-19 and government measures to address it, our liquidity has
been materially and adversely affected. For more information, see Item 4. Information on the CompanyB. Business OverviewRecent DevelopmentsDevelopments Relating to COVID-19.
As of December 31, 2019, we had unsecured revolving credit lines with financial institutions providing for working capital financing of
up to $258.2 million in the aggregate, and our outstanding borrowings under these unsecured revolving credit lines were $20.9 million. As of December 31, 2019, we had an outstanding balance of short-term and long-term debt of
$5,346.8 million for working capital and aircraft leases of which $5,215.6 million, or 97.5%, was secured indebtedness. Our secured indebtedness comprises both long-term indebtedness (generally incurred to finance or refinance aircraft
purchases) and short-term indebtedness under a revolving credit facility, which is secured over a substantial portion of our assets, including, for example, (i) security over certain collections from the sales of airline fare tickets and
collections of revenue related to freight and cargo transportation services, (ii) security over certain aircraft, aircraft engines and certain spare parts, (iii) certain real estate, including a maintenance, repair and overhaul facility,
(iv) security over slots at certain airports, (v) assignment of certain insurances and reinsurances, (vi) cash and cash equivalents pledged in deposit or security accounts and (vii) certain intellectual property rights, including
the Avianca brand. In addition, we finance certain of our aircraft under ECA financings, which are generally secured over the aircraft, leases, insurance policies and manufacturer warranties relating to the specific aircraft being financed.
The weighted average interest rate of our financial debt as of December 31, 2019 was 5.23%.
We also finance aircraft purchases through sale-leaseback financings, in which we sell an aircraft to a financial institution or leasing
company immediately upon delivery from the manufacturer and lease the aircraft back under an operating agreement for a period of time, typically six to eight years. As of December 31, 2019, we do not record any material off-balance sheet
arrangements.
We are a holding company and our ability to repay our indebtedness and pay dividends to holders of the ADSs is dependent on
the generation of cash flow by our subsidiaries and their ability to make cash available to us, through dividends, debt repayment or otherwise. See Item 3. Key InformationD. Risk FactorsRisks Relating to the ADSs and Our Preferred
SharesWe are a holding company with no independent operations or assets, and our ability to repay our debt and pay dividends to holders of the ADSs depends on cash flow generated by our subsidiaries, which are subject to limitations on their
ability to make dividend payments to us.
As part of the Stakeholder Loan, we have pledged our entire stake in LifeMiles. As of
December 31, 2019, LifeMiles had $168.5 million in assets, representing 2.3% of our consolidated total assets. For the year ended December 31, 2019, LifeMiles had $337.1 million in revenue, representing 7.3% of our consolidated
total revenue.
In March 2020, our management proposed that dividends not be distributed considering our net loss in 2019, which proposal
was approved at our annual shareholders meeting on March 27, 2020. In 2019, our dividend payment was $15.4 million, or 5.64% of our total cash and cash equivalents as of December 31, 2018. In 2018, our dividend payment was
$35.5 million, or 6.98% of our total cash and cash equivalents as of December 31, 2017.
As a result of measures we have taken
in response to the effect on our operations of the COVID-19 pandemic and government measures to address it, we have significant statutory severance and other obligations relating to employment contracts.
Cash Flows Provided by Operating Activities
Our cash flows provided by operating activities are primarily from passenger and cargo sales less our payments for aircraft leases,
fuel, maintenance, ground operations, payroll related expenses, marketing and taxes. We use our cash flows provided by operating activities sustain our working capital.
In 2019, net cash flows provided by operating activities were $448.3 million, a 36.2% decrease from $701.3 million in 2018,
primarily due to an average fare reduction of 4.7%, depreciation of the Colombian peso by 11.3%, a decrease in the volume of transported passengers of 0.2%, a decrease in tons transported of 1.3% and a decrease in average cargo rate of 6.9%.
Cash Flows Used in Investing Activities
Our investing activities primarily comprise capital expenditures related to aircraft purchases and
pre-delivery payments and purchases of spare parts and equipment.
85
In 2019, net cash flows used in investing activities were $8.5 million, a 98.3% decrease
from $493.8 million in 2018, primarily due to a decrease in aircraft purchases as part of our Avianca 2021 plan.
Cash Flows Used in Financing
Activities
Our financing activities primarily comprise financing of our aircraft purchases and working capital.
In 2019, net cash flows used in financing activities were $365.1 million, a 14.3% decrease from $426.2 million in 2018, primarily
due to a decrease of $42 million in dividends paid.
Debt and Other Financing Agreements
In mid-2019, we began a debt reprofiling initiative, which we concluded in January 2020. The initiative
comprised exchange offers relating to our senior notes, in order to extend the amortization profile of our obligations initially maturing in 2020, $375 million in additional convertible debt financings by our stakeholders and other financing
parties and deferrals or other consents or waivers from creditors holding approximately $2,924 million in debt.
As of
December 31, 2019, our total outstanding debt was $5,346.8 million, a 33.4% increase as compared to $4,007.6 million as of December 31, 2018. Our total outstanding debt as of December 31, 2019 comprised $3,984.3 million
in long-term debt, $642.8 million in current installments of long-term debt and short-term borrowings and $719.7 million in aircraft leases. We had unsecured revolving credit lines as of December 31, 2019, for $258.2 million, of
which, as of December 31, 2019, we had $20.9 million outstanding. The weighted average annual interest rate paid in 2019 under all our indebtedness was 5.23%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Debt
|
|
Original
Currency
|
|
% Fixed
|
|
|
% Variable
|
|
|
Balance
in millions of $
|
|
|
% Weighted
Average Rate
|
|
Aircraft
|
|
U.S. dollars
|
|
|
92.9
|
%
|
|
|
7.1
|
%
|
|
|
2,160.6
|
|
|
|
4.25
|
%
|
Aircraft
|
|
Euros
|
|
|
100.0
|
%
|
|
|
0.0
|
%
|
|
|
161.3
|
|
|
|
5.09
|
%
|
Corporate
|
|
U.S. dollars
|
|
|
40.9
|
%
|
|
|
59.1
|
%
|
|
|
1,273.0
|
|
|
|
5.45
|
%
|
Corporate
|
|
Colombian pesos
|
|
|
0.0
|
%
|
|
|
27.7
|
%
|
|
|
22.1
|
|
|
|
10.92
|
%
|
Bonds
|
|
U.S. dollars
|
|
|
100.0
|
%
|
|
|
0.0
|
%
|
|
|
531.2
|
|
|
|
8.93
|
%
|
Aircraft leases
|
|
U.S. dollars
|
|
|
100.0
|
%
|
|
|
0.0
|
%
|
|
|
1,128.6
|
|
|
|
4.92
|
%
|
Other leases
|
|
U.S. dollars
|
|
|
100.0
|
%
|
|
|
0.0
|
%
|
|
|
70.0
|
|
|
|
7.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
83.8
|
%
|
|
|
16.2
|
%
|
|
|
5,346.8
|
|
|
|
5.23
|
%
|
Aircraft Financings
We typically finance our aircraft through a mix of debt financing and sale-leaseback financings in which we sell an aircraft to a financial
institution or leasing company immediately upon delivery from the manufacturer and lease the aircraft back under a lease agreement of typically six to eight years. We may not be able to secure financing on terms acceptable to us or at all, in which
case we may be required to modify our aircraft acquisition plans, incur higher than anticipated financing costs or use more of our cash balances for aircraft acquisitions than we currently expect.
As of December 31, 2019, our fleet comprised 171 aircraft (including two Embraer 190 leased to Aerolitoral S.A. de CV and one aircraft
under wet lease with Wamos Air S.A.), of which 158 were passenger aircraft and 13 were cargo aircraft. 58 aircraft were under leases, and 113 were owned. Of the 113 aircraft we owned, 56 have been financed under commercial bank loans with separate
guarantees issued by ECAs in Europe or by the Export-Import Bank of the United States (EXIM Bank), 8 aircraft under a Japanese operating lease with a call option structure (JOLCO) and 36 under loans without ECA/EXIM Bank
guarantees.
The following table sets forth our outstanding fleet financing debt by financial institution,
ECA-guaranteed loans and commercial bank loans, as of December 31, 2019:
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
ECA
Guaranteed
Loans
|
|
|
EXIM Bank
Guaranteed
Loans
|
|
|
BNDES
Guaranteed
Loans
|
|
|
Financial
Loans
|
|
|
Total Fleet
Financing
Debt
|
|
|
(in millions of $)
|
|
Barclays
|
|
|
19.4
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
19.4
|
|
BNDES
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
34.3
|
|
|
|
0.0
|
|
|
|
34.3
|
|
BNP Paribas
|
|
|
37.8
|
|
|
|
117.8
|
|
|
|
0.0
|
|
|
|
38.7
|
|
|
|
194.3
|
|
Citibank
|
|
|
150.4
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
150.4
|
|
DVB Bank
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
119.2
|
|
|
|
119.2
|
|
GECAS
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
FGL
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
43.4
|
|
|
|
43.4
|
|
HSBC
|
|
|
52.9
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
52.9
|
|
J.P. Morgan
|
|
|
406.1
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
406.1
|
|
KGAL
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
238.5
|
|
|
|
238.5
|
|
Natixis
|
|
|
26.9
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
20.0
|
|
|
|
46.9
|
|
Other Investors(1)
|
|
|
136.6
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
882.8
|
|
|
|
1,019.4
|
|
Total
|
|
|
830
|
|
|
|
117.8
|
|
|
|
34.3
|
|
|
|
1,342.6
|
|
|
|
2,324.8
|
|
(1)
|
Other investors include ING Capital LLC, U.S. Bank NA, certain Japanese investors and private placements.
|
Restrictive Covenants
Subsequent to the combination of Avianca and Taca, we agreed with the ECAs on a standard transaction structure
(Avianca-ECA Structure), based on the then-current Avianca structure, to be used in all ECA financings, which impose certain restrictions on us, including a negative pledge, and require us to
maintain compliance with certain financial covenants.
We have also entered into term loan and revolving credit facilities, which proceeds
we have partly used for aircraft financings, and which contain certain negative and affirmative covenants similar to those included in the Avianca-ECA Structure.
Certain of our term loan and revolving credit facilities, as well as certain of the documents governing our ECA financings, include change of
control provisions which may result in events of default if there is a change in control of our company. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessBRW has pledged its common shares of
Avianca Holdings to secure its obligations under the United Loan Agreement. BRW is in breach of certain provisions of the United Loan and United has commenced the exercise of remedies against BRW and its holding company, BRW Holding.
As of December 31, 2019, we were in compliance with the restrictive covenants under our financing agreements. As of the date of this
annual report, principally as a result of effects deriving from developments relating to the outbreak of COVID-19, we are not in compliance with the restrictive covenants under our financing agreements, which
are subject to our Chapter 11 proceedings.
Senior Notes
In May 2013, we completed a $300.0 million private offering of notes due 2020 (2020 notes) and, in April 2014, we completed a
$250.0 million private offering of additional notes of the same series. The 2020 notes bear interest at the rate of 8.375% per year and are fully and unconditionally guaranteed by six of our subsidiaries, Avianca, Avianca Costa Rica, Avianca
Leasing, Taca, Taca International and Avianca Peru in an amount equal to $375,000,000.
In October 2019, we completed an exchange offer of
$484.4 million in aggregate principal amount of the 2020 notes for 8.375% senior secured notes due 2020, for which we conducted an automatic mandatory exchange in December 2019 for 9.00% senior secured notes due 2023. In May 2020, as a result
of our Chapter 11 proceedings, we did not pay the principal amount on the 2020 notes upon maturity or the interest payment due on the 2023 notes.
87
Stakeholder Loan
In December 2019, we received a convertible secured stakeholder facility loan in an aggregate principal amount of $250.0 million by United
and an affiliate of Kingsland and, in January 2020, we completed additional convertible secured debt financings in an aggregate principal amount of $125.0 million. In January 2020, we closed additional financings; see Additional
Financing Facilities.
New Aircraft and Engine Purchases
As of December 31, 2019, we had agreements to acquire up to 108 Airbus A320 family aircraft for delivery between 2020 and 2028. (as
compared to 124 Airbus A320 family aircraft for delivery by 2025 as of December 31, 2018). In March 2019, we reduced our order of Airbus A320neo by 17 aircraft, and we negotiated with Airbus a postponement in certain scheduled aircraft
deliveries for 2020 to 2022 to be delivered between 2026 and 2028 as well as certain changes to the type of aircraft to be delivered (both upgrades and downgrades in passenger carrying capacity).
In December 2019, we amended our agreements with Airbus and Muisca Aviation Limited to reassign one A320neo aircraft and we amended our
agreements with Boeing and Valderrama Aviation Limited to reassign two B787-9 aircraft and postpone delivery from 2021 to 2024.
In January 2020, we reached agreements with Airbus and BOC Aviation to optimize our fleet plan as part of our implementation of the Avianca
2021 Plan. We reduced our firm commitments with Airbus to 88 A320neo (from 108) for delivery in 2025 through 2028 (20 per year) and the remaining eight aircraft in 2029. We cancelled or deferred A320neo family deliveries in 2020 through 2024. We
also entered into 12-year leases for up to 12 A320neo aircraft with BOC Aviation for deliveries after 2023.
We intend to meet our pre-delivery payment requirements for new aircraft using cash generated from our
operations and short- to medium-term commercial loans. These payments are due at signing, with additional payments due at 26, 24, 21, 18, 15 and 12 months prior to delivery, according to the terms of each purchase agreement.
The following table sets forth our firm contractual deliveries scheduled as of the date of this annual report through 2029:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Type
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
Total
|
|
Boeing 787-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Airbus A320neo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
8
|
|
|
|
88
|
|
A320neo (BOC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
10
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
8
|
|
|
|
100
|
|
The following table sets forth our firm contractual engine deliveries scheduled as of the date of this annual
report through 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine Type
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Total
|
|
LEAP-1A32
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
LEAP-1A26
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
Total
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
In the context of our Chapter 11 proceedings, certain of these agreements may be rejected.
Additional Financing Facilities
In December 2019, we received a $250 million convertible secured stakeholder facility loan by United and an affiliate of Kingsland.
In January 2020, we received additional secured financing facilities in a total amount of $125 million. These financings comprise
(i) $50 million in aggregate principal amount of convertible loans, on substantially the same economic terms as the Stakeholder Loan, from a group of Latin American investors, and (ii) $75 million in aggregate principal amount of
senior secured convertible loans and bonds, which serve as a bridge financing to completion of a contemplated convertible bond offering to preferred shareholders, including (x) a commitment of $50 million from an investment vehicle managed
by Citadel Advisors LLC for senior secured convertible notes and (y) a commitment of $25 million for senior secured convertible loans from another group of Latin American investors, on substantially the same economic terms as the
Stakeholder Loan.
88
These additional financing facilities are secured mainly by pledges in the equity interests in
group entities.
The lenders under the Stakeholder Loan and the additional financing facilities (i) are also subject to an
intercreditor agreement governing the enforcement of the collateral securing their respective financings, and (ii) have been granted customary registration rights regarding the equity interests into which their financings are convertible.
Pension Liabilities
We update the
value of our pension plans liabilities at each reporting period based on an actuarial valuation prepared by an independent firm, which includes the valuation of ordinary payments, additional payments, and financial assistance for funeral
expenses borne by us, as applicable. As of December 31, 2019, we had outstanding retirement pension plan and employee benefits obligations in the amount of $141.9 million. According to Act 860 of 2003, $61.2 million correspond to pension liabilities
with CAXDAC and will have a maximum period of payment until 2023, in the case of Avianca and Tampa Cargo. For more information, see Item 3. Key InformationD. Risk FactorsRisks Relating to our BusinessWe may be liable for the
potential under-funding of a pilots pension fund.
Chapter 11 Proceedings
On May 10, 2020, Avianca Holdings S.A. and certain of its affiliated entities filed voluntary petitions for chapter 11 relief under title 11 of
the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the Southern District of New York, which cases are being jointly administered under Case No. 20-11133 (MG). For information on the risks and
uncertainties associated with our Chapter 11 proceedings, see Item 3. Key InformationD. Risk FactorsRisks Relating to Our Chapter 11 Proceedings.
C.
|
Research and Development, Patents and Licenses
|
As part of our Avianca 2021 plan, we remain committed to protecting our intellectual property rights and developing digital innovations that
support our customers experiences. For more information on our intellectual property, see Item 4. Information on the CompanyB. Business OverviewIntellectual Property.
Developments Relating to COVID-19
On March 13, 2020, we announced a temporary reduction of 30-40% in our capacity in order to manage
the impact of reduced demand for air travel. Following the Colombian federal governments announcement that it would close Colombian international airspace to passenger travel effective March 23, on March 19, we announced a further
reduction in our capacity to cease international passenger operations for an initial period of 30 days and to cancel flights to and within Peru, El Salvador and Ecuador until the end of April. Following the Colombian federal governments
announcement that it would close Colombian airspace to passenger travel effective March 25, on March 24, we announced that we were temporarily ceasing all Colombian domestic flight operations. We have maintained our cargo, freight, charter
and courier operations.
In addition to reducing capacity, in order to mitigate the effects of these developments, we implemented
additional cost savings and liquidity preservation measures, including a suspension on hiring of new employees, implementation of voluntary unpaid leave of absence, which more than 14,000 employees have taken, and temporary deferral of labor
contracts, non-essential expenses, capital expenditures, payments on long-term leases and payments of principal on certain financing obligations, as well as negotiations with key suppliers, strategic lenders
and other creditors.
At this time, we are not able to fully determine the impact on our results of operations of the developments
relating to the spread of COVID-19 and government measures to address it.
Chapter 11 Proceedings
On May 10, 2020, Avianca Holdings S.A. and certain of its affiliated entities filed voluntary petitions for chapter 11 relief
under title 11 of the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the Southern District of New York, which cases are being jointly administered under Case
No. 20-11133 (MG). For information on the risks and uncertainties associated with our Chapter 11 proceedings, see Item 3. Key InformationD. Risk FactorsRisks Relating to Our Chapter 11
Proceedings.
89
Going Concern
As a result of extremely challenging market conditions, suspension of our passenger travel operations, our current financial condition and the
resulting risks and uncertainties surrounding our Chapter 11 proceedings, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon, among other things, our ability to
(i) resume our passenger travel operations profitably, which depends on many factors beyond our control, principally relating to developments deriving from the spread of COVID-19, its impact on demand for
passenger air travel and government measures regarding travel restrictions, quarantine requirements and others, and (ii) successfully develop and implement our Chapter 11 plan of reorganization.
E.
|
Off-Balance Sheet Arrangements
|
As of December 31, 2019, we do not record any material off-balance sheet arrangements.
F.
|
Contractual Obligations
|
The following table sets forth our non-cancelable contractual obligations (excluding contributions to
benefit plans) as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
Contractual obligations(1)
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
|
(in $ millions)
|
|
Aircraft and engine purchase
commitments(2)
|
|
|
6,735.5
|
|
|
|
364.3
|
|
|
|
797.2
|
|
|
|
2,570.5
|
|
|
|
3,003.5
|
|
Aircraft leases
|
|
|
1,440.4
|
|
|
|
266.1
|
|
|
|
499.7
|
|
|
|
356.9
|
|
|
|
317.6
|
|
Engine leases
|
|
|
40.1
|
|
|
|
9.8
|
|
|
|
16.0
|
|
|
|
9.5
|
|
|
|
4.7
|
|
Aircraft debt
|
|
|
2,321.9
|
|
|
|
383.9
|
|
|
|
640.8
|
|
|
|
579.5
|
|
|
|
717.7
|
|
Bonds
|
|
|
531.2
|
|
|
|
65.6
|
|
|
|
0
|
|
|
|
465.6
|
|
|
|
0
|
|
Other debt
|
|
|
1,295.1
|
|
|
|
284.2
|
|
|
|
676.3
|
|
|
|
333.1
|
|
|
|
1.5
|
|
Interest expense
|
|
|
713.1
|
|
|
|
195.2
|
|
|
|
307.2
|
|
|
|
126.9
|
|
|
|
83.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,067.6
|
|
|
|
1,566.00
|
|
|
|
2,935.6
|
|
|
|
4,440.9
|
|
|
|
4,125.0
|
|
(1)
|
We calculate expected interest payments based on interest rates on our debt as of December 31, 2019 and
interest rates we expect to negotiate for projected future debt to meet our capital expenditure requirements.
|
(2)
|
Amounts disclosed are based on IFRS and reflect certain discounts negotiated with suppliers as of the balance
sheet date, which discounts are calculated on highly technical bases and are subject to multiple conditions and constant variations. Among the factors that may affect discounts are changes in our purchase agreements, including order volumes. Amounts
disclosed do not reflect recent amendments to our purchase agreements, as discussed elsewhere in this annual report. In addition, the amounts and timing of our actual cash disbursements relating to our aircraft and engine purchase commitments may
differ due to our right to offset certain obligations with credits we have against suppliers.
|
As of December 31,
2019, we had 108 firm orders for the acquisition of A320 family aircraft with deliveries scheduled between 2019 and 2028. Under the terms of these agreements, we must make pre-delivery payments to Airbus on
predetermined dates.
We also had three firm orders for the acquisition of spare engines with deliveries between 2020 and 2023.
In line with our initiatives directed toward achieving a leaner capital structure and reducing our debt levels under the Avianca 2021 Plan, in
2019, we reduced our A320neo family orders by 17 aircraft and extended delivery dates throughout 2028 and amended our delivery schedule with Boeing for delivery of two 787-98 aircraft in 2024 instead of 2020.
90
Additionally, in January 2020, we reached agreements with Airbus and BOC Aviation to optimize our
fleet plan and reduced our firm commitments with Airbus to 88 A320neo (from 108) for delivery in 2025 through 2028 (20 per year) and the remaining eight aircraft in 2029. We also cancelled or deferred A320neo family deliveries in 2020 through 2024
and entered into 12-year leases for up to 12 A320neo aircraft with BOC Aviation for deliveries after 2023.
As of December 31, 2019, our advanced payments and aircraft acquisition commitments were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year one
|
|
|
Year two
|
|
|
Year three
|
|
|
Year four
|
|
|
Year five and
thereafter
|
|
|
Total
|
|
Aircraft and engine purchase commitments
|
|
|
364,332
|
|
|
|
305,778
|
|
|
|
491,391
|
|
|
|
1,186,581
|
|
|
|
4,387,467
|
|
|
|
6,735,549
|
|
Following our negotiations with Airbus in January 2020, our advanced payments and aircraft acquisition
commitments are, as of the date of this annual report, as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year one
|
|
|
Year two
|
|
|
Year three
|
|
|
Year four
|
|
|
Year five and
thereafter
|
|
|
Total
|
|
Aircraft and engine purchase commitments
|
|
|
10,913
|
|
|
|
11,911
|
|
|
|
62,627
|
|
|
|
64,344
|
|
|
|
5,550,332
|
|
|
|
5,700,127
|
|
In the context of our Chapter 11 proceedings, certain of these agreements may be rejected.
Item 6.
|
Directors, Senior Management and Employees
|
A.
|
Directors and Senior Management
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Following defaults by BRW under the United Loan Agreement (unrelated to any financial covenants applicable to us), on May 24, 2019, United
commenced the exercise of certain remedies against BRW and BRW Holding. Pursuant to the terms of the United Loan Agreement, United appointed Kingsland as the Independent Third Party entitled to exercise voting control over BRW and, as a result, BRW
Holding (and, indirectly, Synergy) lost the right to direct the manner in which BRW votes the BRW Pledged Shares. Following the foregoing transactions, Kingsland appointed itself as BRWs manager. Through its ownership of our common shares and
its authority as manager of BRW (with the right to direct the voting of the BRW Pledged Shares), Kingsland assumed voting control over us. Subsequently, in mid-2019, certain members of our board of directors,
including José Efromovich and Germán Efromovich, and certain of our executive officers were replaced.
Board of Directors
According to our bylaws, which were amended in an extraordinary shareholders meeting on May 24, 2019, our board of directors
comprises a minimum of 11 and a maximum of 14 members. Our board of directors is focused on determining our overall strategic direction and is responsible for establishing our general business policies, appointing our chief executive officer and
supervising our management. Our boards chairman has a non-executive function and is elected by majority vote of the directors present at the board meeting at which there is a quorum, in accordance with
the procedures specified in the Amended and Restated Joint Action Agreement.
Pursuant to the Amended and Restated Joint Action Agreement,
a majority of the directors serving on our board at any time shall comprise individuals who qualify as independent under the rules and regulations of the NYSE.
Members of our board of directors are elected at the general shareholders meeting, serve for a period of one year and may be reelected.
We do not have a mandatory retirement age for our directors. Our board of directors currently meets on a quarterly basis, or more frequently if needed, and may deliberate and act with the presence and votes of the majority of its members. A majority
vote constitutes an act of the board.
The ordinary shareholders meeting held on March 27, 2020 elected the following members
to our board of directors:
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Name
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Position
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Age
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Nationality
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Dependence
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Roberto José Kriete
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Chairman
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67
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Salvadoran, Italian and Colombian
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Non-Independent
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Roberto Zamora*
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Director
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64
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American
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Independent
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Fabio Villegas*
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Director
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65
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Colombian
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Independent
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Jose Gurdian**
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Director
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47
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American and Nicaraguan
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Non-Independent
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Jairo Burgos De la Espriella*
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Director
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55
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Colombian and Italian
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Independent
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James P. Leshaw
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Director
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55
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American
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Independent
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91
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Richard Schifter*
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Director
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67
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American
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Independent
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Sergio Michelsen*
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Director
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60
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Colombian
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Independent
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Álvaro Jaramillo
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Director
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68
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Colombian
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Independent
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Rodrigo Salcedo
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Director
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44
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Salvadorian
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Independent
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Óscar Darío Morales
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Director
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67
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Colombian
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Independent
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*
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New members of our board of directors since May 24, 2019.
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**
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New member of our board of directors since March 27, 2020.
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Until our extraordinary shareholders meeting held on May 24, 2019, German Efromovich, José Efromovich, Alexander Bialer,
Rafael Alonso, Isaac Yanovich and Luisa Fernanda Lafaurie were members of our board of directors. In addition, Juan Emilio Posada, who was elected on May 24, 2019, resigned from our board of directors as of March 12, 2020. In addition,
Robert Zamora, who was reelected on March 27, 2020, resigned from our board of directors as of May 7, 2020, and Sergio Michelsen resigned as of June 4, 2020.
Mr. Roberto José Kriete served as chairman of our board of directors from February 2010 to August 2013, was a
director of Taca from 1982 to February 2010 and CEO of Taca from 2001 to February 2010. Pursuant to the Amended and Restated Joint Action Agreement, Kingsland currently has the right to appoint Mr. Kriete as member of the board of directors.
Mr. Kriete holds a masters degree in business administration from Boston College and a degree in economics from the University of Santa Clara. He currently serves as Kingslands chairman, president of the Kriete Investment Company
Group and president of the Gloria de Kriete Foundation, and he is a member of the boards of Teléfonos de México, S.A.B. de C.V. and Escuela Superior de Economía y Negocios (ESEN). He has extensive experience
in the airline industry as founder and member of the board of directors of Volaris in Mexico, and president of the ALTA.
Mr. Roberto Zamora has been a member of our board of directors since May 2019. He is the founder of Lafise Group, a
holding company of six banks, three insurance companies in Nicaragua, Honduras and Costa Rica, seven stockbrokers, a global risk capital fund and a warehousing company present in 12 countries. Before founding Lafise in 1985, Zamora worked as
treasury vice president of Citibank Venezuela. Mr. Zamora studied industrial engineering at the Central American University, in Managua, Nicaragua. Mr. Zamora resigned from our board of directors as of May 7, 2020
Mr. Fabio Villegas has been a member of our board of directors since May 2019. He was our chief executive officer
for 11 years, during which period we joined the Star Alliance network, conducted our initial public offering, completed the acquisition of Avianca Ecuador S.A. (formerly Aerogal) and the merger with Taca, and launched our loyalty program
LifeMiles. From 2003 to 2005, Mr. Villegas held the position of director of the National Association of Financial Institutions, as well as managing director of the Rothschild Group and Deutsche Bank in Colombia; in the 1990s, he served
in different governmental positions as ambassador of Colombia to the OAS, minister and General Secretary of the President. Further, he taught advanced monetary theory as well as the economics master program at the Universidad de los Andes in Bogota.
He holds a bachelors degree in economics from the Jorge Tadeo Lozano University in Bogotá and a masters degree in economics from the London School of Economics in the United Kingdom.
Mr. Jose Gurdian has been a member of our board of directors since March 27, 2020. Mr. Gurdian is a founding partner and
chief executive officer of Caoba Capital, a leading Latin American private equity and investment banking firm. Since 2005, Mr. Gurdian has led Caoba Capitals efforts in a variety of equity investments, mergers, acquisitions and debt issuances,
totaling over $7.0 billion in aggregate transaction value. Caoba Capital has over $800.0 million in assets under management in an actively managed private equity portfolio focused primarily in aerospace and transportation investment. In addition,
Mr. Gurdian serves as the Independent Third Party designated by United Airlines to manage the controlling equity stake in us and as a member of the board of directors of Latin Americas second largest airline. Prior to founding Caoba Capital,
Mr. Gurdian was a global partner of Ernst & Young, leading the Transaction Advisory Services group for Central America. Prior to that, Mr. Gurdian was vice president of finance, treasury and strategic development for TACA Airlines. Mr. Gurdian
holds a bachelors degree in finance from Georgetown University.
Mr. Jairo Burgos De la Espriella has been a member of
our board of directors since May 2019. Mr. Burgos de la Espriella is a lawyer and has worked as a consultant in corporate strategy, human resources and conflict management, with extensive executive experience in business management and high
performance teams. He is the founder and Chief executive officer of Talent & Talante, a firm specializing in labor strategy. He served, for more than 20 years, as vice president of human resources of the Bancolombia Group, in 2004 and 2005,
he was the lead manager of the merger of Bancolombia, Conavi and Corfinsura. He has been a member of the board of directors of Protection S.A. Sufinanciamiento S.A., Banco Mundo Mujer and Banco Agrario de Colombia. He holds a LLB from the Pontificia
Universidad Javeriana and is a specialist in company bylaws and corporate labor law.
Mr. James P.S. Leshaw has
served as an independent director on our board since March 2018. He obtained a degree in law from New York University School of Law, and a bachelors degree in political science and religion from Tufts University. He began his career at law
firm Skadden, Arps, State, Meagher; Flom LLP in New York, and worked at Greenberg Traurig LLP in Miami for more than 20 years. He has more than 25 years of experience as a commercial lawyer handling domestic and international business disputes and
transactions throughout the United States, Latin America, the Caribbean and Europe.
Mr. Richard Schifter has
served as an independent director on our board since May 2019. He is a senior advisor at TPG, where he was a partner from 1994 to 2013, and member of the board of directors of Caesars Entertainment Corp., LPL Financial Holdings, Inc. and ProSight
Global, Inc. as well as member of the board of
92
supervisors of the Law School of the University of Pennsylvania and co-director of the National Advisory Board of Youth, Inc. Throughout his career, he has
been a member of the board of directors of Midwest Airlines, Inc., EverBank Financial Corp., Mtel Latin America Inc., Controladora Milano, SA de CV, Alpargatas SAIC, Bristol Group SA, Grupo Milano, SA, Corporación General Directa, Producer of
Papel SA de CV (Proposa), Empresas Chocolates La Corona, SA of C.V. (The Crown), Republic Airways, Ecoenterprises Fund, Gate Gourmet International, American Beacon Advisors, Inc., American Airlines Group Inc. America West Holdings Corp., U.S.
Airways Inc. and Ryanair Holdings PLC. Schifter received a bachelors degree from George Washington University in 1975 and a Juris Doctor degree from the University of Pennsylvania School of Law in 1978.
Mr. Sergio Michelsen has served as an independent director on our board since May 2019. He holds a LLB degree from
Andes University, a masters degree in commercial law from the University of Paris II, with further studies in project development of the Euromoney Institute in New York and negotiation and administration courses at the University of Harvard.
He previously held leadership positions at Shell, Hocol and the Stock Exchange of Bogotá. He worked at Cavelier Abogados and Hughes, Hubbard & Reed, a law firm based in New York. With more than 30 years of experience in transactions
in Colombia and other jurisdictions, as well as adviser in matters of corporate governance and corporate law, he has been distinguished in Colombia and internationally as one of the most prominent lawyers in the practices of mergers and
acquisitions, corporate governance, telecommunications and succession management. In addition, he is a member of the board of directors of Grupo Sura, Semana Publications, the Cardioinfantil Foundation and the Universidad de los Andes. Mr. Michelsen
resigned from our board of directors as of June 4, 2020.
Mr. Álvaro Jaramillo has served as our director
since February 2010 and as Aviancas director during several periods, the most recent from March 2019 to March 2020. He obtained a degree in business administration from Universidad del Norte in Colombia. Mr. Jaramillo is the
founding partner of iQ Outsourcing, Colombias leading BPO, was vice president of the Philadelphia National Bank from 1973 to 1981 and chief executive officer of Avianca, Banco de Colombia and several financial institutions in Colombia.
He has been counselor and independent board member in several large corporations in Colombia and abroad and he serves as a member of the board of directors of Constructora ConConcreto S.A. and Grupo Daabon.
Mr. Rodrigo Salcedo has been a member of our board of directors since March 2019. Mr. Salcedo is a founder and
is currently a managing partner of the private equity firm Caoba Capital and has been with the firm since its inception in 2005. He has participated in the design and implementation of multiple transactions in Latin America and manages a private
equity portfolio with investments in Central America, Mexico and the Andean Pact. He has more than 20 years of experience in corporate finance, investment banking and private equity, focusing on mergers and acquisitions, strategic advice,
valuations, structured finance and capital raising. Mr. Salcedo is a member of the board of directors of the packaging company Cartones America, S.A., of the distribution, logistics and ground transportation company Traxion, S.A., of the
maintenance and repair company MRO Holdings, and previously of the Mexican airline Volaris. Mr. Salcedo holds a bachelors degree in economics from the University of California at Berkeley.
Mr. Óscar Darío Morales has served as our director since April 2012. He obtained a degree in public
accounting from Universidad Javeriana in Cali, with a specialization in finance. Mr. Morales was chief executive officer of the CARVAJAL Group from 2007 to 2013, managing partner of Deloitte & Touche Colombia, chairman of the
board of directors of Deloitte Latin America (Colombia) and managing partner for Central America and the Caribbean, Costa Rica & Panama at Deloitte & Touche. He served as a member of the board of directors of Propal,
Assenda, Carpak, Integrar, Pensiones y Cesantías Colpatria, Calis Chamber of Commerce, Andi, Ciamsa and Industrias Lehner, among others.
Executive Committee
In accordance
with the Amended and Restated Joint Action Agreement, our board establishes a board committee to comprise one independent director appointed by BRW, one independent director appointed by Kingsland (provided that, under certain conditions, as
specified in the Amended and Restated Joint Action Agreement, this seat may be filled by one independent director appointed by United) and one consensus director selected by the other two members of the executive committee. The consensus director
that is not selected to be a member of the executive committee serves as an alternate member of the executive committee and is eligible to attend executive committee meetings and to vote in the place of the other consensus director if the other
consensus director is not present at such meeting for such vote.
93
The executive committee reviews all matters to be presented to our board, and the approval of a
majority of the members of the executive committee is required for any agenda item or matter requiring a decision or resolution of the board, prior to its presentation to the board (subject to certain limited exceptions relating to the duties of the
board of directors).
The Amended and Restated Joint Action Agreement provides that if BRW has made certain repayments in respect of the
United Loan and if certain other conditions are satisfied, the executive committee may cease to operate. The executive committee may also cease to operate once all of the obligations under the United Loan are repaid.
Executive Officers
We are managed
by our board of directors and our executive officers. Our board of directors appoints our chief executive officer and chief financial officer, in compliance with the vacancy procedures set forth in the Amended and Restated Joint Action Agreement.
Other executive officers are selected by our chief executive officer.
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Name
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Position
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Appointment
Date
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Age
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Nationality
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Anko van der Werff
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Chief Executive Officer of Avianca Holdings S.A.
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July 15, 2019
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44
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Dutch
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Adrian Neuhauser
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Chief Financial Officer
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July 2, 2019
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47
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Chilean
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Renato Covelo
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Chief People and Legal Officer
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December, 2016
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45
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Brazilian
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Eduardo Mendoza
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Chief Operating Officer(1)
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June 2018
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59
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Colombian
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Michael Swiatek
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Chief Planning Officer
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November, 2019
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59
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America
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Silvia Mosquera
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Chief Commercial Officer
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November, 2016
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|
43
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Spanish
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Matthew Vincett
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Chief Executive Officer of LifeMiles Ltd.
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June, 2017
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47
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Canadian
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María Paula Duque
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Chief Customer Experience Officer
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July, 2016
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50
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Colombian
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Richard Galindo
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Secretary
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May 2019
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41
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Colombian
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(1)
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In 2019, Mr. Santiago Aldana was our chief information officer (December 2019), Mrs. Ana Maria Rubio
was senior vice president of human resources (September 2019), Mr. Roberto Held was our chief financial officer and senior vice president of finance (September 2019), Mr. Gerardo Grajales was our chief transformation officer (December
2019) and Mr. Hernan Rincon was our chief executive officer until April 2019.
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Mr. Anko van
der Werff has had an outstanding global trajectory in the airline industry. His last position was in Aeromexico where he served for five years as Executive Vice President and Commercial Vice President, where he was responsible for Corporate
Strategy, Network Planning and Itineraries, Alliances, Pricing & Revenue Management, Sales, Distribution, E-Commerce and Marketing. Before joining Aeromexico, Anko van der Werff was Senior
Vice President of Pricing & Revenue Management and Global Sales & Distribution of Qatar Airways. He also led KLMs commercial strategy in the United Kingdom and Ireland, as well as in the Nordic countries. He was also
affiliated to Northwest Airlines and Air France at the beginning of his professional career. Mr. Van der Werff holds a degree in law from the University of Leiden, The Netherlands. He also holds a masters degree in administration from the
Business School of the University of Harvard. He speaks English, Dutch and Spanish fluently. In addition, he has been a visiting professor at different international university institutions such as Cranfield, in the United Kingdom, Bad Honnef, in
Germany and the University of Texas A&M, in Qatar.
Mr. Adrian Neuhauser has served as our chief financial
officer since August 2019. Mr. Neuhauser has more than 20 years of experience in the financial sector, focused on investment banking. Mr. Neuhauser was Managing Director at Credit Suisse covering airlines throughout the Americas from 2016
to 2019. Previously, he held senior positions at Deutsche Bank, Bank of America and Merrill Lynch.
Mr. Renato
Covelo has served as our chief people and legal officer since October 2019; previously, he served as our senior vice president general counsel and secretary for three years. He holds a law degree from the law school of Faculdades
Metropolitanas Unidas in São Paulo, a post-graduate degree in corporate and economics law from the Getúlio Vargas Foundation and a masters degree in international law from the University of São Paulo. Prior to
joining us, he served as general counsel of Azul Linhas Aéreas Brasileras S.A. and worked in several law firms, including Machado, Meyer, Sendacz e Opice Advogados in São Paulo, Bohmart & Sacks in New York and
Fialdini & Graber in São Paulo. Mr. Covelo has also worked in the legal departments of various organizations in Brazil.
94
Mr. Eduardo Mendoza has served as our chief operating officer since
October 2019; previously, Mr. Mendoza served as senior vice president of operations since June 2018 and as a pilot for more than thirteen years. He holds a law degree from Universidad de los Andes in Colombia, a master of laws (LL.M.)
degree of New York University and a masters degree in international relations of Yale University
Mr. Michael
Swiatek has served as our chief planning officer since November 2019. He holds a degree in international studies from Iona College in New York, and a masters degree in business administration from Chicago Booth School of Business.
Mr. Swaitek has more than 25 years of experience in the airline industry. He has served in leadership positions in Air New Zeland, as chief planning officer in Qatar Airways and IndiGo, as well as vice president of network planning at LATAM for
three years.
Mrs. Silvia Mosquera has served as our chief commercial officer since November
2016. She holds a degree in chemical engineering from Universidad de Santiago de Compostela in Spain and a post-graduate degree in general management (Programa Dirección General) from IESE Business School. Before working
with us, Mrs. Mosquera served as chief commercial officer at Iberia Express, Iberia Groups low-cost airline, and occupied the position of director of strategy, routes and revenue management at
Vueling, which position she had previously held at Clickair.
Mr. Matthew Vincett has served as chief executive
officer of LifeMiles Ltd. since 2015. He was vice president of our loyalty business unit since 2010, where he led the integration of the loyalty areas of Avianca and Taca, the creation and development of the LifeMiles program and the spin-off of our loyalty business unit. Prior to his tenure at Avianca, Mr. Vincett served as commercial vice president and regional airlines vice president at Taca. He holds a bachelors of arts degree
from University of Western Ontario in Canada and a masters degree in business administration from Institut Européen dAdministration des Affaires (INSEAD) in France.
Mrs. María Paula Duque has served as our chief customer experience officer since January 2018. She
holds a masters degree in communications management from Strathclyde University in England. Throughout her career she has held key positions in the telecommunications industry with Colombian companies including the ETB (Empresa de
Telecomunicaciones de Bogotá) and EPM (Empresas Públicas de Medellín). Between 2002 and 2005, Mrs. Duque was Colombias vice minister of communications, after this position she served as public sector
manager and director of Andean business segments with Microsoft.
Mr. Richard Galindo has served as general secretary since May
2019 and as associate general counsel since October 2019; previously, he served as our legal director and acting senior legal vice president. He holds a law degree and a post-graduate degree in corporate law from the law school of Pontificia
Universidad Javeriana in Bogotá, a post-graduate degree in tax law from Universidad del Rosario and master of laws (LL.M.) degree in business law from the University of California, Los Angeles. Prior to joining us, Mr. Galindo served as
director of the corporate/M&A practice group at Brigard Urrutia and worked in other law firms, including Withers (New York) and other Colombian law firms. Mr. Galindo is admitted to the practice of law both in Colombia and in the State of New
York.
In 2019, we paid $5.6 million in aggregate cash compensation to our executive officers. In addition, in 2019, we paid $0.9 million in
aggregate cash compensation to our board members, and they and their spouses were entitled to travel free on our domestic and international flights. In 2019, pursuant to an agreement entered in 2009 in anticipation of the combination of Avianca and
Taca, we also allowed members of the Efromovich and Kriete families to travel free on certain of our domestic and international flights. We have not set aside any funds for future payments to executive officers or directors. We intend to continue to
compensate non-management directors for their service on our board of directors. We expect to pay each such director $12,000 per year plus expenses incurred to attend our board of directors
meetings. In addition, members of committees of our board of directors receive $1,000 for each committee meeting. All members of our board of directors and their spouses are entitled to travel free on our domestic and international flights.
We had accrued pension benefits and employee benefits of $156.7 million, $144.9 million and $174 million as of
December 31, 2019, 2018 and 2017, respectively.
Compensation Plan
Pursuant to our phantom option plan, our chief level officers, vice presidents and directors are eligible to receive stock options based on
financial and client-related performance. In 2019, variable compensation represented 70% of chief level officers, 45% of vice presidents and 14% of directors annual base salary.
Our board of directors comprises 11 members with terms expiring in March 2021. For more information, see A. Directors and Senior
Management. None of the members of our board of directors has entered into any service contract with us.
95
Committees of the Board of Directors
The following is a brief description of the committees of our board of directors:
Audit and Corporate Governance Committee
Our audit and corporate governance committee comprises three independent directors: Oscar Morales, Rodrigo Salcedo and James P. Leshaw. Our
audit and corporate governance committee supports our board of directors in monitoring the quality, reliability and integrity of our accounting policies and consolidated financial statements, overseeing compliance with legal and regulatory
requirements and reviewing the independence, qualifications and performance of our internal and independent auditors. The committee is also responsible for, among other things:
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appointment, compensation and oversight of our internal auditor;
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review and approval of the annual audit plan presented by our internal auditor;
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review, on an annual basis, of a report by the internal auditor describing our internal quality control
procedures, any material issues raised by the most recent internal quality control review, or peer review, of the auditing firm, and all relationships between us and the internal auditor;
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discussions relating to our annual audited and quarterly unaudited consolidated financial statements with
management and our independent auditor;
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assessment of our internal auditors performance;
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reports to the board of directors regarding (i) quality and sufficiency of our consolidated financial
statements, (ii) compliance with legal and regulatory requirements, (iii) performance and independence of our independent auditor and (iv) performance of the internal auditor;
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review and approval of material related party transactions to address potential conflicts of interest;
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together with the independent auditor, review of any difficulty encountered by the internal audit team during the
audit process;
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annual performance review and evaluation of the audit committee; and
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other matters that are specifically delegated to it by the board of directors from time to time.
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Human Resources and Compensation Committee
Our human resources and compensation committee comprises four directors: Jairo Burgos, James P. Leshaw, Rodrigo Salcedo and Roberto Kriete. The
committee supports our board of directors in setting the compensation of our directors, executive officers and employees. It also recommends basic compensation policies and the objectives that should be taken into account regarding compensation of
our executive officers and employees.
Finance and Investments Committee
Our finance and investments committee comprises three directors: Roberto Kriete, Oscar Morales and Alvaro Jaramillo. The committee supports our
board of directors in monitoring our financial performance and risk management; it is responsible for analyzing and recommending capital and debt structures to our board of directors.
As of December 31, 2019, we had 20,874 employees.
Approximately 61% of our employees are located in Colombia, 7% in Peru, 6% in Ecuador, 15% in El Salvador, 4% in Costa Rica and 7% elsewhere.
Our employees can be categorized as follows:
96
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|
|
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|
|
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|
|
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At December 31,
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|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Pilots
|
|
|
1,863
|
|
|
|
2,234
|
|
|
|
2,174
|
|
Flight attendants
|
|
|
2,882
|
|
|
|
3,400
|
|
|
|
3,484
|
|
Mechanics(1)(2)
|
|
|
2,172
|
|
|
|
2,414
|
|
|
|
2,285
|
|
Customer service agents, reservation agents, ramp and other(2)
|
|
|
5,893
|
|
|
|
5,452
|
|
|
|
5,910
|
|
Management and clerical(2)
|
|
|
3,906
|
|
|
|
5,460
|
|
|
|
5,425
|
|
Others(3)
|
|
|
4,158
|
|
|
|
2,901
|
|
|
|
6,028
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|
|
|
|
|
|
|
|
|
|
|
|
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Total employees
|
|
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20,874
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|
|
|
21,861
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|
|
|
25,306
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(1)
|
The number of our mechanics fluctuates based on the scheduling of our aircraft maintenance. We are able to
optimize the number of mechanics we employ because of the short-term nature of their employment contracts.
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(2)
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Includes third-party contractors and cooperative members.
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(3)
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2019 includes employees of SAI, Aerounion, Latinco and Regions: 2018 includes employees of La Costeña
and SAI; 2017 includes employees of La Costeña, SAI and Getcom.
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Collective Bargaining Agreements
Typically, our collective bargaining agreements in Colombia, Argentina, Peru and Mexico have terms of two to five years. In addition,
pursuant to Colombian law, unless one of the parties to the collective bargaining agreement communicates its intention to terminate the agreement within 60 days prior to its termination date, the agreement is continuously extended for six-month periods. Under Colombian law, we provide an essential public service and, as a result, strikes and work interruptions are forbidden. Nevertheless, slow-downs or stoppages or any prolonged dispute with our
employees that are members of unions, or any other sizable number of our employees, could have a direct material adverse impact on our operations. In Colombia, approximately 22.5% of our 10,037 employees were members of unions as of
December 31, 2019. In addition, there are six unions in four different countries covering our employees outside Colombia as follows: three labor unions in Peru that cover 31.4% of our employees in Avianca Peru, two labor unions in Mexico that
cover 100% of our employees in Taca de Mexico S.A. and one labor union in Argentina that covers 44.7% of our employees in Avianca Peru.
We believe we maintain generally good relations with our unionized and non-unionized employees in all
countries. In 2017, a 51-day long strike of approximately 700 members of the pilots union Colombian Association of Civil Aviators (Asociación Colombiana de Aviadores Civiles) resulted in
the cancellation of 50% of our flights in the last four months of 2017. We do not have any material labor claims and have otherwise not experienced material work stoppages in the past 18 years.
We cannot predict the duration of any labor dispute with our unions or the terms of our future collective bargaining agreements; we therefore
cannot accurately predict the impact of labor disputes on our financial results or operations. Any renegotiated collective bargaining agreement could result in significant wage increases, which could result in an increase in our operating expenses.
For more information, see Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessIncreases in labor
benefits, union disputes, strikes and other labor-related disturbances may adversely affect us.
Employee Incentive Programs
We have goal-driven compensation incentive programs for our management and employees based on financial and operating metrics, including a
phantom stock option plan for our management based on goals set on an annual basis. We also have employee incentives for the achievement of monthly on-time light performance goals. We believe that our
management and employee incentive programs contribute to our success by rewarding the accomplishment of pre-defined financial and operating goals with variable compensation. Bonuses are usually paid three
months after the end of each year and range from 10% to 50% of an employees annual fixed salary. Typically, 30% to 50% of the bonus amount is based on corporate performance, and the remaining 70% to 50% is based on the achievement of
individual goals, as determined for managers in each department. Our incentive programs also take into account safety considerations, which are our priority. For more information, See B. CompensationCompensation Plan.
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Mr. Germán Efromovich and Mr. José Efromovich beneficially own our shares held by Synergy via its indirectly controlled
subsidiary, BRW, and Mr. Roberto Kriete beneficially owns our shares held by Kingsland. See Item 7. Major Shareholders and Related Party TransactionsA. Major Shareholders. As of December 31, 2019, none of the members of
our board of directors held any of our shares and, of our executive officers, only Matthew Vincent held 2,763 preferred shares
Item 7.
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Major Shareholders and Related Party Transactions
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Beneficial Ownership of our Capital Stock
The following table sets forth information relating to the beneficial ownership of our capital stock as of December 31, 2019.
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|
|
|
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|
|
|
|
|
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|
|
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Beneficial ownership as of December 31, 2019
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|
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Common
shares
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|
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%
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|
|
Preferred
shares(4)
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|
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%
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BRW(1)(3)
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|
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515,999,999
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|
|
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78.1
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%
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|
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Kingsland(2)(3)
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144,800,003
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|
|
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21.9
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%
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|
|
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|
|
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Donald Smith & Co., Inc.
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|
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|
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|
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20,338,440
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|
|
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6.05
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%
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Directors and officers(5)
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|
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|
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|
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2,763
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|
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0.01
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%
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Others
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1
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|
|
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*
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|
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315,846,082
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|
|
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93.94
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%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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660,800,003
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|
|
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100.0
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%
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336,187,285
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|
|
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100.0
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%
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(1)
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A Delaware limited liability company and wholly owned subsidiary of Synergy. Germán Efromovich and
José Efromovich have dispositive voting power of Synergys shares.
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(2)
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Special purpose company incorporated under the laws of the Commonwealth of the Bahamas, which is indirectly
wholly owned by the Atlantis Trust. Roberto Kriete and his family have dispositive voting power of Kingslands shares.
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(3)
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On November 9, 2018, under the terms of the United Loan Agreement, BRW pledged to Wilmington Trust, as
collateral agent for the benefit of United, 78.1% of our common shares, among other assets, as security for BRWs obligations under the United Loan Agreement. In addition, on November 9, 2018, Kingsland pledged to Wilmington Trust, as
collateral agent for the benefit of United, all of the common shares that it owns (representing 21.9% of our common shares) as security for the payment and performance of certain contractual obligations owed by Kingsland to United under certain
contractual arrangements, including an upside sharing agreement, a put option agreement and a cooperation agreement. Following defaults by BRW under the United Loan Agreement, United accelerated the United Loan Agreement and, on May 24, 2019,
commenced the exercise of remedies against BRW and BRW Holding
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(4)
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Excludes 4,320,632 preferred shares held by Fidubogota our behalf.
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(5)
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See Item 6E. Share Ownership.
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*
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On or about November 29, 2018, BRW transferred, for good and valuable consideration, one common share to
United.
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33.6% of our outstanding capital stock (excluding the preferred shares held by Fidubogota on our behalf)
comprises preferred shares, including those represented by ADSs, and 66.4% of our outstanding capital stock comprises common shares held by BRW and Kingsland. The common shares owned by BRW and Kingsland have been pledged as security for certain
financial and other obligations, including the United Loan. See Pledges of Common Shares by BRW and Kingsland and Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessBRW has pledged its
common shares of Avianca Holdings to secure its obligations under the United Loan Agreement. BRW is in breach of certain provisions of the United Loan and United has commenced the exercise of remedies against BRW and its holding company, BRW
Holding.
On November 13, 2018, in anticipation of the United Copa Transaction, Synergy transferred 489,200,000 of our common
shares (corresponding to 74% of our total outstanding common shares and 48.9% of our total issued share capital) to BRW, this transfer was made in the context of an overall restructuring process at Synergy in connection with the United Copa
Transaction and did not change our ultimate ownership structure. As a result of this transaction, BRW currently holds 78.1% of our common shares which represents 51.5% of our total outstanding shares. Mr. Germán Efromovich and his
brother Mr. José Efromovich are the ultimate beneficial owners of BRW. Kingslands sole purpose is holding common shares for the benefit of certain members of the Kriete family.
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Pledges of Common Shares by BRW and Kingsland
Following defaults by BRW under the United Loan Agreement (unrelated to any financial covenants applicable to us), on May 24, 2019, United
commenced the exercise of certain remedies against BRW and BRW Holding. Pursuant to the terms of the United Loan Agreement, United appointed Kingsland as the Independent Third Party entitled to exercise voting control over BRW and, as a result, BRW
Holding (and, indirectly, Synergy) lost the right to direct the manner in which BRW votes the BRW Pledged Shares. Following the foregoing transactions, Kingsland appointed itself as BRWs manager. Through its ownership of our common shares and
its authority as manager of BRW (with the right to direct the voting of the BRW Pledged Shares), Kingsland assumed voting control over us.
We are not a party to the United Loan or an obligor thereunder, and any default by BRW under the United Loan does not per se constitute an
event of default in respect of indebtedness owed by us or by any of our subsidiaries.
One or more events of default under the United Loan
entitles United or its collateral agent to take enforcement action in relation to 78.1% of our common shares, which could result in United or its collateral agent taking steps to enforce the share pledge, including ultimately taking control of our
company or selling control to a third party, which in turn could constitute an event of default under several of our financing agreements, including material bilateral and multi-lender credit facilities and substantially all of our ECA financings.
There are a number of different definitions of change of control under our financings, and any future determination of whether a change in control has occurred may be a complex assessment and may not be without doubt. In addition, if United enforces
the share pledge, this may, in certain circumstances, result in the right of Advent (a 30% minority investor in LifeMiles) to require us to purchase Advents interest in LifeMiles at a price to be determined pursuant to
LifeMiles shareholders agreement, and any such obligation would be material. As of the date of this annual report, we understand that United has not provided a waiver of all existing defaults under the United Loan and there can be no
assurance that, if a new waiver is requested by BRW after the date of this annual report, any such waiver would be granted. As of the date of this annual report, we are not aware of any action that United or its collateral agent have taken to
enforce the share pledge.
Furthermore, the terms of our outstanding 2020 notes contain a change of control repurchase provision which
provides that if there is a rating downgrade in the notes by each rating agency that rates the notes, and such downgrade results from a change of control, we will be required to offer to all holders of such notes the right to sell such notes to us
for a purchase price of 101% of their principal amount plus accrued and unpaid interest.
We have obtained consent from the lenders
under our bilateral and multi-lender credit facilities and from the lenders and ECAs under our ECA financings in order to add United as a permitted holder under the relevant change of control provisions of such financings. However, these consents do
not address the change of control provisions referred to above under our 2020 notes and the Advent put option arrangements.
Furthermore,
the exercise of put and call options negotiated in the context of the United Loan may, under certain conditions, lead to the transfer of shares from BRW and Kingsland to United. In addition, subject to certain conditions, BRW may also repay part of
the principal and interest under the United Loan with our shares, which can involve either United taking ownership of the relevant shares or such shares being sold to third parties in the open market. Furthermore, any breach of the obligations of
Kingsland that are owed to United and secured by the common shares that Kingsland owns may also entitle United to take enforcement action in respect of such shares. We cannot assure you that, as a consequence of these arrangements, our current
controlling shareholders, BRW and Kingsland, will keep their majority stake and/or exclusive voting control in us.
As of the date of this
annual report, creditor claims regarding defaults under our payment obligations and other covenants are subject to developments relating to our Chapter 11 proceedings.
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For as description of the risks associated with the transactions described above, see Item
3. Key InformationD. Risk FactorsRisks Relating to our BusinessBRW has pledged its common shares of Avianca Holdings to secure its obligations under the United Loan Agreement. BRW is in breach of certain provisions of the United
Loan and United has commenced the exercise of remedies against BRW and its holding company, BRW Holding.
B.
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Related Party Transactions
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We engage in financial and commercial transactions with related parties (within the meaning of the SEC rules), which comply with
applicable transfer pricing rules and corporate governance policies. In 2019, we terminated all related party transactions with Oceanair, commercially known as Avianca Brasil, which, in December 2018, filed a petition for judicial restructuring
before the First Bankruptcy Court of the Central Courthouse of the Judicial District of São Paulo State, Brazil, seeking a voluntary judicial restructuring and emergency relief staying Brazilian foreclosure actions against its aircraft.
Arrangements with Affiliated Service Providers
We pay certain of our affiliates for services related to maintenance, cargo and courier services, hotel accommodation services, personnel
ground transportation and other services. Empresariales S.A.S., an affiliate of Synergy, provides ground transportation for our crew and other employees. Opera Transporte y Logistica Integral S.A.S., formerly Transportadora del Meta
S.A.S., an affiliate of Synergy, provides ground cargo and courier services in connection with our cargo and courier business. Global Operadora Hotelera S.A., an entity controlled by a foundation created by Germán Efromovich,
provides hotel accommodation services for our crew and other employees. Aeromantenimiento S.A., an affiliate of Kingsland, provides us with maintenance services related to our fleet. All of these arrangements comply with applicable transfer
pricing rules and were approved by a majority of our independent directors, as well as by our audit committee and corporate governance committee.
In 2019, our total expenses related to services provided by these affiliates were $9.7 million.
Registration Rights Agreement
We,
BRW, United and Kingsland are party to a registration rights agreement, which was amended upon the consummation of our November 2013 U.S. initial public offering, pursuant to which Synergy and Kingsland have certain registration rights, including
the ability to require us to register their common shares, preferred shares or the ADSs that represent them in a registered public offering (subject to certain restrictions and limitations). On November 29, 2018, we entered into a second
amended and restated registration rights agreement with Kingsland, Synergy, BRW and United. The amended and restated registration rights agreement grants United certain registration rights with respect to any of our shares that United acquires under
the United Loan (including, without limitation, shares received in partial satisfaction of amounts owing to United under the United Loan) and certain other registrable securities that United may hold from time to time (including shares of common
stock or preferred stock, American depositary receipts (ADRs) representing these shares or certain convertible or exchangeable securities). The amended and restated registration rights agreement includes provisions in relation to demand
registration and piggyback registration.
Amended and Restated Joint Action Agreement and Share Rights Agreement
Governance
We are a party to the Amended
and Restated Joint Action Agreement, which, under certain conditions, provides BRW, Kingsland and United each with the right to appoint a number of directors proportional to their ownership of our common shares (for more information, see Item
6. Directors Senior Management and EmployeesA. Directors and Senior Management), and which obliges us to take all necessary actions to enforce the provisions set therein. The Amended and Restated Joint Action Agreement provides that a
majority of our directors must be independent under the rules and regulations of the NYSE.
While our operations are
controlled by our management, under the direction and supervision of our board of directors and executive offices the Amended and Restated Joint Action Agreement gives BRW, the Independent Third Party and United (if it has issued a United Approval
Notice), veto power over certain strategic and operational transactions. Pursuant to the Amended and Restated Joint Action Agreement in connection with the Share Rights
100
Agreement, Kingsland has irrevocably granted these rights to the Independent Third Party. Prior to our boards considering or acting upon any such matters at any board meeting, and/or prior
to us or our board submitting any such matter to a vote of our shareholders, as applicable, we must send, among others, to each of the Independent Third Party and BRW a written notice requesting that each of them approves such matter in the time
constraints provided for in the Amended and Restated Joint Action Agreement. Such strategic and operational transactions include, among others:
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mergers, consolidations, and dispositions of all or substantially all of the assets of Avianca Holdings or any of
its subsidiaries to a third party;
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the issuance or sale of voting common or preferred stock or other form of voting equity interest in Avianca
Holdings or any of its subsidiaries;
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except as specifically identified in our annual business plan and budget approved pursuant to the Amended and
Restated Joint Action Agreement, certain acquisitions of (i) securities or other interests in any joint venture, partnership or other person, (ii) assets related to the airline business or activities ancillary or related thereto in each
case over $10 million in any single instance or over $25 million in the aggregate during any fiscal year, or (iii) assets not related to the airline business or activities ancillary or related thereto;
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changes to our annual business plan and budget that is approved from time to time pursuant to the Amended and
Restated Joint Action Agreement;
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capital expenditures over $10 million in the aggregate during any fiscal year, except as specifically
identified in our annual business plan and budget approved pursuant to the Amended and Restated Joint Action Agreement;
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certain changes to our organizational documents or those of our material subsidiaries;
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certain related party transactions or certain contracts outside the ordinary course of business;
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termination of the Joint Business Agreement (or any other joint business agreement entered into in connection
with the Joint Business Agreement) under certain circumstances;
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any action or omission which would cause the Company to breach, or would constitute a default under, the Joint
Business Agreement (or other joint business agreements entered into in connection with the Joint Business Agreement);
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commencement of any bankruptcy or insolvency proceeding; and
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dissolution or liquidation of a material subsidiary of Avianca Holdings.
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In addition, pursuant to the Share Rights Agreement, if (i) United determines that its exercise of any or all of the rights that have
been delegated to the Independent Third Party by Kingsland can be exercised by United or its designee without such exercise constituting control within the meaning of such term within any of Uniteds collective bargaining agreements
or other material agreements, or (ii) United is otherwise prepared to exercise any or all of such rights (which is referred to herein as a United Approval Notice), then United or its designee can assume some or all of the rights given to the
Independent Third Party. Such United Approval Notice has not been issued as of the date of this annual report.
Furthermore, if all of the
obligations under the United Loan are repaid in full, the Amended and Restated Joint Action Agreement provides that there shall be certain changes to the veto rights described above.
If, prior to November 29, 2028, the Independent Third Party or United (if it has issued a United Approval Notice) exercises certain of
its veto rights, BRW has the option to make, within 30 days after the Independent Third Party exercises such veto right, a bona fide offer in writing to United to purchase all (but not less than all) of the shares (including common and preferred
shares) owned by United at a price per share equal to the fair market price per share and provide evidence that it has and will have immediately available funds to purchase all of the shares owned by United; provided, however, that BRW will only
have the right to purchase all but one share owned by United. United may accept or reject BRWs offer in its sole and absolute discretion. If the offer is accepted and a party fails to close the transaction, the other party is entitled to an
injunction to prevent breaches of the Share Rights Agreement as well as to enforce its provisions and is entitled to be indemnified for all losses and damages resulting
101
from such failure, including attorney fees. The Independent Third Party or, if applicable, United, may also revoke its exercise of the veto right, among others, by delivering to BRW written
notice at any time prior to the closing date of the buy-out transaction and, consequently, BRW will no longer have a buy-out right and the Independent Third Party or, if
applicable, United will not have the right to veto on that matter. For BRW to have such right to buy out United, certain additional conditions must be fulfilled, including, among others:
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prior payment in full by BRW of its obligations in connection with the United Loan;
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no event of default having occurred and being continuing under the United Loan; and
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no breach of BRW of any of its material obligations under the Joint Business Agreement (or other joint business
agreements entered into in connection with the Joint Business Agreement), the Amended and Restated Joint Action Agreement or the Share Rights Agreement.
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The buy-out right described above is modified in respect of exercises of such veto rights on or after
November 29, 2028.
In addition, United has a buy-out right if BRW exercises its veto right
and United owns, at such time of exercise and until the completion of the buy-out, more common shares than BRW. In this case, United has the right to make a bona fide offer in writing to BRW within 30 days of
exercise of the veto right to purchase all (but not less than all) shares (including common and preferred shares) owned by BRW at a price per share equal to the fair market price per share, as defined therein, and such offer must include evidence
that United has and will have immediately available funds to purchase all (but not less than all) of the shares owned by BRW. If the offer is accepted and a party fails to close the transaction, the other party is entitled to an injunction to
prevent breaches of the Share Rights Agreement as well as to enforce its provisions and it is entitled to be indemnified for all losses and damages resulting from such failure, including attorney fees. BRW may also revoke its exercise of the veto
right, among others, by delivering to United written notice at any time prior to the closing date of the buy-out transaction and, consequently, United will no longer have a
buy-out right and BRW will not have the right to veto on that matter.
In addition, under the
Amended and Restated Joint Action Agreement, certain transactions require a majority vote of the board of directors and an approval of a majority of the independent directors, including:
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acquisition, repurchase or redemption of an equity interest in Avianca Holdings or any of its subsidiaries or the
issuance or sale of a non-voting equity interest in Avianca Holdings or any of its subsidiaries;
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any material change in accounting methods, except for in certain specified circumstances;
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execution of a settlement agreement or confession of a judgment, the result of which would be to cause Avianca
Holdings to pay over $5 million to a third party;
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commencement of litigation over $5 million;
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incurrence of certain indebtedness, except as contemplated in our annual business plan and budget approved
pursuant to the Amended and Restated Joint Action Agreement;
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adoption or amendment of any equity incentive plan;
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modification of our dividend policy;
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termination or relinquishment of any material governmental license, permit or concession.
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Furthermore, if all of the obligations under the United Loan are repaid in full, the Amended and Restated Joint Action Agreement provides that
there will be certain changes to the transactions that require a majority vote of the board of directors and an approval of a majority of the independent directors.
Pursuant to the Amended and Restated Joint Action Agreement in connection with the Share Rights Agreement, we understand that United does not
currently intend to exercise any of its rights under these agreements or under our charter (pacto social) with respect to the acquisition of, exercise of rights with respect to, or transfer of ownership or voting of, shares if doing so would
constitute control within the meaning of such term in any of Uniteds collective bargaining agreements or other material agreements.
In the event that our chief executive officer or chief financial officer position becomes vacant, a search firm (in the case of a chief
executive officer vacancy) or the chief executive officer (in the case of a chief financial officer
102
vacancy) will put together a slate of at least three candidates to serve in such vacant position. If certain removal rights are exercised by the Independent Third Party (or United, if it has
issued a United Approval Notice) and BRW with regards to the proposed slate of candidates, our board of directors will select among the remaining candidates by a majority vote a successor chief executive officer. In the case of the position of the
chief financial officer, upon the potential exercise of certain removal rights by the Independent Third Party (or United, if it has issued a United Approval Notice) and BRW with regards to the proposed slate, our chief executive officer will
recommend one of the remaining candidates to our human resources committee. If our human resources committee approves and recommends such candidate, our board of directors may approve and appoint such candidate as chief financial officer.
For information on our executive committee, see Item 6A. Directors and Senior ManagementExecutive Committee.
Restrictions on Conversion of Shares
Except as specified in the Share Rights Agreement, until BRW has paid in full all of its obligations in connection with the United Loan, BRW,
Kingsland and, among others, their respective affiliates, may not voluntarily convert any of their common shares in Avianca Holdings into preferred shares or other form of convertible security, without Uniteds prior written consent. Under no
circumstances may these parties convert any common shares into preferred shares or other form of convertible security if such conversion would otherwise cause all of Avianca Holdings preferred shares to have voting rights pursuant to our
organizational documents or cause BRW and Kingsland to lose control of us.
Restrictions on Transfer of Shares
Pursuant to the Amended and Restated Joint Action Agreement, BRW, Kingsland and United will not make, solicit or permit any sale, transfer,
other disposition of, or create, incur, assume any lien with respect to any shares in Avianca Holdings to a person that is a non-permitted holder. A non-permitted holder
is (a) a person whose ownership of securities of the Company would violate applicable law or would cause the Company or any of its subsidiaries to no longer comply with local ownership restrictions or aviation bilateral treaties that govern the
Companys or its subsidiaries operations, (b) any competitor or an affiliate of a competitor, as described therein (or any person known to be acting on their behalf), (c) any person whose business includes the transportation of
passengers and/or cargo that is not a member of the Star Alliance (or any person known to be acting on their behalf), provided that the term non-permitted holder shall exclude the parties to the
Amended and Restated Joint Action Agreement, any affiliate of United, the Independent Third Party, or following an event of default under the United Loan, a United designee. The Amended and Restated Joint Action Agreement includes certain exceptions
whereby, among others, open market sales on an established U.S. or foreign securities exchange on which the shares are listed are permitted. In addition, such restrictions apply to United only in a limited way, and do not apply to Kingslands
ability to transfer its put shares, as defined in the United Loan, to United or BRW.
Under certain circumstances, as specified in the
Amended and Restated Joint Action Agreement, if Synergy intends to effect a transaction whereby it would sell substantially all of its airline assets or undergo a change of control, Kingsland will have the option, as long as it owns 10% of the
outstanding common shares in Avianca Holdings, upon written notice, to require such buyer (and if such buyer fails to do so, Synergy) to purchase Avianca Holdings shares owned by Kingsland.
Pursuant to the Share Rights Agreement, without the prior written approval of United, none of Kingsland or BRW may transfer or cause to be
transferred any shares to a non-permitted holder, as described above. The Share Rights Agreements provides further restrictions and rights in connection with the transfer of shares by United, BRW and
Kingsland, including, subject to certain conditions set forth therein:
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a tag-along right granted to Kingsland in the case of a proposed sale of
shares owned by United;
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a drag-along right exercisable by United if it elects to transfer all of their shares (provided that this right
is only exercisable if United has become a holder of at least a majority of our common shares, or United holds at least 10% of our common shares and acts together with any other shareholder in order to transfer such a majority position);
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103
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a right of first refusal granted to United in the event that BRW receives a bona fide purchase offer to sell all
or any portion of its shares;
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a right of first refusal granted to United in the event that Kingsland receives a bona fide purchase offer to
sell all or any portion of its shares (and a right of second refusal to BRW in such instance) or in the event that Kingsland intends to exercise its tag-along right in connection with a Synergy change of
control transaction;
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a right of first offer granted to United in the event that BRW elects to sell its common shares on a securities
exchange by converting them into preferred shares;
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a right of first offer granted to United in the event that Kingsland elects to sell its common shares on a
securities exchange by converting them into preferred shares;
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call rights granted to United to call for the purchase by United of BRWs and Kingslands shares in the
Company in connection with, among other things, certain terminations of the Joint Business Agreement (or any other joint business agreement entered into in connection with the Joint Business Agreement);
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a right of first refusal granted to BRW in the event that United receives a bona fide purchase offer to sell all
or any portion of its shares; and
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a right of first offer granted to BRW in the event that United elects to sell its common shares or to convert
such shares into preferred shares and sell them on a securities exchange or to a third party.
|
Termination of the Amended and
Restated Joint Action Agreement
The Amended and Restated Joint Action Agreement will terminate when no member of either the United
group or the BRW group owns any common shares in Avianca Holdings. Upon certain conditions, it may also terminate when either United or BRW reject the other partys offer to purchase its shares, as further specified in connection with the Share
Rights Agreement.
Term of the Share Rights Agreement
The Share Rights Agreement provides that it shall remain in full force and effect until the latest of (a) November 29, 2028 (which is
ten years from the date of the agreement), (b) payment in full of all amounts owing under the United Loan, provided that whilst the Amended and Restated Joint Action Agreement remains in effect, certain provisions shall continue to survive, among
other provisions.
C.
|
Interests of Experts and Counsel
|
Not applicable.
Item 8.
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Financial Information
|
A.
|
Consolidated Statements and Other Financial Information
|
See Item 3. Key InformationA. Selected Financial Data, Item 18. Financial Statements and our consolidated
financial statements and the notes thereto beginning on page F-1.
Litigation Involving Subsidiaries
Our subsidiaries are subject to several lawsuits regarding labor and civil actions in which an adverse decision may result in
payment obligations of our subsidiaries. We intend to defend vigorously against these claims, but we cannot assure you that we will be successful. In the case of an adverse final decision in any of these lawsuits or in the event we are required to
establish a reserve, our business, financial condition and ability to pay dividends or make other distributions would likely be materially and adversely affected. Of our total claims and legal actions, management has estimated a probable loss of
$20.2 million. See note 32 to our audited consolidated financial statements as of and for the year ended December 31, 2019, included elsewhere in this annual report.
104
Dividends and Dividend Policy
The payment of dividends on our shares is subject to the discretion of the holders of our common shares who vote to approve dividend
declarations at annual or extraordinary general shareholders meetings. Under Panamanian law, we may pay dividends only out of retained earnings or capital surplus. So long as we do not default in our payments under our loan agreements, there
are no covenants or other restrictions on our ability to declare and pay dividends. Our articles of incorporation provide that all dividends declared by our general shareholders meeting will be paid equally with respect to all of the preferred
shares and common shares. Our articles of incorporation also provide that our preferred shares have a right to a minimum preferred dividend that will be paid on a preferential basis over the dividend corresponding to our common stock. See Item
10. Additional InformationB. Memorandum and Articles of AssociationDescription of Capital StockPreferred SharesMinimum Preferred Dividend.
Our shareholders have adopted a dividend policy that provides for the payment of annual dividends equal to at least 15% of our annual
distributable profits (defined below). Annual distributable profits are defined in our bylaws as our annual profits (after taxes), less amounts used to offset losses of previous fiscal periods, less amounts necessary to
fund legal and other reserves, if any. Panamanian law does not currently provide for a required legal reserve.
Holders of the preferred
shares and ADSs are entitled to receive a minimum dividend to be paid preferentially over holders of common shares, so long as dividends have been declared by our shareholders at their annual meeting. If no dividends are declared, none of our
shareholders will be entitled to any dividends. If dividends are declared and our annual distributable profits are sufficient to pay a dividend per share of at least COP 50 to all our holders of preferred and common shares, such profits will be
paid equally with respect to our preferred and common shares. However, if our annual distributable profits are insufficient to pay a dividend of at least COP 50 per share to holders of our preferred and common shares, a minimum preferred
dividend of COP 50 per share will be distributed pro rata to the holders of our preferred shares, and any excess above such minimum preferred dividend will be distributed solely to holders of our common shares. See Item 10.
Additional InformationB. Memorandum and Articles of AssociationDescription of Capital StockPreferred SharesMinimum Preferred Dividend.
A majority of the holders of our common shares may, in their sole discretion and for any reason, amend or discontinue the dividend policy.
Future dividends with respect to our common shares, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and
other factors that our board of directors may deem relevant. See Item 3. Key InformationD. Risk FactorsRisks Relating to the ADSs and Our Preferred Shares Our controlling shareholders can direct our affairs, and their
interests may conflict with those of holders of the ADSs.
Certain of our subsidiaries are parties to bonds, leases and loan
agreements that restrict their ability to pay dividends or make distributions to us. For a description of these restrictions, see Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital ResourcesDebt and Other
Financing Agreements.
In 2019, we paid dividends of COP 50 per preferred share and COP 46 per common share. In 2018, we paid
dividends of COP 98.6 per share. In 2017, we paid dividends of COP 38.5 per share.
Except as otherwise disclosed in our audited consolidated financial statements and in this annual report, there have been no significant
changes in our business, financial conditions or results of operations since December 31, 2019.
Item 9.
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The Offer and Listing
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A.
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Offer and Listing Details
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ADSs
ADSs representing our
preferred shares were listed on the NYSE under the symbol AVH since November 2013 until their delisting in June 2020 as a result of our Chapter 11 proceedings. As of the date of this annual report, the ADSs are traded in the overthe-
counter market. For more information, see Item 3. Key InformationD. Risk FactorsRisks Relating to the ADSs and our Preferred SharesBecause our post-bankruptcy capital structure is yet to be determined, and any changes to our
capital structure may have a material adverse effect on holders of the ADSs or our preferred shares, trading in the ADSs or our preferred shares during the pendency of our Chapter 11 proceedings is highly speculative and poses substantial
risks.
105
Preferred Shares
Our preferred shares are registered in the Colombian national registry of securities and issuers (registro nacional de valores y
emisores) kept by the SFC and trade on the Colombian Stock Exchange under the symbol PFAVH. Our preferred shares began trading in May 2011.
The Colombian Stock Exchange notified us that (i) as of May 26, 2020, our preferred shares would trade on the Colombian Stock Exchange by
means of auction, (ii) our preferred shares continue to be ineligible for repo transactions and are inadmissible as collateral for margin calls in other types of transactions and (iii) as of May 11, 2020, no futures or options
contracts in respect of our preferred shares may be entered into.
On May 31, 2020, the closing price of our preferred shares on the
Colombian Stock Exchange was COP 98.5, or $0.03 per share (based on the exchange rate as of May 31, 2019).
Not applicable.
Prior to 2001, there were three stock exchanges in Colombia: the Stock Exchange of Bogotá established in 1928, the Stock Exchange of
Medellín established 1950 and the Stock Exchange of Occidente established 1970.
After limited economic growth during the
1980s, economic expansion of the 1990s resulted in the Colombian capital markets growing at unprecedented rates, as indicated or measured by listed companies market capitalization, the total value traded in the stock markets and the total
amount of outstanding domestic public and private bonds.
This rapid growth resulted in increased regulation of the Colombian capital
markets and precipitated the merger of the three stock exchanges into the Colombian Stock Exchange in July 2001.
The Colombian Stock
Exchange handles relatively minor trading and liquidity compared to stock exchanges in major global financial centers. In addition, a small number of issuers represent a disproportionately large percentage of market capitalization and trading volume
on the Colombian Stock Exchange. The Colombian Stock Exchange is supervised by the SFC.
In November 2010, the Colombian Stock Exchange
completed its equity markets integration process of the Latin American Integrated Market (Mercado Integrado Latinoamericano), with the equity stock markets of Chile and Peru, which allows integrated trading and settlement. In June 2014, the
Mexican Stock Exchange and local depositary (INDEVAL) were also integrated into the Latin American Integrated Market. The Latin American Integrated Market is the leading market in terms of number of issuers (624 as of December 31, 2019) and
market capitalization ($857.5 million as of December 31, 2019).
The total value of equities traded on the Colombian Stock
Exchange in 2019 was COP 46.0 trillion (including spot and repurchase and securities lending transactions) with a daily average of COP 187.0 million, representing a nominal increase of 2.26% from the daily average value of equities traded in
2018. Spot transactions over equities traded in 2019 was COP 35.1 trillion with a daily average of COP 142.8 million, representing a nominal increase of 3.28% from the daily average value of spot transactions traded in 2018. Debt and equity
securities are traded on the Colombian Stock Exchange, including stocks and bonds of private sector corporations, although the vast majority of securities traded are fixed income government debt securities.
The following table sets forth certain year-end information concerning equity securities listed on the
Colombian Stock Exchange since 2009:
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2019
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2018
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2017
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2016
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2015
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2014
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2013
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2012
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2011
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2010
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2009
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Number of listed companies
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68
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68
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69
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70
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73
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74
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79
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82
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83
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86
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87
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Market capitalization (in trillions of COP)
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436
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340
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364
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311
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278
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364
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416
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484
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404
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418
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287
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Source:
Colombian Stock Exchange.
As of December 31, 2019, the ten companies with the largest market capitalizations on the Colombian Stock
Exchange represented approximately 71.2% of the total market capitalization of all companies listed and the ten most actively traded stocks on the Colombian Stock Exchange in 2019 represented 76.0% of the total trading volume. Annual trading values
of equity securities are set forth in the following table:
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Annual trading values of equity securities (in trillions of COP) for the year ended December 31,
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2019
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2018
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2017
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2016
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2015
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2014
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2013
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2012
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2011
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2010
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2009
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46
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44
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41
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42
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40
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40
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49
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71
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68
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54
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40
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Source: Colombian Stock Exchange.
Price
movements in the Colombian equity market are reflected in the indices of equity securities traded on the Colombian Stock Exchange. The Colombian Stock Exchange has market indices that include (i) the Stock Capitalization Index (COLCAP), (ii)
the Stock Liquidity Index (COL20) and (iii) the General Index of the Colombian Stock Exchange (IGBC).
Our preferred shares are
included on the COLCAP and IGBC indices.
The COLCAP is a capitalization index that reflects changes in the prices of the 20 most liquid
shares of the Colombian Securities Exchange (BVC), where the weight of each share in the index is determined by the corresponding value of the adjusted market capitalization (companys float multiplied by the last price of its shares). The
selection function is the measure of liquidity used by the BVC to determine the shares that make up the COLCAP basket. Information on volume, turnover and frequency of each of the eligible shares is required to calculate this function. Recomposition
of the index comprises the selection of shares that will make up the share basket of the index for the following year. During the recomposition process, the weight in the index of each share selected for the following quarter is also determined. The
COLCAP recomposition is carried out after market closing on the last business day of October and is in force from the first business day of November of the same year to the last business day of October of the following year. Index rebalancing
comprises determining the weight of each share in the basket. COLCAP rebalancing is carried out on the last business day of the months of January, April and July each year. Rebalancing results in the adjustment of the weights of the shares that make
up the index to reflect the changes in the adjusted market capitalization of each share. Under certain conditions, shares can be added to or removed from the index during a rebalancing period. Given its replicable index construction, the COLCAP has
become the relevant benchmark for the Colombian stock market.
The IGBC is an index comprising stocks that meet certain frequency and
turnover criteria. The weight of the shares in the index basket is determined by the amount of shares traded of each constituent. It has seven sector indices associated with its methodology (agricultural, retail, financial, industrial, investment
companies, public services and other services).
Regulation of the Colombian Securities Market
Regulatory Authorities
The
Colombian stock market is regulated by the Colombian Congress and by the Colombian government through the Ministry of Finance and Public Credit and the SFC. The Colombian government is responsible for the overall economic policy making in Colombia.
Pursuant to Article 150(19)(d) of the Colombian Constitution, the Colombian Congress must determine the principles, criteria and objectives that the Colombian government must observe when regulating all financial activities. Also, under Article
189(24) of the Colombian Constitution, the Colombian government must regulate, supervise and control institutions in the financial, insurance and securities industry.
The responsibilities of the Colombian government include the adoption of rules and regulations pertaining to, among other things, the public
offering of securities; the operation and administration of the integral information system of the securities market, the procedures for registration of securities, the establishment, operation and dissolution of infrastructure providers (such as
central securities depositories and stock exchanges, among others), the disclosure obligations of periodic and relevant issuers of securities that are registered in the national register of securities and issuers, regulation of market intermediaries
and establishing transparent criteria and best practices of negotiation.
In 2005, the Colombian Congress enacted the Colombian Securities
Market Law (Ley del Mercado de Valores, Law 964 of 2005). Pursuant to Law 964 and Decree 663 of 1993, as amended, the Ministry of Finance and Public Credit is the governmental agency in charge of regulating the financial, insurance and
securities markets. Direct supervisory authority of the financial, insurance and securities markets has been entrusted to the SFC.
Regulatory
Framework
Law 964 provides the principal legal framework that governs the Colombian securities market. The primary scope of Law
964 is to promote the efficiency, transparency and integrity and the development of the Colombian
107
securities market. Law 964 also sets forth certain corporate governance standards for listed companies and issuers, such as the requirement that at least 25% of the board members be
independent directors (as defined in Law 964), that the company maintain an audit committee with at least three board members, including all independent members, and that the companys legal representatives adopt and implement
internal control procedures and adequate mechanisms for disclosure of information and certify the truthfulness of the financial and other relevant information disclosed to the market.
In order to comply with the foregoing disclosure obligations, issuers must disclose relevant information through the SFCs website as
soon as the event to be disclosed has occurred or as soon as the issuer knows of its occurrence.
As a general rule, pursuant to Decree
2555 of 2010 (Decree 2555), as amended, any transaction involving the sale of publicly traded stock in an amount of Colombian pesos equivalent or superior to 66,000 units of real value (Unidades de Valor Real), an index calculated
by the Central Bank on a daily basis based on the monthly fluctuation of the consumer price index (índice de precios al consumidor), must be effected through transaction modules subject to the inspection and supervision of the SFC.
Transactions involving securities of non-Colombian companies settled outside Colombia are generally exempt from this requirement. Stock transfers originated in operations different from buying or selling or
conducted between two parties who are acting for the same beneficial owner are exempt as well, but must be informed to the SFC five days prior to the transaction. Decree 2555 expressly prohibits any issuer from registering transactions which do not
comply with these requirements in its share registry.
Colombian securities regulation also governs insider trading, which it defines as
the use of privileged information to ones benefit in a securities transaction on a stock exchange. For these purposes, privileged information is market-moving information that has not been made public. While few sanctions have been imposed for
insider trading, individuals who (i) use privileged information, (ii) through their employees, including brokers, have access to privileged information and disclose it to a third party that does not have the right to receive such
information or (iii) recommend a market transaction based on privileged information, may be fined in accordance with, among other criteria, the seriousness of the infraction. Other sanctions under Law 964 include (a) warnings,
(b) suspensions or disqualifications from exercising management, direction, control or auditing functions of entities subject to inspection and vigilance by the SFC for up to five years, (c) removal of the individuals who exercise
management, direction, control or auditing functions of entities subject to inspection and vigilance by the SFC and (d) suspension or cancellation (for a period between one and 20 years) of the registration of the securities in the
corresponding registers regulated under Law 964, such as the Colombian registry of issuers and securities (registro nacional de valores y emisores). These penalties are complemented by Article 258 of the criminal code, through which the
improper use of privileged information may result in imprisonment for a term of one to three years and/or monetary fines for the improper use of privileged information.
Regulation of the Colombian Stock Exchange
Trading on the Colombian Stock Exchange is subject to specific private regulations issued by the Colombian Stock Exchange, particularly the
general rules of the Colombian Stock Exchange, as amended from time to time, the Regulation Letter (Circular Única de la Bolsa de Valores de Colombia), as amended from time to time, and Decree 2555. These rules mainly govern listing
and trading activities in the Colombian Stock Exchange. In particular, they include (i) listing requirements, (ii) suspension and/or cancellation of the securities listed with the Colombian Stock Exchange and (iii) admission
requirements for broker-dealers.
Prior to 1992, settlement procedures for trades on the Colombian Stock Exchange occurred through
physical delivery of the securities and were regulated by the Colombian Stock Exchange. Deceval was established in 1992 as a centralized securities depository and clearing facility for securities of private issuers in charge of administering the
transfer and registry of securities and facilitating the exercise of economic and political rights of securities holders. Deceval formally began operations in 1994 and its activities are regulated by Law 964 and Decree 2555, as amended. Settlement
procedures could then be made either through physical delivery or in book-entry form. Except for certain specific public auction procedures, since 2001 the settlement of securities transactions on the Colombian Stock Exchange is customarily made at
T+3 through Decevals book-entry system. In 2017, the BVC and Deceval underwent a corporate integration in order to decrease transaction costs on operations and create a more competitive market. There also exists in Colombia a limited clearing
facility through the Central Bank for government-issued or government-guaranteed securities.
108
Pursuant to Decree 2555, the Colombian Stock Exchange has the prerogative to order the suspension
of trading in a particular security of a particular company as a means of controlling excessive price volatility or as a protective measure for the investors and the market. The Colombian Stock Exchange may also suspend all trading in securities
listed on the exchange in response to the issuers non-compliance with market or securities regulations.
Not applicable.
Not applicable.
Not applicable.
Item 10.
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Additional Information
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Not applicable.
B.
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Memorandum and Articles of Association
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We are constituted as a corporation under Panama law and our articles of incorporation have been duly registered with the Public Registry of
Panama at Folio 728981(S) of the Mercantile Section. We are mainly engaged in the air transportation of passengers and cargo, although our articles of incorporation grant us general powers to engage in other lawful businesses, as set forth in
Article 2.
Description of Capital Stock
General
Our articles of
incorporation authorize us to issue 4,000,000,000 shares of capital stock, par value of $0.125 per share, which may be divided into common shares and shares with preferred dividend and limited voting rights, or our preferred shares.
As of December 31, 2019, we had 660,800,003 common shares and 340,507,917 preferred shares outstanding (including 4,320,632 preferred
shares held by Fidubogota on behalf of us). Subject to certain exceptions, the number of outstanding preferred shares cannot exceed the number of outstanding common shares. The number of outstanding preferred shares may exceed the number of
outstanding common shares only if it is approved by the affirmative vote of no less than 70% of the issued and outstanding common shares and of no less than 70% of the issued and outstanding preferred shares. In the event that our outstanding
preferred shares represent more than 75% of our total outstanding shares, the holders of preferred shares have, in addition to their other rights set forth in our articles of incorporation, the right to vote as if they were holders of common shares.
Common shares may be freely converted into preferred shares upon the declaration of effectiveness of a registration statement associated with an ADR program of our preferred shares, provided that there be a minimum of five common shares at all
times.
Our articles of association do not contain any provisions governing an ownership threshold above which shareholder ownership must
be disclosed.
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Board of Directors
Certain related party transactions require the approval of the Independent Third Party and BRW (see Item 7. Major Shareholders and
Related Party TransactionsB. Related Party TransactionsAmended and Restated Joint Action Agreement and Share Rights Agreement), including (i) a directors power to vote on a proposal, arrangement or contract in
which the director is materially interested and; (ii) the directors power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body.
With regards to borrowing powers exercisable by the directors and how such borrowing powers can be varied, our articles of association require
approval from a majority of our independent directors in order to, except as contemplated by the business plan and budget, incur indebtedness for borrowed money if such borrowing involves an aggregate annual amount greater than 10% of the amount
budgeted therefor in the business plan and budget.
There is no number of shares required for directors qualification and our
articles of association do not contain any provisions regarding the retirement or non-retirement of directors at a certain age.
Preferred Shares
Our preferred
shares are currently registered in the Colombian National Registry of Securities and Issuers (Registro Nacional de Valores y Emisores) kept by the SFC and trade on the Colombian Stock Exchange. Pursuant to article 6.15.1.1.2 of Decree 2555,
subject to certain exceptions, all trades and sales of shares listed on the Colombian Stock Exchange in an amount in Colombian pesos equivalent or superior to 66,000 Units of Real Value, must be made through the trading systems of the Colombian
Stock Exchange. A holder of preferred shares must meet the requirements set forth by applicable Colombian regulations for the sale or transfer of the preferred shares to be a perfected interest and such sale or transfer must be properly registered
in Deceval. Accordingly, any dispute that arises from the sale and purchase of preferred shares is subject to the Colombian laws and regulations and to the jurisdiction of Colombian courts. Under Colombian law, foreign investors receive the same
treatment as Colombian citizens with respect to the ownership and voting of our ADSs and preferred shares. For more information, see D. Exchange ControlsRegistration of the ADR Program and Investment in our ADSs by non-residents of Colombia.
The laws of Colombia govern any transfer or encumbrance of preferred
shares except for matters that are governed by the laws of Panama or by our bylaws. Any claims brought against us by our shareholders shall be filed pursuant to the laws of Panama.
The holders of preferred shares are not entitled to receive notice of, attend to or vote at any general shareholders meeting of holders
of common shares except as described in our articles of incorporation or under Shareholders Meetings.
Rights
Each holder of preferred share is entitled to, among other things:
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a minimum preferential dividend of COP 50 per share. See Preferred SharesMinimum Preferred
Dividend;
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subject to certain conditions, together with the holders of common shares a pro rata portion of our distributable
profits;
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preferential reimbursement of its capital contributions once our other creditors are duly paid in the case of our
dissolution or liquidation;
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exercise of certain tag along rights (see Tag Along Rights); and
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any other right granted by our bylaws to the holders of common shares, except for, subject to certain conditions:
(i) pre-emptive rights of holders of common shares to subscribe capital stock different from preferred shares; (ii) the right to inspect our corporate books and records, except in those cases in
which the right of inspection is related to subject matters in which the holders of preferred shares have the right to participate in the general shareholders meeting and to vote in them and (iii) right to participate and vote in a general
shareholders meeting, except in certain cases in which the holders of preferred shares have the right to participate and vote in the general shareholders meeting.
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There are no sinking fund provisions, no obligations to further capital calls by the company and
no provisions discriminating against existing or prospective holders as a result of such holders owning a substantial number of shares. Under Panamanian law, there is no distinction between Panamanian and foreign nationals with respect to rights
granted by the shares.
Minimum Preferred Dividend
Our articles of incorporation (pacto social) provide that holders of our preferred shares have a right to a minimum preferred dividend
that will be paid on a preferential basis over the dividend corresponding to our common stock. If our annual distributable profits are sufficient to pay a dividend per share of at least COP 50 per share to all our holders of preferred and common
shares, such profits will be paid equally with respect to our preferred and common shares. However, if our annual distributable profits are not sufficient to pay a dividend of at least COP 50 per share to holders of preferred and common shares,
a minimum preferred dividend of up to COP 50 per share will be distributed pro rata to the holders of preferred shares, and any excess above such minimum preferred dividend will be distributed solely to holders of common shares.
Dividends must be paid in one or more installments, within the 12 months following the date in which the dividend payment terms and
conditions are approved by the general shareholders meeting. Dividends are payable to the holders that are registered in the book-entry system of Deceval as of the ex-dividend date established pursuant to
Colombian law. Dividends are payable in Colombian pesos and, when the dividends are approved in a currency different than Colombian pesos, dividends will be converted to Colombian pesos using the current market exchange rate (tasa representativa
del mercado), in force in the previous business day in which payment must be made. All dividend payments of preferred shares must be made through Deceval. Dividends paid to the holders of ADSs will be converted into U.S. dollars by the
depositary.
To the extent permitted by applicable law, our articles of incorporation and Decevals internal systems, we may either
pay dividends outside Colombia to shareholders who are non-Colombian residents or, if possible, transfer the funds corresponding to the non-Colombian resident
shareholders to an account held by Deceval outside Colombia. Thereafter, Deceval, on our behalf, will pay the dividends to the non-Colombian resident shareholders outside Colombia. In any case, payments of
dividends will be conducted in accordance with foreign exchange regulations.
A majority of our shareholders may, in their sole discretion
and for any reason, amend or discontinue the dividend policy.
Liquidation Preference
Upon liquidation, each holder of preferred shares and, consequently, ADSs will be entitled to a preferential reimbursement of its capital
contribution (aporte) out of the surplus assets available for distribution to shareholders. This reimbursement, if any, is payable in Colombian pesos before any distribution or payment may be made to holders of common shares. Amounts in
Colombian pesos will be converted by the depositary into U.S. dollars and paid to the holders of ADSs, net of fees, expenses and any taxes. If, upon any liquidation, assets that are available for distribution among the holders of preferred shares
and ADSs (in liquidation) are insufficient to pay in full their respective liquidation preferences, assets will be distributed among those holders pro rata.
Limited Voting Rights
Each holder
of preferred shares is entitled to vote at a general shareholders meeting only in connection with the following matters, subject to certain conditions:
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our anticipated dissolution, merger, integration or transformation or change of our corporate purpose;
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the suspension or cancellation of the registration of preferred shares at the Colombian Stock Exchange;
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determination by the SFC that there have been concealed or diverted benefits that decreased our distributable
profits;
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when modifications that could impair the rights of holders of preferred shares are being voted upon;
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when the conversion of the preferred shares into common shares is being voted upon; and
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111
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if the number of preferred shares were to exceed the number of common shares (subject to certain exceptions).
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Also, each holder of preferred shares shall be entitled to one vote on all matters submitted to a vote at a general
shareholders meeting (as if they were holders of common shares) when the holders of preferred shares represent more than 75% of our capital stock.
Tag Along Rights
Holders of
preferred shares are entitled to participate in any sale or transfer of common shares if Kingsland or BRW sell or transfer a number of common shares (Shares Transfer), that would result in a change of control with respect to us
(Tag Along Right). The Tag Along Right does not apply for sales or share transfers between Kingsland and BRW and/or their respective affiliates.
If Kingsland or BRW plans to enter into a Shares Transfer that would result in a change of control, such holder of common shares must send a
written notification to our legal representative and a description of the main conditions of the Shares Transfer. Within five business days of receipt of the written notification, our legal representative shall publish the main conditions of the
Share Transfer in a Colombian recognized newspaper and on the websites of the SFC and Colombian Stock Exchange.
Any Tag Along Right
provided herein does not oblige us, the holders of common shares or the buying third party to launch special transactions in the Colombian Stock Exchange.
Common Shares
Each holder of
common shares is entitled to, among other things, (i) one vote on all matters submitted to a vote at a general shareholders meeting; (ii) share equally in dividends from sources legally available therefor as declared at our annual
shareholders meeting; (iii) convert its common shares into preferred shares; (iv) freely inspect the corporate books and records; and (v) any rights set forth in our articles of incorporation or Panamanian law.
Each holder of common shares is entitled to vote on all matters submitted to a vote at a general shareholders meeting, including in
connection with the following matters:
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any proposed amendment to our articles of incorporation;
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the issuance of common or preferred shares; and
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the sale, transfer or disposition of all or substantially all of our assets.
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Shareholders Meetings
General shareholders meetings may be ordinary or extraordinary. Ordinary meetings occur at least once a year during the first three
months following the end of the prior fiscal year. Extraordinary meetings may take place when duly summoned for a specified purpose or purposes.
At ordinary annual meetings of shareholders, the board of directors is elected and our annual consolidated financial statements, audit and
management reports and any other issues required by applicable law or our bylaws are approved. Extraordinary meetings may be summoned by the chairman of our board of directors when deemed appropriate, or by our chief executive officer or by our
secretary, or whenever a meeting is requested by shareholders representing at least 20% of holders of our common shares.
A notice of an
extraordinary general shareholders meeting, listing the matters to be addressed at such meeting, must be published in a newspaper of wide circulation in Colombia, at least five business days prior to the meeting. The notice will also be
delivered by means of personal and written communication, addressed to each holder of common shares by registered mail to the address the shareholder has registered with the company and it will also be electronically published in the web page of the
company.
For both ordinary and extraordinary general shareholders meetings to be convened, a quorum represented by the presence of
a plurality of shareholders representing at least 50% (plus one share) entitled to vote at the relevant meeting is required.
112
General shareholders meetings related to (i) our anticipated dissolution, merger,
integration, transformation or change of our corporate purpose; (ii) any amendment that would impair the rights of the holders of preferred shares; (iii) the conversion of preferred shares into common shares; or (iv) the number of
preferred shares exceeding the number of common shares (subject to certain exceptions), require the presence of the holders of at least 70% of the outstanding preferred shares.
Each holder of preferred shares is entitled to vote at a general shareholders meeting only in connection with the following significant
corporate matters, subject to certain conditions: (i) our anticipated dissolution, merger, integration or transformation or change of our corporate purpose, (ii) the suspension or cancellation of the registration of preferred shares on the
Colombian Stock Exchange, (iii) determination by the SFC that there have been concealed or diverted benefits that decreased our distributable profits, (iv) any amendments that would impair the rights of the holders of preferred shares,
(v) the conversion of preferred shares into common shares and (vi) if the number of preferred shares were to exceed the number of common shares (subject to certain exceptions). Also, each holder of preferred shares is entitled to one vote
on all matters submitted to a vote at a general shareholders meeting when the holders of preferred shares represent more than 75% of our capital stock.
In the case of any shareholders meeting to consider any of the significant corporate matters above in respect of which holders of
preferred shares may vote, notice of the shareholders meeting must be given 15 business days in advance of the meeting date.
The
Amended and Restated Joint Action Agreement grants veto rights to BRW and the Independent Third Party to approve certain corporate decisions (see Item 7. Major Shareholders and Related Party TransactionsB. Related Party
TransactionsAmended and Restated Joint Action Agreement and Share Rights Agreement); prior to submission by us or by our board of directors of any such matter to a vote of our shareholders, we must send, among others, to each of the
Independent Third Party and BRW a written notice requesting that each of them approves such matter in the time constraints provided for in the Amended and Restated Joint Action Agreement.
English translation of Irrevocable Administration Mercantile Trust Agreement, dated as of March 23, 2012, by and between Fiduciaria
Bogotá S.A. and the registrant (formerly AviancaTaca Holding S.A.), which is included as Exhibit 3.1 to this annual report.
English translation of Temporary Bonus Plan adopted on March 6, 2012, which is included as Exhibit 2.1 to this annual report.
English translation of Lease Agreement No. OP-DC-CA-T2-0060-12, dated October 29, 2012, between Sociedad Concesionaria Operadora Aeroportuaria Internacional S.A.Opain S.A. and Aerovias
del Continente Americano S.A. Avianca, as amended, which is included as Exhibit 4.1 to this annual report.
English translation of Lease
Agreement, dated as of July 30, 2004, between U.A.E. Aeronautica Civil and Aerovias Nacionales de Colombia S.A. Avianca, as amended, which is included as Exhibit 4.2 to this annual report, and the amendments thereto as Exhibits 4.2.1 to 4.2.4.
Fuel Supply Contract of Domestic Flights, dated as of May 31, 2019, between Terpel S.A. and Aerovías del Continente Americano
S.A. Avianca, which is included as Exhibit 4.3 to this annual report.
Fuel Supply Contract of International Flights, dated as of
May 31, 2019, between Terpel S.A. and Aerovías del Continente Americano S.A. Avianca, which is included as Exhibit 4.3 to this annual report.
A320 Purchase Agreement, dated March 19, 1998, between Atlantic Aircraft Holding Limited and Airbus Industry relating to Airbus A320
family aircraft, as amended, which is included as Exhibit 4.4 to this annual report, and the amendments thereto as Exhibits 4.4.1 to 4.4.29.
A320 Purchase Agreement, dated April 16, 2007, between Aerovías del Continente Americano S.A. Avianca and Airbus S.A.S. relating
to Airbus A320 family aircraft, as amended, which is included as Exhibit 4.5 to this annual report, and the amendments thereto as Exhibits 4.5.1 to 4.5.13.
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Assignment, Assumption and Amendment Agreement, dated as of May 18, 2012, between
Aerovías del Continente Americano S.A. Avianca, Synergy Aerospace Corp. and Airbus S.A.S. in respect of four A330-200F of the 13 A330-200 and A330-200F under the Purchase Agreement dated
September 5, 2011 (the A330-200F Purchase Agreement), as amended, which is included as Exhibit 4.6 to this annual report, and the amendment thereto as Exhibit 4.6.1.
A320 Family and A320 NEO Family Purchase Agreement, dated as of December 27, 2011, between the registrant (formerly known as AviancaTaca
Holding S.A.) and Airbus S.A.S. relating to Airbus A320 family and A320neo family aircraft, as amended, which is included as Exhibit 4.7 to this annual report, and the amendments thereto as Exhibits 4.7.1 to 4.7.4.
Assignment, Assumption and Amendment Agreement, dated as of February 28, 2013, between Aerovías del Continente Americano S.A.
Avianca, the registrant and Airbus S.A.S. in respect of 26 A320 family aircraft and A320neo family under the A320 Family and A320 NEO Family Purchase Agreement dated December 27, 2011, as amended, which is included as Exhibit 4.8 to this
annual report, and the amendments thereto as Exhibits 4.8.1 to 4.8.4.
Assignment, Assumption and Amendment Agreement, dated as of
February 28, 2013, between Grupo Taca Holdings Limited, the registrant and Airbus S.A.S. in respect of 25 A320 family and A320neo family aircraft under the A320 Family and A320 NEO Family Purchase Agreement dated December 27, 2011, as
amended, which is included as Exhibit 4.9 to this annual report, and the amendments thereto as Exhibits 4.9.1 to 4.9.5.
Purchase
Agreement No. 3075, dated October 3, 2006, as amended and supplemented, between Aerovías del Continente Americano S.A. Avianca and The Boeing Company, relating to the purchase and sale of 10 Boeing Model 787-859 aircraft, as amended, which is included as Exhibit 4.10 to this annual report, and the amendments thereto as Exhibits 4.10.1 to 4.10.9.
Sale and Purchase Contract dated as of January 18, 2013, between the registrant (formerly known as AviancaTaca Holding S.A.) and Avions
de Transport Regional G.I.E. as amended and restated, relating to ATR 72-600 Aircraft, as amended, which is included as Exhibit 4.11 to this annual report.
Trent 700 General Terms Agreement, dated June 15, 2007, among Rolls Royce PLC, Rolls Royce Total Care Services Limited and
Aerovías del Continente Americano S.A. Avianca, as amended, which is included as Exhibit 4.12 to this annual report, and the amendments thereto as Exhibits 4.12.1 to 4.12.4.
General Terms Agreement 700 DEG 7308, dated June 1, 2012, between Rolls-Royce PLC, Rolls-Royce Total Care Services Limited and
Aerovías del Continente Americano S.A. Avianca and Tampa Cargo S.A., as amended, which is included as Exhibit 4.13 to this annual report, and the amendments thereto as Exhibits 4.13.1 to 4.13.3.
General Terms Agreement No. CFM-03-2007, dated as of
March 29, 2007, between CFM International, Inc. and Aerovías del Continente Americano S.A. Avianca, as amended, which is included as Exhibit 4.14 to this annual report, and the amendment thereto as Exhibit 4.14.1.
General Terms Agreement No. GE-1-1090789943, dated as of
December 18, 2007, between General Electric Corporation, GE Engine Services and Atlantic Aircraft Holding, Ltd., which is included as Exhibit 4.15 to this annual report.
OnPoint Solutions Rate per Engine Flight Hour Engine Services Agreement, dated as of January 18, 2008, between GE Engine Services, Inc.
and Aerovías del Continente Americano S.A. Avianca, which is included as Exhibit 4.16 to this annual report.
Rate Per Flight Hour
Agreement for CFM56-5B Engine Shop Maintenance Services, dated as of February 6, 2013, between CFM International, Inc. and Avianca Holdings S.A. (formerly known as AviancaTaca Holding S.A.), as amended,
which is included as Exhibit 4.17 to this annual report, and the amendment thereto as Exhibit 4.17.1.
General Terms Agreement No. CFM-1-2887169891, dated as of February 6, 2013, between CFM International, Inc. and the registrant (formerly known as AviancaTaca Holding S.A.), which is included as
Exhibit 4.18 to this annual report.
Rate Per Flight Hour Agreement for LEAP 1-A Engine Shop
Maintenance Services, dated as of February 6, 2013, between CFM International, Inc. and the registrant (formerly known as AviancaTaca Holding S.A.), which is included as Exhibit 4.19 to this annual report.
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Amended and Restated V2500® General
Terms of Sale, dated as of December 18, 2008, between IAE International Aero Engines AG and Atlantic Aircraft Holdings Limited, as amended, which is included as Exhibit 4.20 to this annual report, and the amendments thereto as Exhibits 4.20.1
to 4.20.2.
Amended and Restated V2500-A5 Fleet Hour Agreement, dated as of December 18,
2008, between IAE International Aero Engines AG and Atlantic Aircraft Holdings Limited, which is included as Exhibit 4.21 to this annual report.
Trent 1000 General Terms Agreement, dated June 15, 2007, among Rolls Royce PLC, Rolls Royce Total Care Services Limited and
Aerovías del Continente Americano S.A. Avianca, as amended, which is included as Exhibit 4.22 to this annual report, and the amendment thereto as Exhibit 4.22.1.
Assignment, Assumption and Amendment Agreement dated as of December 31, 2014, between Aerovías del Continente Americano S.A.
Avianca, the registrant, Avianca Leasing, LLC and Airbus S.A.S. in respect of A320 family aircraft and A320neo family under the A320 Family and A320 NEO Family Purchase Agreement dated December 27, 2011 (the First Avianca Leasing Assignment),
which is included as Exhibit 4.23 to this annual report.
A320 NEO Family Purchase Agreement dated as of April 30, 2015, between
Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings S.A. and Airbus S.A.S. relating to Airbus A320neo family, as amended, which is included as Exhibit 4.24 to this annual report, and the amendments thereto as Exhibits 4.24.1 to
4.24.15.
Liquid Aviation Fuel Supply Agreement (Regional) dated August 30, 2017 between Organizacion Terpel S.A. and Aerovias Del
Continente Americano S.A. Avianca, Tampa Cargo S.A.S., Taca Internacional Airlines S.A. Sucursal Colombia, Trans American Airlines S.A. Sucursal Colombia, Lineas Aereas Costarricenses S.A. Sucursal Colombia and Aerolineas Galapagos S.A. Sucursal
Colombia, which is included as Exhibit 4.26 to this annual report.
Amended and Restated Registration Rights Agreement, dated as of
September 11, 2013, between the registrant, Synergy Aerospace Corp. and Kingsland Holdings Limited, as amended, which is included as Exhibit 2.2 to this annual report, and the amendment thereto as Exhibit 2.2.1.
Joint Action Agreement dated as of November 29, 2018, between the registrant, Kingsland, BRW, United and Synergy, as amended, which is
included as Exhibit 2.3.1 to this annual report and the amendment thereto as Exhibit 2.3.1.
Share Rights Agreement dated
November 29, 2018 between the registrant, Kingsland, BRW United and Synergy, which is included as Exhibit 2.4 to this annual report.
For a discussion of material financing agreements, see Item 5. Operating and Financial Review and ProspectsB. Liquidity and
Capital ResourcesDebt and Other Financing Agreements.
In 1990, the Colombian government adopted a policy of gradual currency liberalization. Foreign exchange holdings abroad were permitted, and in
a series of decrees, control of the exchange rate was shifted from the Colombian Central Bank to the commercial foreign exchange market (mercado cambiario).
Law 9 of 1991, Resolution 1 of 2018 and External Circular DCIN83 of the Central Bank, as amended, establish two types of markets for
foreign currency exchange: (1) the free market, which comprises all foreign currencies originated in sales of services, donations, remittances and all other inflows or outflows that do not have to be channeled through the FX market (as defined
below), or the free market. The free market also includes assets and investments abroad, including its profits, owned by Colombian residents prior to September 1, 1990; and (2) the controlled market (FX market), which comprises
(a) all foreign currencies originated in operations considered to be operations of the FX market, or the controlled operations, which may only be transacted through foreign exchange intermediaries or through the registered compensation accounts
mechanism, or the compensation accounts, or (b) foreign currencies, which although not required to be bought from a foreign exchange, including the FX market, are voluntarily channeled through such market.
Under Colombian FX regulations, foreign exchange intermediaries, or FX intermediaries, are authorized to enter into foreign exchange
transactions, or FX transactions, to convert Colombian pesos into foreign currencies or
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foreign currencies into Colombian pesos. In addition, there are certain requirements and obligations established by law and by the board of directors of the Central Bank in order to transfer
currency into or out of Colombia. Colombian law provides that the Colombian Central Bank may intervene in the foreign exchange market in case the value of the Peso experiences significant volatility. The Colombian government and the Central Bank may
also limit, on a temporary basis, the remittance of funds abroad by Colombian residents whenever the international reserves of Colombia fall below an amount equivalent to three months worth of imports. Since the institution of the current
foreign exchange regime in 1991, the Colombian government and the Colombian Central Bank have not limited the remittance of funds abroad. We cannot assure you that these authorities will not intervene in the future.
Transactions conducted through this foreign exchange market are made at market rates negotiated with FX intermediaries or the relevant
counterparty if using a compensation account. Colombian residents, including Avianca and our other Colombian direct and indirect subsidiaries, are entitled to maintain foreign currency accounts abroad, which can be used for making and receiving
payments in foreign currency transactions. Such accounts can either be (i) compensation accounts (cuentas de compensación), which may be used to conduct transactions to be mandatorily made through the foreign exchange market,
among others, and which must comply with certain reporting requirements before the Colombian Central Bank and, in certain cases, the Colombian tax authorities or (ii) so-called free market
accounts, which may be used to effect any transaction on the free market but cannot be used to conduct transactions of mandatory channel through the exchange market.
Registration of the ADR Program and Investment in our ADSs by non-residents of Colombia
The International Investment Statute of Colombia as provided by Decree 2080 of 2000, complied into Decree 1068 of 2015, as amended, regulates
the manner in which foreign investors may participate in the Colombian securities markets and undertake other types of investments, prescribes registration with the Colombian Central Bank of certain foreign exchange transactions and specifies
procedures under which certain types of foreign investments are to be authorized and administered.
The International Investment Statute
provides specific procedures for the registration of ADR programs as a form of foreign portfolio investment, which is required for the preferred shares to be offered in the form of ADSs. Under these regulations, failure to register foreign exchange
transactions relating to investments in Colombia with the Colombian Central Bank on a timely basis may prevent the investor from obtaining remittance payments, including for the payment of dividends, and constitute an exchange control violation
and/or may result in a fine.
Each individual investor who deposits preferred shares into the ADR facility for the purpose of acquiring
ADSs will be required, as a condition to acceptance by a custodian of such deposit, to provide or cause to be provided certain information to enable it to comply with the registration requirements under the foreign investment regulations relating to
foreign exchange. A holder of ADSs who withdraws preferred shares from the ADS deposit facility under certain circumstances may be required to comply directly with certain requirements under the foreign investment regulations. Under these
regulations, the failure of a non-resident investor to report or register foreign exchange transactions relating to investments in Colombia with the Central Bank on a timely basis may prevent the investor from
obtaining remittance payments, including for the payment of dividends, constitute an exchange control violation and/or may result in a fine.
Under Colombian law, foreign investors receive the same treatment as Colombian citizens with respect to the ownership and voting of the ADSs
and our preferred shares.
Exchange Rates
The Colombian government and the Central Bank have considerable power to determine governmental policies and actions that relate to the
Colombian economy and, consequently, to affect the operations and financial performance of businesses. The Colombian government and the Central Bank may seek to implement additional measures aimed at controlling further fluctuation of the Colombian
peso against other currencies and fostering domestic price stability.
The Central Bank and the Colombian Ministry of Finance and Public
Credit (Ministerio de Hacienda y Crédito Publico) (MHCP) have in the past adopted a set of measures intended to tighten monetary policy and control the fluctuation of the Colombian peso against the U.S. dollar.
Colombia has a free market for foreign exchange, and the Colombian government allows the Colombian peso to float freely against the U.S.
dollar. There can be no assurance that the Colombian government will maintain its current policies with regard to the Colombian peso or that the Colombian peso will not depreciate or appreciate significantly in the future.
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U.S. Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of our
preferred shares and the ADSs by a U.S. Holder (as defined below) as of the date of this annual report. This discussion is limited to U.S. Holders that hold our preferred shares or the ADSs as capital assets for U.S. federal income tax
purposes (generally, property held for investment). This discussion does not address tax considerations that may be relevant to particular holders in light of their individual circumstances, including:
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banks, financial institutions or insurance companies;
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real estate investment trusts;
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regulated investment companies;
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dealers and brokers in stocks, securities or currencies;
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traders in securities that use a
mark-to-market method of tax accounting;
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certain former citizens or long-term residents of the United States;
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persons that hold our preferred shares or ADSs as part of a hedge, straddle, appreciated financial position,
conversion or other synthetic security or integrated investment or risk reduction transaction for U.S. federal income tax purposes;
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persons required to accelerate the recognition of any item of gross income as a result of such income being
recognized on an applicable financial statement;
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persons that hold, directly, indirectly or constructively, 10% or more (by vote or value) of our equity or the
equity of any of our subsidiaries;
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persons whose functional currency is not the U.S. dollar.
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If a partnership (or any entity treated as a partnership for U.S. federal income tax purposes) holds our preferred shares or ADSs, the tax
treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. A partner in a partnership holding our preferred shares or ADSs should consult its tax advisor.
In addition, this discussion does not address the U.S. federal estate, gift or alternative minimum taxes, or any tax considerations arising
under the net investment income tax, nor does it address any tax considerations arising under the laws of any state, local or foreign jurisdiction.
This discussion is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the Code), administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations (the Regulations), all as of the date of this annual report, and any of which are subject to change, possibly with a retroactive effect, or
differing interpretations so as to result in U.S. federal income tax considerations different from those discussed below. There can be no assurance that the Internal Revenue Service (the IRS) or a court will not take a contrary position
with respect to any U.S. federal income tax considerations described below. There is currently no comprehensive income tax treaty in effect either between the United States and Colombia, or between the United States and Panama. In addition, this
summary assumes that the deposit agreement and all other related agreements will be performed in accordance with their terms.
For
purposes of this discussion, a U.S. Holder is a beneficial owner of our preferred shares or ADSs that is for U.S. federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or
organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust that (i) is subject to the primary supervision of a court within the United States and all
substantial decisions of which one or more U.S. persons have the authority to control or (ii) has a valid election in effect under applicable Regulations to be treated as a U.S. person.
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The federal income tax consequences to U.S. Holders may also be affected by our Chapter 11 proceedings, which remain ongoing. Prospective
investors should consult their tax advisors concerning the U.S. federal income tax considerations of the ownership or disposition of our preferred shares or the ADSs in light of our Chapter 11 proceedings and such investors particular
circumstances, as well as any considerations arising under the laws of any other taxing jurisdiction.
ADSs
If a U.S. Holder holds ADSs, for U.S. federal income tax purposes, such holder will generally be treated as the owner of the underlying
preferred shares that are represented by such ADSs. Accordingly, deposits or withdrawals of preferred shares for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.
Distributions
Subject to the discussion
under Passive Foreign Investment Company below the gross amount of distributions (including amounts withheld to reflect foreign withholding tax, if any) on our preferred shares or ADSs will be taxable as dividends to the extent
paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such income will generally be includible in the gross income of a U.S. Holder on the day actually or constructively received by such
U.S. Holder, in the case of our preferred shares, or by the depositary, in the case of our ADSs. To the extent that the amount of any such distribution exceeds our current or accumulated earnings and profits, as determined for U.S. federal income
tax purposes, such amount will be treated first as a return of capital, and thereafter as capital gain. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will
generally be reported as a dividend. Dividends received on our preferred shares or ADSs will generally not be eligible for the dividends received deduction allowed to corporations under the Code.
Individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gain tax
rate applicable to qualified dividend income on dividends paid on our preferred shares or ADSs, provided that certain conditions are satisfied, including that (i) the preferred shares or ADSs on which the dividends are paid are
readily tradable on an established securities market in the United States or we are eligible for the benefits of an approved comprehensive income tax treaty with the United States, (ii) we are not either a PFIC nor treated as such with respect
to a U.S. Holder (as discussed below) for the taxable year in which the dividend was paid or the preceding taxable year, and (iii) certain holding period requirements are met. As a result of our Chapter 11 proceedings, the NYSE applied to the
SEC on May 27, 2020 in order to delist the ADSs. Therefore, the ADSs on which the dividends are paid have ceased to be readily tradable on an established securities market in the United States. Because our preferred shares are not listed on an
established securities market and we are not eligible for the benefits of an approved comprehensive income tax treaty with the United States, we do not expect that the dividends we pay on our preferred shares that are not represented by ADSs will
meet the conditions required for such reduced tax rates. U.S. Holders should consult their tax advisors regarding the application of these rules to their particular circumstances.
To the extent relevant, the amount of any dividend paid in Pesos will equal the U.S. dollar value of the Pesos received calculated by
reference to the exchange rate in effect on the date the dividend is received by a U.S. Holder, in the case of preferred shares, or by the depositary, in the case of ADSs, regardless of whether the Pesos are converted into U.S. dollars. If a U.S.
Holder converts the Pesos received as a dividend into U.S. dollars on the date they are received, such holder will generally not be required to recognize foreign currency gain or loss in respect of the dividend income. If a U.S. Holder does not
convert the Pesos received as a dividend into U.S. dollars on the date of receipt, such holder will have a basis in the Pesos equal to their U.S. dollar value on the date of receipt. Any foreign currency gain or loss recognized by a U.S. Holder on a
subsequent conversion or other disposition of any Pesos received in a dividend will generally be treated as U.S. source ordinary income or loss.
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To the extent relevant, a U.S. Holder may be eligible, subject to a number of complex
limitations, to claim a foreign tax credit in respect of any nonrefundable foreign withholding taxes imposed on dividends received on our preferred shares or ADSs. For purposes of calculating the foreign tax credit, dividends paid on our preferred
shares or ADSs will generally be treated as foreign source income and will generally constitute passive category income. A U.S. Holder who does not claim a foreign tax credit on foreign tax withheld may instead claim a deduction, for U.S. federal
income tax purposes, in respect of such withholding, but only for a year in which such U.S. Holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders should consult their tax
advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Taxable Disposition
A U.S. Holder will generally recognize capital gain or loss upon the sale or other taxable disposition of our preferred shares or ADSs in an
amount equal to the difference, if any, between the amount realized upon the sale or other taxable disposition and the U.S. Holders adjusted tax basis in such preferred shares or ADSs. Any capital gain or loss will be long-term if the
preferred shares or ADSs have been held for more than one year and will generally be U.S. source gain or loss for U.S. foreign tax credit purposes. The deductibility of a capital loss may be subject to limitations.
Subject to the discussion under Passive Foreign Investment Company below, a U.S. Holder will generally recognize capital
gain or loss upon the sale or other taxable disposition of our preferred shares or ADSs in an amount equal to the difference, if any, between the amount realized upon the sale or other taxable disposition and such U.S. Holders adjusted tax
basis. For these purposes, if any foreign income tax is withheld on the sale or other taxable disposition of our preferred shares or ADSs, the amount realized will include the gross amount of the proceeds of that sale or other taxable disposition
before deduction of the foreign income tax. Any capital gain or loss will be long-term if such U.S. Holder has held our preferred shares or ADSs for more than one year. Long-term capital gains of non-corporate
U.S. Holders are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations under the Code. Any gain or loss recognized by U.S. Holders will generally be treated as U.S. source gain or loss for foreign tax
credit purposes. Consequently, U.S. Holders may not be able to use the foreign tax credit arising from any foreign tax imposed on the disposition of our preferred shares or ADSs unless such credit can be applied (subject to applicable limitations)
against tax due on other income treated as derived from foreign sources. The rules governing the foreign tax credit are complex. U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit under their
particular circumstances.
Passive Foreign Investment Company
A non-U.S. corporation will be classified as a passive foreign investment company (a PFIC)
for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of passive income or (ii) 50% or more of the value of its assets (determined on the basis of
a quarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income
and net foreign currency gains. In addition, a non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other corporation in
which it owns, directly or indirectly, more than 25% (by value) of the stock.
Based on certain estimates of our gross income and gross
assets, we do not expect to be classified as a PFIC in the current taxable year or for the foreseeable future. However, because PFIC status will be determined by us on an annual basis and since such status depends upon the composition of our income
and assets, and the nature of our activities, as well as the uncertainty regarding the effect that our ongoing Chapter 11 proceedings and the ongoing impact of COVID-19 will have on our passenger and cargo revenue and on the composition of our
income and assets, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable year, nor will we give any assurances as to whether we were a PFIC for any prior taxable year.
If we are classified as a PFIC for any taxable year during which a U.S. Holder owns any of our preferred shares or ADSs, unless the U.S.
Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a generally penalizing
effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual
distributions paid in the three preceding taxable years or, if shorter, the U.S. Holders holding period for our preferred shares or ADSs), and (ii) any gain realized on the sale or other disposition of our preferred shares or ADSs.
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If we are a PFIC for any taxable year during which a U.S. Holder holds our preferred shares or
ADSs and any of our subsidiaries is also a PFIC, such U.S. Holder will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC. U.S. Holders should consult their tax advisors regarding the application of the PFIC
rules to any of our subsidiaries.
If we were to be classified as a PFIC, a U.S. Holder may make a mark-to-market election with respect to our preferred shares or ADSs provided our preferred shares or ADSs, as the case may be, are treated as regularly traded on a qualified exchange or other market as
defined in applicable Regulations. Because, as a technical matter, a mark-to-market election cannot be made for any lower-tier PFICs that we may own, however, a U.S.
Holder may continue to be subject to the PFIC rules with respect to such holders indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. We do not intend to make
available the information necessary for a U.S. Holder to make a qualified electing fund election. U.S. Holders should consult their tax advisors regarding the potential availability and considerations of making a mark-to-market or qualified electing fund election in case we are classified as a PFIC in any taxable year.
If a U.S. Holder holds our preferred shares or the ADSs in any year in which we are treated as a PFIC with respect to such U.S. Holder, such
U.S. Holder will generally be required to file IRS Form 8621 and such other forms as may be required by the U.S. Treasury Department.
Foreign Asset
Reporting
Certain U.S. Holders are required to report information relating to our preferred shares or the ADSs, subject to certain
exceptions (including an exception for preferred shares or ADSs held in accounts maintained by certain financial institutions), by filing IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which
they hold preferred shares or ADSs. U.S. Holders should consult their tax advisors regarding foreign asset reporting requirements relating to their ownership of our preferred shares or the ADSs.
Panama
The following is a discussion of
the material Panamanian tax considerations to holders of our preferred shares or the ADSs under Panamanian tax law, and is based upon the tax laws, decrees, interpretative rulings, judicial decisions and regulations in force and effect as of the
date of this annual report, which may be subject to change. This discussion does not address the tax treatment of investors that may be subject to special tax regimes or tax treaties. This summary is not intended as tax advice to any particular
investor, nor does it purport to furnish information in the level of details as, or with attention to, an investors specific circumstances that would be provided by an investors own tax advisor. Investors are urged to consult their own
tax advisors as to the precise Panamanian and other tax consequences of acquiring, owning and disposing of our preferred shares of the ADSs.
General Principles
Panamas
income tax regime is based on territoriality principles, which define taxable income only as revenue generated from a source within Panama, or for services rendered outside of Panama which, by their nature, are intended to directly benefit the local
commercial activities of individuals or corporations that operate in Panama.
Taxation of Dividends
Distributions by Panamanian corporations, whether in the form of cash, stock or other property, are subject to a 10% withholding tax for the
portion of the distribution that is attributable to Panamanian sourced income, as defined pursuant to the territoriality principles that govern Panamanian tax law, and to a withholding tax of 5% of the portion of the dividend that is attributable to
foreign-sourced income. Panama does not impose a withholding tax on dividends distributed by entities that do not earn income from Panamanian sources. Therefore, distributions on our preferred shares or the ADSs would not be subject to withholding
taxes given that we do not trigger Panamanian sourced income.
Taxation of Capital Gains
For securities issued by an entity that does not directly or indirectly receive Panama source income, Panamanian taxes on capital gains will
not apply either to Panamanians or nationals of other countries in connection with the sale or disposition of these securities.
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For securities issued by an entity that directly or indirectly receives Panama source income,
Panamanian taxes on capital gains will apply to Panamanians or nationals of other countries in connection with the sale or disposition of the preferred shares, at a rate of 10% on the capital gains realized, payable by a 5% withholding on the
purchase price by the purchaser and tender such amount to the tax authorities within the following 10 business days, as an advance on the sellers capital gains tax payment. Nevertheless, at the sellers option, the amount withheld will
satisfy the tax obligation even if it is less than 10% of the capital gain. If the amount withheld exceeds 10% of the capital gain, the seller has the option to file a tax return and claim a tax credit or a refund of such excess. In the case of
securities issued by an entity that are of economically invested assets both in Panama and offshore, the taxation of capital gains will be levied on the proportion of the gains derived or resulting from the Panamanian economically invested assets.
For securities issued by an entity that directly or indirectly receives Panama source income are registered with the SMV and are sold through an organized market, Panamanian taxes on capital gains will not apply either to Panamanians or to nationals
of other countries.
Other Panamanian Taxes
There are no estate, gift or other taxes imposed by the Panamanian government that would affect a holder of our preferred shares or the ADSs,
whether such holder were Panamanian or a national of another country.
Colombia
The following is a summary of the material Colombian tax considerations to holders of ADSs under Colombian tax law, and it is based upon the
tax laws and regulations in force and effect as of the date of this annual report, which may be subject to changes. This summary is not intended to be a comprehensive description of all Colombian tax considerations that may be relevant to a decision
to purchase the ADSs. Prospective purchasers should consult their own tax advisors as to Colombian tax consequences of the purchase, ownership and sale of ADSs or underlying preferred shares, including, in particular, the application of the tax
considerations discussed below to their particular situations, as well as the application of state, local, foreign or other tax laws.
Legal Framework
Colombian and non-Colombian individuals considered residents are subject to income tax and
capital gain tax with respect to worldwide source income and Colombian and non-Colombian source income. On the other hand, Colombian nationals and non-Colombian
individuals with no tax residence in Colombia are subject to income tax and capital gain tax but only with respect to their Colombian source income.
Colombian entities are subject to income tax with respect to their worldwide income. Moreover, foreign
non-resident entities are subject to income tax and capital gain tax in Colombia but only with respect to their Colombian source income. Permanent establishments of foreign
non-resident entities or individuals are subject to income tax and capital gain tax in Colombia on their worldwide income.
Dividends will be deemed Colombian source income when distributed by a Colombian company. Income from the sale of shares will be deemed
Colombian source if the respective company is deemed Colombian. A given entity is deemed to be Colombian for income tax purposes whenever such entity is domiciled in Colombia, incorporated under Colombian laws or it has its effective place of
management in Colombia.
The tax bill enacted in December 2019 provided for changes in income tax and value-added tax, among others. Among
the major changes that were applicable as of January 1, 2019 and for following years: i) decrease in the corporate income tax rates to 32% for fiscal year 2020, 31% for fiscal year 2021 and 30% for fiscal year 2022 and onwards, ii) gradual
elimination of the presumptive income taxable base to 0.5% for fiscal year 2020 and 0% for fiscal year 2021 and onwards, iii) increase in income tax withholdings on payments to outside of Colombia, among others. Certain of these changes will not
apply to us, considering the Legal Stability Agreement we signed with the government.
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Income Tax on Dividend Income
Dividends distributed by non-Colombian companies such as us are not deemed Colombian source income.
Consequently, non-resident individuals and non-Colombian companies, such as the depositary or any non-resident or non-Colombian company acting as shareholder, will not be subject to income tax in Colombia with respect to dividend income earned from us.
By contrast, resident individuals and Colombian companies acting as shareholders will be subject to income tax in Colombia with respect to
dividend income earned from us.
Resident individuals and Colombian companies subject to income tax in Colombia, who earned non-Colombian source dividends subject to tax in the country of origin, are entitled to credit the tax paid abroad from the amount of income tax, including its surcharge in case the taxpayer is subject to this tax,
as follows, in accordance with article 254 of the Colombian Tax Code:
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the amount of the tax credit should be equivalent to the result of multiplying the amount of the dividends by the
effective income tax rate at which the profits that gave rise to the dividends were subject to; and
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when the entity distributing the dividends that are subject to tax in Colombia received in turn dividends of
other companies located in the same or other jurisdictions, the amount of the tax credit should be equivalent to the result of multiplying the amount of the dividends received by the Colombian taxpayer, by the effective tax rate at which the profits
that generated the dividends were subject to.
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Pursuant to Colombian tax law, an individual (including a holder of the
ADSs) will be deemed to be a tax resident in Colombia if (s)he meets any of the following criteria: if the individual stays continuously or discontinuously in the country for over 183 days during a period of 365 consecutive days including
travel days, bearing in mind that if the 365 days period happens in more than one fiscal year, the individual shall be considered a Colombian resident as of the second fiscal year. If the individual is fully or partially exempted from income tax or
capital gains tax in the foreign country where they reside, because of their diplomatic relation to Colombia or to a diplomat of Colombia under the Vienna Conventions on Diplomatic and Consular Relations.
Colombian nationals are also deemed as tax residents, regardless of where they have their physical presence, if they fulfill any of the
following conditions:
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whose spouse, legal partner, underage children or dependent persons have a tax residence in Colombia;
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that 50% or more of their income is considered Colombian source;
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that 50% or more of such persons assets are managed in Colombia;
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that 50% or more of such persons assets are possessed in Colombia;
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that having been notified by the Colombian Tax Office, did not offer proof of their tax residence outside of
Colombia; or
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having their tax residence in a place considered by the Colombian government as a tax haven.
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Individuals that according to these rules are not considered Colombian residents, must provide proof of their
foreign residence to the Colombian Tax Office by means of a tax residence certificate issued by the foreign tax authority.
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Colombian nationals considered tax residents due to the abovementioned criteria will not be considered as tax resident in Colombia if 50% or
more of their annual income is sourced in the jurisdiction in which they have their domicile, or 50% or more of their assets are located in the jurisdiction in which they have their domicile.
Dividends distributed by Colombian companies to Colombian resident individuals, non-Colombian
companies and Colombian companies generated from 2019 onwards are subject to dividend withholding tax. Colombian resident individuals are subject to progressive tax rates of 0% to 10% according to the amount paid based on thresholds set forth by
law; non-Colombian companies are subject to a tax rate of 7.5% in addition to the 32% withholding tax rate.
Dividends distributed by a Colombian company to on other Colombian company will only be subject to withholding tax when distributed to the
direct beneficiary.
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Withholding tax on dividends distributed by a Colombian company to on other Colombian company
does not apply if the companies belong to the same conglomerate or business group as registered with the Chamber of Commerce.
Income Tax/Capital Gain
Tax on Profit from the Sale of ADSs or Our Preferred Shares
Profits derived from the disposal of assets located in Colombia at the
moment of the transfer are deemed Colombian source income. If assets are located outside of Colombia at the moment of the transfer, profits derived would be deemed non-Colombian source income.
Profits arising from the disposal of any kind of assets, which have made part of fixed assets of the Colombian taxpayer (resident individual
or company) for a term of two years or more, are considered capital gains. Fixed assets are movable or immovable tangible and intangible assets that are not sold in the ordinary course of business of the taxpayer. In contrast, profits arising from
the disposal of assets that made part of the taxpayers fixed assets for less than two years are not considered capital gains but ordinary income.
The capital gain or the net income resulting from the sale of ADSs or our preferred shares comprises the difference between the transfer price
and the cost of the asset being sold. The transfer price is the market value made in cash or in kind. The market value is the one agreed by the parties, provided that does not differ considerably from the average market price for items of the same
kind, at the date of disposal. It is understood that the value agreed by the parties differs considerably from the average when it deviates by more than 15% of the prices established in trade for goods of the same kind and quality, at the date of
disposal, taking into account the nature, condition and status of assets.
The capital gain tax rate applicable to resident individuals
and Colombian companies is 10%. On the other hand, the income tax rate applicable to Colombian companies 32% (2020), 31% (2021) and 30% (2022 and onwards). Moreover, resident individuals are subject to income tax at marginal rates of 0%, 19%, 28%,
33%, 35%, 37% and 39%.
Profits from the transfer of shares listed on the Colombian Stock Exchange earned by the same beneficial owner,
not exceeding 10% of the outstanding shares of the respective company for a taxable year, will not be subject to income tax or capital gains tax in Colombia.
Accordingly, income resulting from the sale of ADSs or our preferred shares will not be deemed Colombian source income. Consequently, non-resident individuals and non-Colombian companies, such as the depositary or any non-resident or
non-Colombian company acting as investor or shareholder, will not be subject to income tax or capital gains tax in Colombia with respect to profits resulting from the sale of ADSs or our preferred shares.
By contrast, resident individuals and Colombian companies acting as investors or shareholders will be subject to income tax or capital gain
tax, as the case may be, with respect to profits resulting from the sale of ADSs or our preferred shares. Even if the purchaser of the ADSs or our preferred shares is a Colombian company, the seller will not be subject to withholding tax in
Colombia.
Resident individuals and Colombian companies subject to income tax or capital gain tax in Colombia, as the case may be, who
earned non-Colombian source income subject to tax in the country of origin, are entitled to credit the tax paid abroad from the amount of income tax and capital gains tax payable in Colombia, provided that the
tax credit does not exceed the amount of tax payable in Colombia for the same income.
The amount of the tax credit for effective taxes
paid abroad cannot exceed the amount of the basic income tax to be paid in Colombia.
F.
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Dividends and Paying Agents
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Not applicable.
Not applicable.
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We are subject to the information requirements of the Exchange Act, as amended, pursuant to which we file reports, including annual reports on
Form 20-F, and other information with the SEC. These filings are available to the public through the SECs website at www.sec.gov.
As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act. For
example, we are not required to prepare and issue quarterly reports. However, we make available to our shareholders quarterly reports containing unaudited financial information for the first three quarters of each fiscal year.
You may obtain additional information on our website at
http://aviancaholdings.com/English/investor-relations/financial-information/default.aspx. Information found on this website or on the SECs website is not a part of and is not incorporated by reference into this annual report.
I.
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Subsidiary Information
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Not applicable.
Item 11.
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Quantitative and Qualitative Disclosures About Market Risk
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Given the nature of our business, we are exposed mainly to changes in fuel prices, interest rates and foreign exchange.
Fuel
Our results of operations
are affected by changes in fuel prices. To mitigate this risk, we enter into fuel options, swaps and futures agreements. Market risk is estimated as a hypothetical 1% increase in the December 31, 2019 cost per gallon of fuel. Based on our 2019
fuel consumption and, assuming the same consumption in 2020, such an increase would result in an increase in our fuel expense of $12.0 million in 2020, not taking into account our derivatives contracts. As of December 31, 2019, we had
hedged approximately 2.6% of our projected 2020 fuel requirements.
The following table sets forth our fuel swaps and options at market
value as of December 31, 2018 and December 31, 2019:
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Maturing before 1 Year
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Maturing after 1 Year
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Total
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At December 31,
2018
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At December 31,
2019
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At December 31,
2018
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At December 31,
2019
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At December 31,
2018
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At December 31,
2019
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(in $ thousands)
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Options
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2,090.92
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524,964
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0
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0
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2,090.92
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524,964
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Swaps
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0
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0
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0
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0
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0
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0
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Our fuel hedging policy remained the same in 2018 and 2019 and differences in our outstanding options and
swaps are due to strategic internal decisions.
Interest
Our earnings are affected by changes in interest rates due to their impact on interest expense on variable-rate debt instruments and on
interest income generated from our cash and investment balances. If interest rates are 10.0% lower on average in 2020 than they were in 2019, our interest income from cash equivalents would decrease by $0.2 million. These amounts are determined
by considering the interest rates on our variable-rate debt and cash equivalent balances as of December 31, 2019.
Foreign Currencies
Our foreign exchange risk is limited as a majority of our revenue and costs and expenses are in U.S. dollars, which provides us
with a natural hedge. However, we do have significant revenue and costs and expenses in Colombian pesos and other currencies. In 2019, 79.7% of our revenue and 75.1% of our costs and expenses were
124
denominated in, or linked to, U.S. dollars, and 5.9% of our revenue and 16.7% of our costs and expenses were denominated in Colombian pesos. When our peso-denominated revenue exceeds our
peso-denominated costs and expenses, the depreciation of the Colombian peso against the U.S. dollar could have an adverse effect on our results, because conversion of these amounts into U.S. dollars will decrease our net income. We estimate that a
1.0% increase or decrease in the average exchange rate of the Colombian peso to the U.S. dollar would have an effect on our operating (loss) profit of $0.6 million. In addition, because we conduct business in local currencies in other
countries, we face the risk of variations in foreign currency exchange rates. A revaluation of the Peruvian nuevo sol, the Costa Rican colón, the Guatemalan quetzal and/or the Euro could have an adverse effect on us, as a
portion of our revenue is denominated in these other currencies. See Item 3. Key InformationD. Risk FactorsRisks Relating to Colombia, Peru, Central America and Other Countries in which We OperateFluctuations in foreign
exchange rates and restrictions on currency exchange could adversely affect us.
2019 and 2018 Revenue and Expenses Breakdown by
Currency
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Revenue
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Costs and Expenses
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2019
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2018
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2019
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2018
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U.S. dollar
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81.2
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%
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76.0
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%
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Colombian peso
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6.9
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%
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16.7
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%
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Euro
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3.7
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%
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0.0
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%
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Other
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8.1
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%
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7.3
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%
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Item 12.
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Description of Securities Other than Equity Securities
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Not applicable.
Not applicable.
Not applicable.
D.
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American Depositary Shares
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Fees and Expenses
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Persons depositing or
withdrawing shares or ADS holders must pay:
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For:
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$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
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Issuance of ADSs, including any issuance resulting from a distribution of shares or rights or other
property
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Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
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$0.05 (or less) per ADS
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Any cash distribution to ADS holders
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A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had
been deposited for issuance of ADSs
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Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to
ADS holders
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$0.05 (or less) per ADSs per calendar year
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Depositary services
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Registration or transfer fees
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Transfer and registration of shares on our share register to or from the name of the depositary upon the deposit or
withdrawal of shares
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Expenses of the depositary
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Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
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Foreign currency conversion to U.S. dollars
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Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS,
for example, stock transfer taxes, stamp duty or withholding taxes
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As necessary
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Any charges incurred by the depositary or its agents for servicing the deposited securities
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As necessary
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The depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or
surrendering ADSs for the purpose of withdrawal of shares or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of
distributable property to pay its fees. The depositary may collect its annual fee for depositary services by deducting it from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting
for them. The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees.
Payment of Taxes
You will be
responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited
securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the
depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.
Past Fees and Payments
From time
to time, the depositary may make payments to us to reimburse and/or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and
maintenance of the ADS program. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions. In 2019,
the Company received a payment of $412,576.85 from the depositary.
Notes to
Consolidated Financial Statements
(In USD thousands)
Avianca Holdings S.A. (the Company or Avianca Holdings S.A.), a Panamanian corporation whose registered address is at
Calle Aquilino de la Guardia No. 8 IGRA Building, Panama City, Republic of Panama, was incorporated on October 5, 2009 under the name SK Holdings Limited in and under the laws of the Commonwealth of the Bahamas. Subsequently, the Company
changed its corporate name as follows on March 10, 2010 to AviancaTaca Limited, on January 28, 2011 to AviancaTaca Holding, S.A and on March 3, 2011 changed its registered offices to Panama. In 2011 AviancaTaca listed its shares in
the Bolsa de Valores de Colombia (BVC) and was listed as PFAVTA: CB. On March 21, 2013 the Company changed its legal name from AviancaTaca Holding S.A. to Avianca Holdings S.A. and its listing name to PFAVH: CB. On November 6,
2013, the Company listed its shares on the New York Stock Exchange (NYSE) and is listed as AVH.
Synergy Aerospace Corp currently has the
majority of the Companys shareholding through BRW Aviation LLC, which is the Groups direct controller. Since May 24, 2019, Kingsland Holdings Limited, through its ownership of ordinary shares of Avianca Holdings and authority to
vote the ordinary shares of Avianca Holdings S.A. owned by BRW Aviation LLC, has effective control of Avianca.
These consolidated
financial statements comprise the Company and its subsidiaries (together referred to as the Group).
The following are the
significant subsidiaries in the Group included within these consolidated financial statements:
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Name of Subsidiary
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Country of
Incorporation
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Ownership
Interest%
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2019
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2018
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Avianca Ecuador S.A.
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Ecuador
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99.62
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%
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99.62
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%
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Aerovias del Continente Americano S.A. (Avianca)
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Colombia
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99.98
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%
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99.98
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%
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Avianca, Inc.
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EE.UU.
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100
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%
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100
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%
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Avianca Leasing, LLC
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EE.UU.
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100
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%
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100
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%
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Grupo Taca Holdings Limited
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Bahamas
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100
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%
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100
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%
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Latin Airways Corp.
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Panama
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100
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%
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100
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%
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LifeMiles Ltd.
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Bermuda
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70
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%
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70
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%
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Avianca Costa Rica S.A.
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Costa Rica
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92.42
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%
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92.42
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%
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Taca International Airlines, S.A.
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El Salvador
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96.83
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%
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96.83
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%
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Tampa Cargo Logistics, Inc.
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EE.UU.
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100
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%
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100
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%
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Tampa Cargo S.A.S.
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Colombia
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100
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%
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100
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%
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Technical and Training Services, S.A. de C.V.
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El Salvador
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99
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%
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99
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%
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Avianca Peru S.A.
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Perú
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100
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%
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100
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%
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Regional Express Américas S.A.S.
|
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Colombia
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100
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%
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100
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%
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VuMarsat S.A.
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Costa Rica
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100
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%
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100
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%
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F-15
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Company through its subsidiaries is a provider of domestic and international, passenger
and cargo air transportation, both in the domestic markets of Colombia, Ecuador, Costa Rica, Nicaragua and Peru and international routes serving North, Central and South America, Europe, and the Caribbean. The Company has entered into a number of
bilateral code share alliances with other airlines (whereby selected seats on one carriers flights can be marketed under the brand name and commercial code of the other), expanding travel choices to customers worldwide. Marketing alliances
typically include joint frequent flyer program participation; coordination of reservations, ticketing, passenger check in and baggage handling; transfer of passenger and baggage at any point of connectivity, among others. The code-share agreements
currently in place with other airlines include Air Canada, Aeromexico, United Airlines, Copa Airlines, Silver Airways, Iberia, Lufthansa, All Nippon Airways, Singapore Airlines, Eva Airways, Air China, Etihad Airways, Turkish Airlines, Air India,
Azul Linhas Aéreas Brasileiras and GOL Linhas Aéreas Inteligentes, Avianca, Taca International (as well as Taca affiliates) and Avianca Ecuador are members of Star Alliance, which give customers access to destinations and services
offered by Star Alliance network. Star Alliance members include several of the worlds most recognized airlines, including Lufthansa, United Airlines, Thai Airways, Air Canada, TAP, Singapore Airlines, among others, as well as smaller regional
airlines. All of them are committed to meeting the highest standards in terms of security and customer service.
Cargo operations are
carried out by our subsidiaries and affiliates, including Tampa Cargo S.A.S. with headquarters in Colombia and Aerotransporte de Carga Union S.A. de C.V. The Group also undertakes cargo operations through the use of hold space on passenger flights
and dedicated freight aircraft. In certain of the airport hubs, the Group performs ground operations for third-party airlines. Additionally, an important part of the cargo business is carried by the companies that operate passenger air
transportation.
The Company owns and operates a coalition loyalty program called LifeMiles (the Program), which is also the
frequent flyer Program for the airline subsidiaries of AVH. LifeMiles sells loyalty currency (Miles) to its commercial partners and Program members, including to AVH airlines and other airline partners from the Star Alliance network, and
collects incentive, fees from partners and members of the Program for certain transactions. These partners in turn use Miles to reward their customers, increasing loyalty for their brands. For instance, partner airlines reward passengers with Miles
whenever they fly, financial partners reward cardholders with Miles when they spend with their credit cards, and retail partners reward customers with Miles when they purchase merchandise or other goods and services. Miles earned can be exchanged
for flights with Avianca, airline members of Star Alliance and other air partners, as well as for other commercial partners products and services such as hotel nights, car rentals and retail merchandise, among other rewards.
F-16
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Sale of subsidiaries
For the year ended December 31, 2019 and 2018 the Group signed two sales detailed as following:
Turboprop Leasing Company and Aerotaxis La Costeña S.A.
On April 22, 2019, the Group thorough its subsidiaries Grupo Taca Holdings Limited (GTH) and Nicaragüense de
Aviación S.A. (NICA) sold all of GTHs shares in Turboprop Leasing Company Ltd. (Turbo), and all of NICAs shares in Aerotaxis La Costeña S.A. (La Costeña), respectively, to Regional
Airline Holding LLC (the Buyer).
As a result of the transaction, the Group lost control and ceased to consolidate the
financial statements of Turboprop Leasing Company Ltd. and Aerotaxis La Costeña S.A. on May 31, 2019.
The following is the
summary of the movements in the financial statements due to the sale and the corresponding loss of control of Turbo Leasing Company Ltd. and Aerotaxis La Costeña S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turboprop
Leasing
Company Ltd.
|
|
|
Aerotaxis La
Costeña S.A.
|
|
|
Total
deconsolidation
|
|
Amount of cash in the company
|
|
$
|
8,876
|
|
|
$
|
2,889
|
|
|
$
|
11,765
|
|
Carrying amount of the company assets, without cash
|
|
|
28,632
|
|
|
|
6,928
|
|
|
|
35,560
|
|
Carrying amount of the company liabilities
|
|
|
(19,507
|
)
|
|
|
(3,729
|
)
|
|
|
(23,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets of the subsidiary
|
|
|
18,001
|
|
|
|
6,088
|
|
|
|
24,089
|
|
Non-controlling interest
|
|
|
(5,769
|
)
|
|
|
(1,943
|
)
|
|
|
(7,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GTH / Nicaragüense de Aviación participation
|
|
$
|
12,232
|
|
|
$
|
4,145
|
|
|
$
|
16,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration received in cash
|
|
|
6,425
|
|
|
|
4,465
|
|
|
|
10,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/gain on the sale of the subsidiaries
|
|
$
|
(5,807
|
)
|
|
$
|
320
|
|
|
$
|
(5,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of the cash paid for losing control of subsidiaries is reported in the statement of cash
flows net of cash and cash equivalents disposed of as part of such transaction, for a net payment of $875.
The loss of this sale is
included in Fees and other expenses in the income statement.
Getcom Intl Investments SL
On December 28, 2018, Avianca Holdings entered into an agreement for the sale and transfer of its participation and control in Getcom
Intl Investments S.L., a company incorporated in Spain, to Seger Investments, Corp, a company domiciled in Panama, who already owned 50% equity interest in Getcom Intl Investments S.L. Pursuant to the terms of such agreement, the Company
and the Purchaser also effected the sale in this date.
As a result of the transaction, the Group lost control and ceased to consolidate
Getcom Intl Investments S.L.s financial statements on December 31, 2018.
The following is a summary of the movements in
the financial statements due to the sale and corresponding loss of control of Getcom Intl Investments S.L
F-17
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
|
|
Amount of cash in Getcom Intl Investments S.L.
|
|
$
|
1,764
|
|
Carrying amount of the Getcom Intl Investments S.L. assets, without cash
|
|
|
20,561
|
|
Carrying amount of the Getcom Intl Investments S.L. liabilities
|
|
|
(6,980
|
)
|
|
|
|
|
|
Net Assets of the subsidiary
|
|
$
|
15,345
|
|
Non-controlling interest
|
|
|
(7,674
|
)
|
|
|
|
|
|
AVH participation
|
|
|
7,671
|
|
|
|
|
|
|
Received consideration:
|
|
|
|
|
Portion of the consideration consisting of cash
|
|
|
18,000
|
|
Portion of the consideration consisting of account receivables
|
|
|
250
|
|
|
|
|
|
|
Fair Value of the received consideration
|
|
$
|
18,250
|
|
|
|
|
|
|
Gains on the sale of the subsidiary
|
|
$
|
10,579
|
|
|
|
|
|
|
As of December 31, 2019, and 2018, Avianca Holdings S.A. had a total fleet consisting of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Aircraft
|
|
Owned/
Financial
Lease
|
|
|
Operating
Lease
(1)
|
|
|
Total
|
|
|
Owned/
Financial
Lease
|
|
|
Operating
Lease
|
|
|
Total
|
|
Airbus A-318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Airbus A-319 (2)
|
|
|
23
|
|
|
|
4
|
|
|
|
27
|
|
|
|
23
|
|
|
|
4
|
|
|
|
27
|
|
Airbus A-320
|
|
|
31
|
|
|
|
26
|
|
|
|
57
|
|
|
|
35
|
|
|
|
26
|
|
|
|
61
|
|
Airbus A-320 NEO
|
|
|
3
|
|
|
|
7
|
|
|
|
10
|
|
|
|
3
|
|
|
|
4
|
|
|
|
7
|
|
Airbus A-321
|
|
|
7
|
|
|
|
6
|
|
|
|
13
|
|
|
|
7
|
|
|
|
6
|
|
|
|
13
|
|
Airbus A-321 NEO
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Airbus A-330
|
|
|
3
|
|
|
|
7
|
|
|
|
10
|
|
|
|
3
|
|
|
|
7
|
|
|
|
10
|
|
Airbus A-330F
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Airbus A-300F (2)
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Boeing 787-8
|
|
|
8
|
|
|
|
5
|
|
|
|
13
|
|
|
|
8
|
|
|
|
5
|
|
|
|
13
|
|
Boeing 787-9
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATR-42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
ATR-72
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
Boeing 767F
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Cessna Grand Caravan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Embraer E-190 (2)
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
58
|
|
|
|
171
|
|
|
|
142
|
|
|
|
54
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of January 1, 2019, as a result of the adoption of IFRS 16, the operating leases contracts are recorded
in the consolidated statement of financial position as part property and equipment, as well as the recognition of the related financial liability that represents the present value of the minimum payments of the lease contract. (see note 4).
|
F-18
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
(2)
|
As of December 31, 2019, the Group has as assets held for sale 10 Embraer
E-190, 2 Airbus A319, 12 Airbus A320, 4 Airbus A321, 2 Airbus A330 and 1 Airbus A330F.
|
|
(2)
|
Basis of preparation of the consolidated financial statements
|
Applied Professional Accounting Standards
|
(a)
|
Statement of compliance
|
The consolidated financial statements for the years ended December 31, 2019 and 2018 have been prepared in accordance with the
International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements of the group for the year ended December 31, 2019 were prepared and submitted by Management and
authorized for issuing by Audit Committee on June 8, 2020 that have been delegated by the Board of Directors.
The consolidated financial statements have been prepared on a historical cost basis, except for, land and buildings (classified as
administrative property), assets held for sale, derivative financial instruments and plan assets, which have been measured at fair value. The carrying values of recognized assets and liabilities that are designated as hedged items in cash flow for
changes in fair value that would otherwise be carried at amortized cost are adjusted to recognize changes in the fair values attributable to the risks that are being hedged in effective hedge relationships.
|
(c)
|
Functional and presentation currency
|
The Groups consolidated financial statements are presented in US Dollars, which is also the parent companys functional currency.
For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign
operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.
|
(d)
|
Use of estimates and judgments
|
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which
the estimates are revised and in any future periods affected.
F-19
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The following are critical judgments used in applying accounting policies that may have the
most significant effect on the amounts recognized in the consolidated financial statements:
|
|
|
The Group operates certain aircraft under a financing structure which involves the creation of structured
entities that acquire aircraft with bank and thirdparty financing. This relates to 100 aircraft from the A319, A320, A321, A330, A330F, ATR72, E190 and B787 families. The Group has determined, based on the terms and conditions of the
arrangements, that the Company controls these special purpose entities (SPE) and therefore, SPEs are consolidated by the Group and these aircraft are shown in the consolidated statement of financial position as part of Property and
Equipment with the corresponding debt shown as a liability.
|
The following assumptions and estimation uncertainties may
have the most significant effect on the amounts recognized in the consolidated financial statements within the next financial year:
|
|
|
The Group recognizes revenue from tickets that are expected to expire without having been used based on
historical data and experience. To define the expected expiration, with the support of an independent third-party specialist, the administration must make informed estimates of the historical experience, which is an indication of the future behavior
of the clients, analyzed by type of rate. As indicated by the accumulated data, the administration evaluates the historical data once a year or more frequently according to experience and makes the necessary adjustments.
|
|
|
|
The Group believes that the tax positions taken are reasonable. However, tax authorities by audits proceedings
may challenge the positions taken resulting in additional liabilities for taxes and interest that may become payable in future years. Tax positions involve careful judgment on the part of management and are reviewed and adjusted to account for
changes in circumstances, such as lapse of applicable statutes of limitations, conclusions of tax audits, additional exposures derived from new legal issues or court decisions on a particular tax. The Group establishes provisions, based on their
estimation on feasibility of a negative decision derived from an audit proceeding by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax
audits and different interpretations of tax regulations by the taxable entity and the responsible tax authority. Actual results could differ from estimates.
|
|
|
|
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable
profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized and the tax rates used, based upon the likely timing and the level
of future taxable profits together with future tax planning strategies, and the enacted tax rates in the jurisdictions in which the entity operates.
|
|
|
|
The Group measures administrative land and buildings primarily in Bogota, Medellin, San Jose, and San Salvador at
revalued amounts with changes in fair value being recognized in other comprehensive income. The Group engaged independent valuation specialists to assists
|
F-20
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
management in determine the fair value of these assets as of December 31, 2019. The valuation techniques used by these specialists require estimates about market conditions at the time of
the report.
|
|
|
|
The Group estimates useful lives and residual values of property and equipment, including fleet assets based on
network plans and recoverable value. Useful lives and residual values area revaluated annually considering the latest fleet plans and business plan information. In the note 13 provides more information about the net book value of the property and
equipment and their respective depreciation charges.
|
|
|
|
The Group evaluates the carrying value of long-lived assets subject to amortization or depreciation whenever
events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized
when the assets carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the assets carrying value and fair market value.
|
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or
circumstances indicate that the asset may be impaired.
|
|
|
The cost of defined benefit pension plans and other postemployment medical benefits and the present value
of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future
salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its longterm nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All
assumptions are reviewed at each reporting date.
|
For determines the discount rate of the pension plans in Colombia, the
management takes as a reference the rate of the bonds issued by the Colombian Government
The mortality rate is based on publicly
available mortality tables in Colombia. Future salary increases and pension increases are based on expected future inflation rates in Colombia.
|
|
|
The Group estimated the breakage of miles, supported by a third valuation specialist to assist management in this
process. The Group considers the behavior of the members based on a segmentation into statistically homogeneous groups of members to be able to project future behaviors, and therefore is considered to be more robust in predicting redemption rates by
segment and breakage estimates of the Program.
|
|
|
|
The Group estimated a provision for expected credit losses based on informed and reasonable information about
past events, present conditions and reasonable and justifiable forecasts regarding future economic conditions, considering credit risk, classification and late payment.
|
F-21
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
The Group recognizes a provision in the balance sheet when a third-party account has a legal or implicit
obligation as a result of a past event, and it is probable that an exit of liquidity benefits to the obligation is required. In relation to provisions for litigation, the main source of uncertainty is the time of the outcome of the process.
|
|
|
|
Aircraft lease contracts establish certain conditions in which aircraft shall be returned to the lessor at the
end of the contracts. To comply with return conditions, the Group incurs costs such as the payment to the lessor of a rate in accordance with the use of components through the term of the lease contract, payment of maintenance deposits to the
lessor, or overhaul costs of components. In certain contracts, if the asset is returned in a better maintenance condition than the condition at which the asset was originally delivered, the Group is entitled to receive compensation from the lessor.
The Group accrues a provision to comply with return conditions at the time the asset does not meet the return condition criteria based on the conditions of each lease contract. The recognition of return conditions require management to make
estimates of the costs with third parties of return conditions and use inputs such as hours or cycles flown of major components, estimated hours or cycles at redelivery of major components, projected overhaul costs and overhaul dates of major
components. At redelivery of aircraft, any difference between the provision recorded and actual costs is recognized in the result of the period.
|
Reclassification have been made to the prior year consolidated financial statements to conform to the current period presentation:
|
|
|
Accounts payable in the amount of $68,302 in the consolidated statements financial position and
Accrued expenses in the amount of $12,182 were reclassified into Employee benefits at December 31, 2018 to reflect the short term obligation directly related to the employees in the corresponding item, these include
salaries, vacations, bonuses and other contributions.
|
|
|
|
Short term investments in the amount of $59,847 were presented separately in the consolidated
statement financial position to disclose the rights related to funds invested between 3 months and 1 year separately. Previously, these balances were part of deposits and other assets.
|
|
|
|
The above reclassifications have no effect on the consolidated statement of cash flow.
|
Based on an analysis of quantitative and qualitative factors, the Group determined that the related impacts are not material for the consolidated financial
statements presented previously, and therefore, amendments to the previously submitted reports are not required.
F-22
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The consolidated financial statements have been prepared on a going concern basis.
The Group has recognized a net loss after tax of $893,995 for the year ended December 31, 2019 and, as at that date, the consolidated
statement of financial position reflected an excess of current liabilities over current assets of $495,580 (excluding air traffic liability and frequent flyer deferred revenue). However, the net loss includes $599,124 as described in note 37, of
significant special charges incurred during 2019, associated with the organizational transformation plan, called Avianca 2021.
Since the fourth last quarter 2018 through the third quarter of 2019, management disclosed that it had circumstances that raised substantial
doubt about the Groups ability to continue as a going concern, related to a potential change control that was possible at that time. On November 29, 2018, the controlling shareholder of the Group (BRW Aviation LLC) obtained a loan from
United Airlines, Inc. (United), as lender, and Wilmington Trust, National Association, as administrative and collateral agent (Wilmington) and pledged its shares in Avianca Holdings S.A. as security for this loan agreement,
which required the compliance with certain covenants by the controlling shareholder, including compliance with the Group financial ratios. On April 10, 2019, BRW and United informed Avianca Holdings that BRW was in default with the collateral
coverage ratio covenant under the United Loan Agreement and that no waiver was granted. A change of control at the Group would breach covenants included in certain loan and financing, aircraft rental, and other agreements of the Company, which in
turn could trigger early termination or cancelation of these contracts. On May 24, 2019, United initiated and filed an enforcement action against BRW and BRW Holding to enforce the share pledge and seeking to take control of the 78.1% of
Avianca Holdings common shares. Likewise, United appointed Kingsland Holdings Limited (Kingsland) as BRWs manager and, as a result, BRW Holding lost the right to direct the manner in which BRW votes the shares subject to the
pledge. Through its ownership of the Groups common shares and its authority as manager of BRW (with the right to direct the voting of the pledged shares), Kingsland assumed voting control over Avianca Holdings. According to the assessment of
the Group Kingsland Holdings is a permitted holder under its financing agreements. As such, no change in control has occurred since its appointment as independent third party.
The Group´s ability to meet these obligations depended on whether the management could renegotiate the terms and conditions with lenders
and obtain new sources of financing to meet the short-term obligations.
Besides of the change control situation, during 2019 several
events occurred which created significant uncertainty as to whether the Group had the capacity to continue as a going concern.
|
|
|
At the end of April 2019, Avianca Holdings received reservation of rights letters from 2 Facility Agents in its
Export Credit Agencies (ECA) financings. The mentioned reservation of rights letters
|
F-23
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
was related to the acquisition of certain ATR turboprop aircraft by Synergy Aerospace, which were not operated by Avianca Holdings. In those letters, the Facility Agents stated that Synergy
Aerospace had failed to comply with certain obligations under other transactions that were supported by the ECAs. The non-compliance of Synergy under its ECA obligations could have caused a potential default
under Avianca Holdings ECA contracts.
|
|
|
|
In line with the above mentioned, events Avianca Holdings was unable to launch a liability management transaction
to refinance its $550 million 8.375% Senior Notes due 2020. On May 13th 2019, S&P Global Ratings downgraded Avianca Holdings S.A. from B to CCC+, while reducing
its rating outlook from Stable to Negative given the higher refinancing risk. The above referenced default of Synergy and ratings downgrade had prevented us from consummating certain anticipated transactions that we expected would have resulted in a
significant improvement in our liquidity. Additionally, the foregoing events severely impacted our efforts to refinance near-term maturities of existing debt and our ability to finance capital expenditures.
|
|
|
|
On June 25, we unilaterally suspended the payment of operating leases of some aircraft, as well as debt
repayment payments, as we seek to obtain deferrals from creditors with a debt of approximately $2,876 million, of which $2,365 million represent long-term debt term, under various debt, lease and other agreements.
|
In an effort to protect current liquidity levels, our board of directors adopted a transformation plan, which we refer to as the Avianca 2021
strategic plan, designed to improve operational efficiencies, and reprofile our financial obligations. As part of the Avianca 2021 strategic plan we adopted following measures:
Re-profiling of financial commitments:
|
|
|
Avianca Holdings has executed amendments to its financing agreements, in order to include United and its
subsidiaries, the collateral agent and the independent third party, each pursuant to the United Loan Agreement, as permitted holders under such financing agreements in order that enforcement actions, such as the voting of the shares of Avianca
Holdings by United, such collateral agent or such independent third party, would not constitute a change of control under any such financing agreements. These amendments permitted and would permit United to enforce the share pledge in connection
with the United Loan Agreement and take ownership of the common shares of Avianca Holdings without causing a change of control under any of these financing agreements of Avianca Holdings.
|
|
|
|
In addition to the negotiations for the suspended payments mentioned above, and considering the new situation of
the Group, it was possible to renegotiate mainly the clauses of financial and non-financial Covenants. (See notes 16 and 36)
|
|
|
|
Avianca Holdings successfully reached broad agreement with its creditors allowing it to comply with key
conditions precedent for funding of the Convertible Loans by United and Kingsland. As
|
F-24
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
consequence, on December 9, 2019, Avianca Holdings drew the $250 million convertible senior secured stakeholder loan provided by United Airlines and Kingsland Holdings limited. In turn,
the funding of the Convertible Loans allowed Aviancas agreements with its creditors to go effective, reprofiling substantially all of its loans and aircraft lease obligations. In addition, funding of the Convertible Loans triggered the
automatic exchange of approximately $484 million aggregate principal amount of Aviancas current May 2020 bonds (the Secured May 2020 Bonds) for secured bonds due May 2023 (the Secured May 2023 Bonds), under the
terms of a previously announced, successfully executed exchange offer for Aviancas original May 2020 Bonds (the Unsecured May 2020 Bonds). Further, Avianca Holdings also secured $125 million in additional secured financing
commitments. These financing commitments include: (i) $50 million in commitments for convertible loans, on substantially the same economic terms as the Stakeholder Loan, from a group of Latin American investors, and (ii) $75 million in
commitments for senior secured convertible loans and bonds, as a bridge to completion of a potential US$125 million convertible bond offering to preferred shareholders (the Incremental Bonds), including a commitment of
US$50 million from an investment vehicle managed by Citadel Advisors LLC, for senior secured convertible bonds (the Citadel Bonds) and (iii) a commitment of US$25 million for senior secured convertible loans from another
group of Latin American investors (the LatAm Bridge Loan), on substantially the same economic terms as the Stakeholder Loan, except that any voluntary prepayment by the Group on or before the
9-month anniversary of disbursement of the LatAm Bridge Loan will trigger a cash interest payment at 12% per annum over the amount prepaid.
|
|
|
|
It represented as of December 31, 2019, the Group has reach rectification of a breach of a long-term loan
arrangement, that permitted classified $2,365 million as current portion.
|
|
|
|
During the second quarter 2020 Avianca Holdings expects to offer its preferred shareholders the opportunity to
participate in a minimum of USD $125 million of to-be-offered convertible bonds (the Incremental Bonds) under similar conditions to those established
for the Convertible Loans, subject to adjustment for market conditions at the time such an offering is launched. Details and timing of such offering will be made available to AVH preferred shareholders, subject to applicable regulatory review and
approvals.
|
|
|
|
Standard & Poors Global Ratings (S&P) has upgraded the Group from SD
to B-, Outlook Stable, and upgraded its secured bonds to B- from CCC-. The full report issued
by S&P is available on the Groups website.
|
Fleet simplification
|
|
|
We are moving forward with deceleration of fleet additions and its simplification. The management has reached the
following agreements to tailor its aircraft commitments to its future requirements:
|
F-25
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
○
|
|
In January 2020, we reached agreements with Airbus to optimize our fleet plan as part of our implementation of
the Avianca 2021 Plan, the Group negotiated with Airbus the cancellation of some orders and a significant reduction of its scheduled aircraft deliveries in 2020, 2021, 2022, 2023 and 2024 for delivery in 2025 through 2029, which modifies the
advanced payments and aircraft acquisition
|
|
○
|
|
These agreements provide comprehensive financial benefits, with significant Capex reduction in the period through
the end of 2029 of $1,035 million. In addition, we allowed deferring the PDPs payments until 2024 for $2,087 million, thereby improving the Groups cash in the consolidation period of the Avianca 2021 plan. (See note 34)
|
|
○
|
|
In order to reduce and standardize our fleet management took the decision to sell 10 Embraer 190, 10 Airbus A318,
2 Airbus A319, 11 Airbus A320, 2 Airbus A330 and 1 Airbus A330F and also exit of 13 Cessna 208 and 2 ATR 42 for the sale of Sansa and La Costeña. Separately, Avianca Holdings has agreed to enter into an agreement sale and lease back
transaction for up to 11 A320 and 4 A321 aircraft with Avalon Aerospace Leasing Limited, that are executed in the first quarter 2020. These operations represent net cash provided of $296 million and an impairment for $469 million. (See
note 37)
|
|
|
With these reductions of our fleet, the management seeks a reorganization of its offer to be more consistent
with demand. It will have also significantly simplified our operation, in maintenance costs, as well as crew training.
|
Optimization
of Operational Profitability
|
|
|
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, OrlandoUS, and BarcelonaSpain, seeking to allocate resources in more profitable routes.
|
|
|
|
Our board of directors also modified our strategy to focus on Bogotá as our primary strategic hub, as well
as to focus on our overall profitability and cost-efficiency, deleveraging our balance sheet and revising our aircraft fleet plans.
|
Considering the Groups projections regarding forecasted results of the strategic plan, management has a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future. As such, the consolidated financial statements have been prepared on a going concern basis.
F-26
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
On March 2020 deriving from the spread of COVID-19 (See Note 38), as
a result of extremely challenging market conditions, suspension of our passenger travel operations, our current financial condition and the resulting risks and uncertainties surrounding our Chapter 11 proceedings (See Note 38), there is substantial
doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon, among other things, our ability to (i) resume our passenger travel operations profitably, which depends on many factors beyond
our control, principally relating to developments from the spread of COVID-19, its impact on demand for passenger air travel and government measures regarding travel restrictions, quarantine requirements and
others, and (ii) successfully develop and implement our Chapter 11 plan of reorganization.
|
(3)
|
Significant accounting policies
|
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and
have been applied consistently by all the Companys entities of the Group, except where mentioned otherwise (see also note 4).
This
is the first set of the Groups annual financial statements in which IFRS 16 Leases have applied. changes to significant accounting policies are described in note 4.
|
(a)
|
Basis of consolidation
|
Subsidiaries are entities controlled by Avianca Holdings S.A. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases, in accordance with IFRS 10. Control is established after assessing the Groups ability to direct the relevant activities of the investee, its exposure
and rights to variable returns, and its ability to use its power to affect the amount of the investees returns. The accounting policies of subsidiaries have been aligned when necessary with the policies adopted by the Group.
The consolidated financial statements also include 49 special purpose entities that relate primarily to the Groups aircraft leasing
activities. These special purpose entities are created in order to facilitate financing of aircraft with each SPE holding a single aircraft or asset. In addition, the consolidated financial statements include 56 entities that are mainly investment
vehicles, personnel employers and service providers within the consolidated entities. The Group has consolidated these entities in accordance with IFRS 10.
When the sale of a subsidiary occurs and no percentage of participation is retained on it, the Group derecognizes the assets and liabilities of
the subsidiary, the non-controlling interests and the other components of equity related to the subsidiary on the date on which it was sold. Any gain or loss resulting from the loss of control is recognized in
the consolidated statement of comprehensive income.
If the Group retains a percentage of participation in the subsidiary sold, and does
not represent control, this is recognized at its fair value on the date when control is lost, the amounts previously recognized in other comprehensive income are accounted for as if the Group had directly disposed of the related assets and
liabilities, which may cause these amounts to be reclassified to profit or loss. The retained percentage valued at its fair value is subsequently accounted for using the equity method.
F-27
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(b)
|
Transactions eliminated on consolidation
|
Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in
preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
Foreign currency transactions
These consolidated financial statements are presented in US dollars, which is the Groups functional currency.
Transactions in foreign currencies are initially recorded in the functional currency at the respective spot rate of exchange ruling at the date
of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated to the spot rate of exchange ruling
at the reporting date. All differences are recognized currently as an element of profit or loss. Nonmonetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the initial
transaction. Nonmonetary items measured at a revalued amount in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Foreign operations
Assets and liabilities of foreign operations included in the consolidated statement of financial position are translated using the closing
exchange rate on the date of the consolidated statement of financial position. The revenues and expenses of each income statement account are translated at quarterly average rates; and all the resultant exchange differences are shown as a separate
component in other comprehensive income.
|
(d)
|
Business combinations
|
Business combinations are accounted for using the acquisition method in accordance with IFRS 3 Business Combinations. The
consideration for an acquisition is measured at acquisition date fair value of consideration transferred including the amount of any noncontrolling interests in the acquire. Acquisition costs are expensed as incurred and included in
administrative expenses.
When the Group acquires a business, it measures at fair value the financial assets acquired and liabilities
assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by
the acquire.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred to the seller,
including the amount recognized for noncontrolling interest over the fair value of identifiable assets acquired and liabilities assumed. If this consideration is less than the fair value of the net assets acquired, the difference is recognized
as profit at the date of acquisition.
F-28
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
After initial recognition, goodwill is measured at cost less any accumulated impairment
losses. For the purposes of impairment testing, goodwill acquired is, from the acquisition date, allocated to each of the Groups cashgenerating units that are expected to benefit from the acquisition, irrespective of whether other assets
or liabilities of the acquire are assigned to those units.
Revenue is measured based on the consideration specified in a contract with a customer. The Group recognizes income when transferring control
over the good or service to the customer. Below is information on the nature and timing of the satisfaction of performance obligations in contracts with customers.
|
(i)
|
Passenger and cargo transportation
|
The Group recognizes revenues from passenger, cargo and other operating income in consolidated statements of comprehensive income. Revenues
from passenger, which includes transportation, baggage fees, fares, and other associated ancillary income, is recognized when transportation is provided. Cargo revenues are recognized when the shipments are delivered. Other operating income is
recognized as the related performance obligations are met.
The tickets and other revenues related to transportation that have not yet
been provided are initially deferred and recorded as Air traffic liability in the consolidated statement of financial position, deferring the revenue recognition until the trip occurs. For trips that have more than one flight segment,
the Group considers each segment as a separate performance obligation and recognizes the revenues of each segment as the trip takes place. Tickets sold by other airlines where the Group provides transportation are recognized as passenger income at
the estimated value that will be billed to the other airline when the trip is provided.
Reimbursable tickets usually expire after one
year from the date of issuance. Non-refundable tickets generally expire on the date of the intended trip, unless the date is extended by customer notification on or before the scheduled travel date. Rates for
unused tickets that are expected to expire are recognized as revenue, based on historical data and experience, supported by a third valuation specialist to assist management in this process. The Group periodically evaluates this liability and any
significant adjustment is recorded in the consolidated statements of comprehensive income. These adjustments are mainly due to differences between actual events and circumstances such as historical sales rates and customer travel patterns that may
result in refunds, changes or expiration of tickets that differ substantially from the estimates. The Group evaluates its estimates and adjusts deferred revenue for unearned transportation and revenue for passenger transport when necessary.
The various taxes and fees calculated on the sale of tickets to customers are collected as an agent and sent to the tax authorities. The Group
records a liability when taxes are collected and deregisters it when the government entity is paid.
F-29
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Group has a frequent flyer program LifeMiles, that is managed by LifeMiles Ltd, a subsidiary of the Group which airlines buy
lots of miles to be granted to member costumers of the program. The purpose of the program is designed to retain and increase travelers loyalty by offering incentives to travelers for their continued patronage. Under the LifeMiles program,
miles are earned by flying on the Groups airlines or its alliance partners and by using the services of program partners for such things as credit card use, hotel stays, car rentals, and other activities. Miles are also directly sold through
different distribution channels. Miles earned can be exchanged for flights or other products or services from alliance partners.
The
liabilities for the accumulated miles are recognized under Frequent Flyer Deferred Revenue (See note 21) until the miles are redeemed.
The Group recognizes the revenue for the redemption of miles at the time of the exchange of miles. They are calculated based on the number of
miles redeemed in a given period multiplied by the cumulative weighted average yield (CWAY), which leads to the decrease of Frequent Flyer Deferred Revenue .
Breakage estimates are reviewed every semester. If a change in the estimate is presented, the adjustments will be accounted for prospectively
through the income, with an adjustment of update to the corresponding deferred income balances.
Income tax expense comprises current and deferred taxes and is accounted for in accordance with IAS 12 Income Taxes. They are
recognized in results except to the extent that it relates to a business combination, or items recognized directly in equity or other comprehensive income.
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the
taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.
Current income tax relating to items recognized directly in equity or in other comprehensive income recognized in the consolidated statement
of changes in equity or consolidated statement of comprehensive income, respectively. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
Deferred tax is recognized for temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred tax assets are recognized to the extent that is probable that the temporary differences, the carry forward
of unused tax credits and any unused tax losses can be utilized, except:
F-30
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
|
|
|
|
In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
|
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax laws enacted
or substantively enacted at the reporting date.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are
recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax relating to items recognized outside profit or loss is recognized in correlation to the underlying transaction either in OCI or
directly in equity.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but the Group intends to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
|
(g)
|
Property and equipment
|
|
(i)
|
Recognition and measurement
|
Flight equipment, property and other equipment are measured at cost less accumulated depreciation and accumulated impairment losses in
accordance with IAS 16 Property, Plant and Equipment.
Property, operating equipment, and improvements that are being built or
developed for future use by the Group are recorded at cost as underconstruction assets. When underconstruction assets are ready for use, the accumulated cost is reclassified to the respective property and equipment category.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.
Gain and losses on disposal of an item of flight equipment, property and equipment are determined by comparing the proceeds from disposal with the carrying amount.
F-31
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The costs incurred for major maintenance of an aircrafts fuselage and engines are capitalized and depreciated over the shorter period to
the next scheduled maintenance or return of the asset. The depreciation rate is determined according to the assets expected useful life based on projected cycles and flight hours. Routine maintenance expenses of aircraft and engines are
charged to income as incurred.
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual
value.
Depreciation is recognized in the consolidated statement of comprehensive income on a straightline basis over the estimated
useful lives of flight equipment, property and other equipment, since this method most closely reflects the expected pattern of consumption of the future economic benefits associated to the asset.
Rotable spare parts for flight equipment are depreciated on the straightline method, using rates that allocate the cost of these assets
over the estimated useful life of the related aircraft. Land is not depreciated.
Estimated useful lives are as follows:
|
|
|
|
|
Estimated useful life (years)
|
Flight equipment:
|
|
|
Aircraft
|
|
10 30
|
Aircraft components and engines
|
|
Useful life of fleet associated with component or engines
|
Aircraft major overhaul repairs
|
|
4 12
|
Rotable parts
|
|
Useful life of fleet associated
|
Leasehold improvements
|
|
Lesser of remaining lease term and estimated useful life of the leasehold improvement
|
Administrative Property
|
|
20 50
|
Vehicles
|
|
2 10
|
Machinery and equipment
|
|
2 15
|
Residual values, amortization methods and useful lives of the assets are reviewed and adjusted, if
appropriate, at each reporting date.
The carrying value of flight equipment, property and other equipment is reviewed for impairment when
events or changes in circumstances indicate that the carrying value may not be recoverable and the carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable
amount.
F-32
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Group receives credits from manufacturers on acquisition of certain aircraft and engines
that may be used for the payment of maintenance services, training, acquisition of spare parts and others. These credits are recorded as a reduction of the cost of acquisition of the related aircraft and engines and against other accounts
receivable. These amounts are then charged to expense or recorded as an asset, when the credits are used to purchase additional goods or services. These credits are recorded within other liabilities in the consolidated statement of financial
position when awarded by manufacturers.
|
(iv)
|
Revaluation and other reserves
|
Administrative property in Bogota, Medellín, El Salvador, and San Jose is recorded at fair value less accumulated depreciation on
buildings and impairment losses recognized at the date of revaluation. Valuations are performed with sufficient frequency to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. A revaluation reserve is
recorded in other comprehensive income and credited to the asset revaluation reserve in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognized in profit or loss, the increase is recognized in
profit and loss. A revaluation deficit is recognized in the other comprehensive income, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve. Upon disposal, any revaluation reserve
relating to the particular asset being sold is transferred to retained earnings.
Non-current assets and groups of assets for disposal that are classified as held for sale are measured
at the lower of their carrying amount or fair value less costs to sell. Non-current assets and groups of assets for disposal are classified as held for sale if their carrying amount will be recovered mainly
through a sale transaction, rather than through continued use. This condition is considered fulfilled only when the sale is highly probable and the asset or group of assets for disposal are available, in their current conditions, for immediate sale.
The administration must be committed to the sale, and it must be expected that the sale complies with the necessary requirements for its recognition as such, within the year following the date of classification.
Property and equipment and intangible assets, once classified as held for sale, are not subject to depreciation or amortization and both the
assets and any liabilities directly associated with the assets held for sale is reclassified to current and disclosed in a separate line of the consolidated financial statement.
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and
continues to be reported under IAS 17 and IFRIC 4. The details of accounting policies under IAS 17 and IFRIC 4 are discloses separately.
F-33
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Policy applicable from 1 January 2019
The group has initially applied IFRS 16 from January 1, 2019. The effect of initially applying IFRS 16 described in note 4.
|
(i)
|
Assets by right of use
|
The Group recognizes the assets for right of use on the start date of the lease (that is, the date on which the underlying asset is available
for use). The right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and are adjusted for any new measurement of lease
liabilities. The cost of the assets with the right to use includes the amount of the recognized lease liabilities, the initial direct costs incurred, and the lease payments made on or before the start date, less the lease incentives received. The
assets recognized by right of use are depreciated in a straight line during the shortest period of their estimated useful life and the term of the lease. The assets by right of use are subject to deterioration.
On the start date of the lease, the Group recognizes the lease liabilities measured at the present value of the lease payments that will be
made during the term of the lease. Lease payments include fixed payments and variable lease payments that depend on an index or a rate.
Lease payments also include the price of a purchase option that the Group can reasonably exercise and penalty payments for terminating a
lease.
Variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or
condition that triggers the payment occurs.
Policy applicable before January 1, 2019
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases in accordance
with IAS 17 Leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.
Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognized in interest expense in the consolidated statement of comprehensive income.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain
ownership by the end of the lease term, the asset is depreciated over the lease term.
F-34
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Operating lease payments are recognized as an operating expense in the consolidated statement
of comprehensive income during the lease term.
Gains or losses related to saleleaseback transactions classified as an operating
lease after the sale are accounted for as follows:
|
(i)
|
They are immediately recognized as other (expense) income when it is clear that the transaction is established
at fair value;
|
|
(ii)
|
If the sale price is below fair value, any profit or loss is immediately recognized as other (expense) income,
however, if the loss is compensated by future lease payments at below market price, it is deferred and amortized in proportion to the lease payments over the contractual lease term;
|
|
(iii)
|
In the event of the sale price is higher than the fair value of the asset, the value exceeding the fair value
is deferred and amortized during the period when the asset is expected to be used. The amortization of the gain is recorded as a reduction in lease expenses.
|
If the saleleaseback transactions result in financial lease, any excess proceeds over the carrying amount shall be deferred and amortized
over the lease term as another income.
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial
period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets in accordance with IAS 23 Borrowing Costs. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
Intangible assets acquired separately are initially measured at cost in accordance with IAS 38 Intangible Assets. The cost of
intangible assets acquired in a business combination is their fair value as at the date of acquisition. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in
the consolidated statement of comprehensive income in the year in which the expenditure is incurred.
The useful lives of intangible assets
are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over their useful economic lives and
assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each
reporting period. Changes in the expected useful life or in the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as
changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statement of comprehensive income within depreciation and amortization.
F-35
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Intangible assets with indefinite useful lives are not amortized, but are tested for
impairment annually, either individually or at the cashgenerating unit level, without exceeding a business segment. Impairment measurement is currently carried out at the level of the air transport segment. The assessment of indefinite life is
reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains and losses arising from the derecognition of an intangible asset is measured as the difference between the net disposal proceeds
and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income when the asset is derecognized.
Goodwill is measured initially at cost, represented by the excess of the sum of the consideration transferred and the amount recognized for the
non-controlling interest, with respect to the net of the identifiable assets acquired and the liabilities assumed. If this consideration is less than the fair value of the net assets acquired, the difference
is recognized as a gain at the date of acquisition.
After initial recognition, Goodwill is measured at cost less any accumulated
impairment loss. For the purpose of impairment tests, Goodwill acquired in a business combination is assigned, from the date of acquisition, to each company acquired and impairment measurement is carried out at the air segment level.
The Groups intangible assets include the following:
|
(i)
|
Software and webpages
|
Acquired computer software licenses are capitalized on the basis of cost incurred to acquire, implement and bring the software into use. Costs
associated with maintaining computer software programs are expensed as incurred. In case of development or improvement to systems that will generate probable future economic benefits, the Group capitalizes software development costs, including
directly attributable expenditures on materials, labor, and other direct costs.
Acquired software cost is amortized on a straight-line
basis over its useful life.
Licenses and software rights acquired by the Group have finite useful lives and are amortized on a
straightline basis over the term of the contract. Amortization expense is recognized in the consolidated statement of comprehensive income.
|
(ii)
|
Routes and trademarks
|
Routes and trademarks are carried at cost, less any accumulated amortization and impairment. The useful life of intangible assets associated
with routes and trademark rights are based on managements assumptions of estimated future economic benefits. The intangible assets are amortized over their useful lives of between two and thirteen years. Certain routes and trademarks have
indefinite useful lives and therefore are not amortized
F-36
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
but tested for impairment at least at the end of each reporting period. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be
supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
The Group expects to provide an
indefinite service on the routes it has determined with an indefinite useful life and expects the support infrastructure to be maintained at those airports during the entire time that the routes exist. The analysis of demand and cash flows supports
these assumptions because the facts and circumstances support the ability of the entity to continue providing air service indefinitely.
|
(iii)
|
Intangible assets associated with contractual rights and obligations
|
The useful life of intangible assets associated with contract rights and obligations is based on the term of the contract and are carried at
cost, less accumulated amortization and related impairment.
|
(iv)
|
Other intangible rights
|
Contains projects related to technological developments to generate efficiencies in the operation. Research costs are expensed as incurred.
Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate:
|
|
|
The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
|
|
|
|
Its intention to complete and its ability and intention to use or sell the asset
|
|
|
|
How the asset will generate future economic benefits
|
|
|
|
The availability of resources to complete the asset
|
|
|
|
The ability to measure reliably the expenditure during development
|
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortization and
accumulated impairment losses. Amortization of the asset begins when development is complete, and the asset is available for use. It is amortized over the period of expected future benefit. Amortization is recorded in cost of sales. During the
period of development, the asset is tested for impairment annually.
|
(l)
|
Financial instruments initial recognition, classification and subsequent measurement
|
Financial assets are classified in the initial recognition as follows:
|
|
|
Measured at amortized cost,
|
|
|
|
At fair value through changes in other comprehensive income (OCI) and
|
F-37
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
At fair value through profit or loss.
|
The classification of financial assets in the initial recognition depends on the characteristics of the contractual cash flow of the financial
asset and the Groups business model for its administration. With the exception of commercial accounts receivable that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, (in
the case of a financial asset that does not obtain profit or loss), transaction costs. Commercial accounts receivable that do not contain a significant financing component are measured at the transaction price determined in accordance with IFRS 15.
For a financial asset to be classified and measured at amortized cost or at fair value through OCI, it must give rise to cash flows that
are only capital and interest payments (OCI) over the outstanding principal amount. This evaluation is known as the SPPI test and is performed at the instrument level.
The Groups business model for the management of financial assets refers to how it manages its financial assets to generate cash flows.
The business model determines whether cash flows will result from the collection of contractual cash flows, the sale of financial assets or both. Purchases or sales of financial assets that require the delivery of assets within a time frame
established by regulation or convention in the market (regular operations), are recognized on the trading date, that is, the date on which the Group Commit to buy or sell the asset.
Subsequent measurement
For subsequent measurement purposes, financial assets are classified into four categories:
|
|
|
Financial assets at amortized cost (debt instruments)
|
|
|
|
Financial assets at fair value through OCI with effect on accumulated gains and losses (debt instruments)
|
|
|
|
Financial assets designated at fair value through OCI without effect on accumulated gains and losses upon
derecognition (equity instruments)
|
|
|
|
Financial assets at fair value through profit or loss
|
Financial assets at amortized cost (debt instruments)
The Group measures financial assets at amortized cost if the following conditions are met:
|
|
|
The financial asset is maintained within a business model with the objective of maintaining financial assets in
order to collect the contractual cash flows.
|
|
|
|
The contractual terms of the financial asset give rise on specific dates to the cash flows that are only payments
of the principal and interest on the principal amount pending payment.
|
F-38
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Financial assets at amortized cost are subsequently measured using the effective interest
method (EIM) and are subject to impairment. Profits and losses are recognized in results when the asset is written off, modified or impaired.
The Groups financial assets at amortized cost include trade accounts receivable, accounts receivable with related parties, accounts
receivable from employees and other non-current financial assets.
Financial assets at fair
value through OCI (debt instruments)
The Group measures debt instruments at fair value through OCI if the following conditions are
met:
|
|
|
The financial asset is maintained within a commercial model with the objective of maintaining both to collect
contractual cash flows and sell.
|
|
|
|
The contractual terms of the financial asset give rise on specific dates to the cash flows that are only payments
of the principal and interest on the principal amount pending payment.
|
For debt instruments at fair value through OCI,
interest income, exchange revaluation and impairment losses or reversals are recognized in the other comprehensive income and are calculated in the same manner as for financial assets measured at amortized cost. The remaining changes in fair value
are recognized in OCI. After derecognition, the change in accumulated fair value recognized in OCI is recognized in profit or loss.
Financial assets designated at fair value through OCI (equity instruments)
After initial recognition, the Group may elect to irrevocably classify its capital investments as equity instruments designated at fair value
through OCI when they meet the definition of equity under IAS 32 Financial Instruments. The classification is determined instrument by instrument.
Gains and losses on these financial assets are never recognized as gains or losses. Dividends are recognized as other income in the income
statement when the right to payment has been established, except when the Group benefits from such income as a recovery of part of the cost of the financial asset, in which case such earnings are recorded in OCI. Equity instruments designated at
fair value through OCI are not subject to impairment evaluation.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated at initial
recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the short
term. Derivatives, including embedded implicit derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not only capital and interest payments are
classified and
F-39
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
measured at fair value through profit or loss, regardless of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value through OCI,
as described above, debt instruments can be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are recorded in the statement of financial position, at fair value with net changes,
recognized in the statement of comprehensive income.
This category includes derivatives and listed equity investments that the Group had
not irrevocably chosen to be classified at fair value through OCI. Dividends on listed equity investments are also recognized as other income in the statement of comprehensive income when the right to payment has been established.
|
(ii)
|
Impairment of financial assets
|
The Group recognizes a reserve for expected credit losses (ECL) for all debt instruments that are not held at fair value through profit or
loss. The ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive.
For trade accounts receivable and contractual assets, the Group applies a simplified approach when calculating ECL. Therefore, the Group does
not track changes in credit risk, but recognizes a loss adjustment based on ECL for life at each reporting date. The Group has established a provision matrix that is based on its historical experience of credit losses, adjusted by specific
prospective factors for debtors and the economic environment.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized primarily
when:
|
|
|
The rights to receive cash flows from the asset have expired
|
|
|
|
The Group has transferred its rights to receive cash flows from the asset or has assumed the obligation to pay
the cash flows received in full without significant delay to a third party under a transfer agreement, and (a) the Group has transferred substantially all the risks and benefits of the asset, or (b) the Group has not
transferred or retained substantially all the risks and benefits of the asset, but has transferred control of the asset.
|
When the Group has transferred its rights to receive cash flows from an asset or has entered into a transfer agreement, it evaluates whether
and to what extent it has retained the risks and benefits of ownership. When it has not transferred or retained substantially all the risks and benefits of the asset, nor transferred control of the asset, the Group continues to recognize the asset
transferred to the extent of its continued participation. In this case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the
Group has retained.
F-40
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The continuous participation that takes the form of a guarantee on the transferred asset is
measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group may have to repay.
|
(iii)
|
Financial liabilities
|
Financial liabilities are classified, on initial recognition, as financial liabilities at fair value through profit or loss, loans and debt,
accounts payable, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities
are initially recognized at fair value and, in the case of loans and debt and accounts payable, net of directly attributable transaction costs.
The Groups financial liabilities include trade accounts payable and other accounts payable, loans and debt, including bank overdrafts
and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated
at initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are
incurred for the purpose of repurchasing in the short term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in the hedging relationships defined by IFRS 9.
Separate embedded derivatives are also classified as held for trading unless they are designated as equity instruments. effective coverage.
Gains or losses on liabilities held for trading are recognized in the consolidated statement of income.
The financial liabilities designated in the initial recognition at fair value through profit or loss are designated at the initial recognition
date, and only if the criteria of IFRS 9 are met. The Group has not designated any financial liability at fair value with changes in results.
Loans carried at amortized cost
This is the most relevant category for the Group. After initial recognition, interest-bearing loans are subsequently measured at amortized
cost using the effective interest method (EIM). Profits and losses are recognized in results when liabilities are derecognized in accounts, as well as through the EIM amortization process.
F-41
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The amortized cost is calculated taking into account any discount or premium on the
acquisition and the fees or costs that are an integral part of the EIM. The amortization of the EIM is included as financial costs in the income statement.
This category generally applies to loans and debt that accrue interest.
Derecognition financial instruments
Financial liability is derecognized when the obligation under the liability is canceled or expires. When an existing financial liability is
replaced by another of the same lender in substantially different terms, or the terms of an existing liability are substantially modified, such exchange or modification is treated as the derecognition of the original liability and recognition of a
new liability. The difference in the respective carrying amounts is recognized in the income statement.
|
(iv)
|
Compensation of financial assets and liabilities
|
Financial assets and liabilities are offset and the net amount is recorded in the consolidated statements of financial position, if and only
if, you have the legal right to offset the amounts recognized and there is an intention to cancel them on a net basis, or, to realize the assets and cancel the liabilities simultaneously.
|
(v)
|
Fair value of financial instruments
|
The fair value of the financial instruments that are traded in the active markets on each reporting date is based on the prices quoted on the
market (on the prices of purchase and sale prices on the stock exchange), not including deductions for transaction costs.
In the case of
financial instruments that are not traded in active markets, fair value is determined using valuation techniques. Such techniques may include recent purchase and sale transactions at arms length prices, reference to the fair value of other
basically identical financial instruments, an analysis of the discounted cash flow, or recourse to other valuation models.
Note 30
includes an analysis of the fair values of financial instruments and more details on how they are valued.
|
(vi)
|
Derivative financial instruments and hedge accounting
|
The Group uses derivative financial instruments such as forward currency contracts, interest rate contracts and forward commodity contracts to
hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into. Subsequent to
initial recognition, derivatives are carried at fair value as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Future contracts from commodities that are entered into and continue to be held for the purpose of the receipt or delivery of a
nonfinancial item in accordance with the Groups expected purchase, sale or usage requirements are held at cost.
F-42
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Any gains or losses arising from changes in the fair value of derivatives are taken directly
into the consolidated statement of comprehensive income, except for the effective portion of derivatives assigned as cash flow hedges, which is recognized in other comprehensive income.
Cash flow hedges
At
the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation
includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instruments fair value in offsetting the exposure
to changes in the hedged items cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually have
been highly effective throughout the financial reporting periods for which they were designated.
Cash flow hedges which meet the strict
criteria for hedge accounting are accounted for as follows:
The effective portion of the gain or loss on the hedging instrument is
recognized directly as other comprehensive income in the equity, while any ineffective portion of cash flow hedge related to operating and financing activities is recognized immediately in the consolidated statement of comprehensive income.
Amounts recognized as other comprehensive income are transferred to the consolidated statement of comprehensive income when the hedged
transaction affects earnings, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a nonfinancial asset or nonfinancial liability, the amounts
recognized as other comprehensive income are transferred to the initial carrying amount of the nonfinancial asset or liability.
If
the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in equity is transferred to the consolidated statement of comprehensive income. If the hedging instrument expires or is
sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive income until the forecast
transaction or firm commitment affects profit or loss.
The Group uses forward currency contracts and cross currency swaps as hedges of
its exposure to foreign currency risk in forecasted transactions and firm commitments, as well as forward commodity contracts for its exposure to volatility in the commodity prices. Refer to note 28 for more details.
Current versus noncurrent classification of derivatives instruments
Derivative instruments that are not designated as effective hedging instruments are classified as current or noncurrent or separated
into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).
F-43
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Where the Group will hold a derivative as an economic hedge (and does not apply hedge
accounting) for a period beyond 12 months after the reporting date, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item.
Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the classification of
the underlying hedged item. The derivative instrument is separated into a current portion and a noncurrent portion only if a reliable allocation can be made
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host
contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through other
comprehensive income.
|
(m)
|
Expendable spare parts and supplies
|
Expendable spare parts relating to flight equipment are measured at the lower of average cost and net realizable value. Net realizable value is
the estimated base stock cost reduced by the allowance for obsolescence. The valuation method used by the Group is weighted average.
|
(n)
|
Impairment of nonfinancial assets
|
We review flight equipment and other long-lived assets used in operations for impairment losses when events and circumstances indicate the
assets may be impaired. Factors which could be indicators of impairment include, but are not limited to, (1) a decision to permanently remove flight equipment or other long lived assets from operations, (2) significant changes in the
estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment. For long-lived assets held for sale, we discontinue
depreciation and record impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell.
For purposes of this testing, the Group has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An
impairment charge is recognized when the assets carrying value exceeds the greater value of its net undiscounted future cash flows or its fair market value. The amount of the charge is the difference between the assets carrying value and
fair market value.
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more
frequently if events or circumstances indicate that the asset may be impaired. Goodwill and indefinite-lived assets are reviewed for impairment on an annual basis or on an interim basis whenever a triggering event occurs.
F-44
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(o)
|
Cash and cash equivalents
|
Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and on hand and shortterm deposits
with original maturity of three months or less, which are subject to an insignificant risk of change in value.
For the purpose of the
consolidated statement of cash flows, cash and cash equivalents consist of cash and shortterm deposits as defined above, net of outstanding bank overdrafts, if any.
Maintenance deposits correspond to deposits paid to lessors based on cycles, flight hours, or fixed monthly amounts, depending on the specific
nature of each provision. Rates used for the calculation and monthly amounts are specified in each lease agreement. The maintenance deposits paid to aircraft lessors are recorded within Deposits and other assets when they are susceptible
for recovery, to the extent that such amounts are expected to be used to fund future maintenance activities. Deposits that are not probable of being used to fund future maintenance activities are expensed as incurred.
The maintenance deposits refer to payments made by the Group to leasing companies to be used in future aircraft and engine maintenance work.
Management performs regular reviews of the recovery of maintenance deposits and believes that the values reflected in the consolidated statement of financial position are recoverable. These deposits are used to pay for maintenance performed and
might be reimbursed to the Group after the execution of a qualifying maintenance service or when the leases are completed, according to the contractual conditions. Certain lease agreements establish that the existing deposits, in excess of
maintenance costs are not refundable. Such excess occurs when the amounts used in future maintenance services are lower than the amounts deposited. Any excess amounts expected to be retained by the lessor upon the lease contract termination date,
which are not considered material, are recognized as additional aircraft lease expense. Payments related to maintenance that the Group does not expect to perform are recognized when paid as additional rental expense. Some of the aircraft lease
agreements do not require maintenance deposits.
|
(q)
|
Security deposits for aircraft and engines
|
The Group must pay security deposits for certain aircraft and engine lease agreements. Reimbursable aircraft deposits are stated at cost.
Deposits that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such
assets are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate.
Deposits for guarantee and collateral are represented by amounts deposited with lessors, as required at the inception of the lease agreements.
The deposits are typically denominated in U.S. Dollars, do not bear interest and are reimbursable to the Group upon termination of the agreements.
F-45
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated
reliably, and it is more likely than not that an outflow of economic benefits will be required to settle the obligation in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
Provisions are set up for all legal claims related to lawsuits for which it is probable that an outflow of funds will be required to settle the
legal claims obligation and a reasonable estimate can be made. The assessment of probability of loss includes assessing the available evidence, the hierarchy of laws, available case law, the most recent court decision and their relevance in the
legal system, as well as the assessment of legal counsel.
If the effect of the time value of money is material, provisions are discounted
using a current pretax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a financial cost.
For certain operating leases, the Group is contractually obligated to return aircraft in a defined condition. The Group recognizes for
restitution costs of the aircraft held under operating leases and accumulates them monthly during the term of the lease contract. Restitution costs are based on the net present value of the estimated average costs of returning the aircraft and are
recognized in the consolidated statement of comprehensive income in Maintenance and repairs.
The Group sponsors defined benefit pension plans, which require contributions to be made to separately administered funds. The Group has also
agreed to provide certain additional postemployment benefits to senior employees in Colombia. These benefits are unfunded. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the
projected unit credit cost method.
Actuarial gains and losses for defined benefit plans are recognized in full in the period in which they
occur in other comprehensive income.
The defined benefit asset or liability comprises the present value of the defined benefit obligation
(using a discount rate based on Colombian Government bonds), and less the fair value of plan assets out of which the obligations are to be settled. Plan assets are held by CAXDAC, nor can they be paid directly to the Group. Fair value is based on
market price information and in the case of quoted securities on the published bid price. The value of any defined benefit asset recognized is restricted and the present value of any economic benefits available in the form of refunds from the plan
or reductions in the future contributions to the plan.
Under IAS 19 (issued in June 2011 and amended in November 2013), the Group
determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit
liability (asset) at the beginning of the annual period. It takes into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. The net interest on the net defined benefit
liability (asset) comprises:
F-46
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
-
|
Interest income on plan assets.
|
|
-
|
Interest cost on the defined benefit obligation; and
|
|
-
|
Interest on the effect of the asset ceiling
|
Additionally, the Group offers the following employee benefits:
|
(i)
|
Defined contribution plans
|
Obligations for contributions to defined contribution pension plans are recognized as an expense in the consolidated statement of
comprehensive income when they are due.
|
(ii)
|
Termination benefits
|
Termination benefits are recognized as an expense at the earlier of when the entity can no longer withdraw the offer of the termination
benefit and when the entity recognizes any related restructuring costs.
Commissions paid for tickets sold are recorded as prepaid expenses and expensed when the tickets are used.
Prepaid rent for aircraft corresponds to prepaid contractual amounts that will be applied to future lease payments over a term of less than
one year.
|
(u)
|
Interest income and interest expense
|
Interest income comprises interest income on funds invested (including availableforsale financial assets), changes in the fair
value of financial assets at fair value through the consolidated statement of comprehensive income and gains on interest rate hedging instruments that are recognized in the consolidated statement of comprehensive income. Interest income is
recognized as accrued in the consolidated statement of comprehensive income, using the effective interest rate method.
Interest expense
comprises interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through the consolidated statement of comprehensive Income, and losses on interest rate hedging
instruments that are recognized in the consolidated statement of comprehensive income. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in the consolidated
statement of comprehensive income using the effective interest method.
F-47
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(4)
|
New and amended standards and interpretations
|
4.1 Amendments to IFRSs that are mandatorily effective for the current year
The Group has applied for the first time some standards and modifications to the standards, which were effective for the periods beginning on
January 1, 2019. The Group has not applied any standard, interpretation or modification that has been issued but is not yet effective.
IFRS 16 Leases
IFRS 16
replaces IAS 17 Leases, IFRIC 4 which determines whether an Agreement contains a Lease, SIC-15 Operating LeasesIncentives and SIC-27 that evaluates the substance
of transactions that involve the legal form of a lease. The standard establishes the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to consider most of the leases in a single model, recognized
in the Statement of Financial Position.
The lessors accounting under IFRS 16 remains substantially unchanged from IAS 17. Lessors
will continue to classify leases as operating or financial leases using principles similar to those in IAS 17.
The Group has applied IFRS
16 using the modified retrospective approach, according to which the cumulative effect of the initial application is recorded in retained earnings as of January 1, 2019. In this case, the comparative information for 2018 has not been restated.
The Group also chose to use the recognition exemptions for lease agreements, which on the start date, have a term of 12 months or less and
do not contain a purchase option (short-term leases), and leases for which the underlying asset is of low value (low value assets).
Nature of the effects of adoption of IFRS 16
In January 2016, the IASB issued IFRS 16, which establishes a comprehensive model for the identification of lease agreements and their
treatment in the financial statements of both lessees and lessors.
IFRS 16, Leases, must be applied as of January 1, 2019. The new
standard requires that lessees recognize an asset and liability for use right in the balance sheet for all contracts that qualify as leases (with the exception of short-term leases for which the underlying asset is of low value) start date of the
lease and recognize expenses in the income statement.
The lease liability is measured at the present value of the outstanding lease
payments. Lease payments will include fixed payments, variable payments based on an index or rate, reasonably secure purchase options, termination fines, fees paid by the lessee to the owners of a special purpose entity for the restructuring of the
transaction, and probable. The amounts that the lease will owe
F-48
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
under a residual value guarantee. The lease payment does not include the payment of a variable lease other than those that depend on an index or rate, no guarantee on the part of the lessee of
the lessors debt, or any amount assigned to the components without a lease.
The Group initially measures the value of the right-of-use assets by the value of the lease liability and includes the value of the payments made before the start of the lease, any initial direct costs incurred by the
lessee.
The Group completed its assessment of the impacts of the adoption of IFRS 16 in its consolidated financial statements. The
evaluation included the following activities:
Aircraft leases
As of January 1, 2019, the Group had 54 aircraft under operating leases, and the Group registered such aircraft as assets and liabilities
of the Groups right of use with the requirement of the new standard.
The assets by right of use will be accounted for in accordance
with IAS 16, Property, Plant and Equipment. Aircraft registered as a right of use will be depreciated over the term of the lease and any qualifying maintenance event will be capitalized and depreciated over the expected lease term and the expected
maintenance life.
Real estate leases
The Group has leases related to the operations space of the airport terminal and other real estate. For leases related to the terminals
operations space, there are usually effective replacement rights in the hands of the lessor and, therefore, these are not considered the lease requirements according to the standard. Airport terminal contracts with variable lease payments are also
excluded, and variable lease payments, other than those based on an index or rate, are related to the measurement of the lease liability. Leases of properties that were recorded as
right-of-use assets and lease liabilities according to the new standard that relates to the Groups offices.
Other leases
Other
leases related to vehicles, machinery, technology. They have been evaluated, discarding short-term contracts and low-value assets, and contracts associated with vehicles are mainly recognized as assets with
right of use.
Sale and Leaseback transactions
Prior to the adoption of the New Lease Standard, the gains on sale and leaseback transactions of finance lease were deferred and recognized in
the consolidated comprehensive income statement
F-49
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
over the term of the lease. Profits from sale and leaseback transactions that result in an operating lease were recognized immediately in the consolidated comprehensive income statement without
being deferred. Under the New Standard, gains on sale and leaseback transactions with retroactive lease (subject to adjustments for non-market terms) are recognized immediately if they comply with the
requirements of IFRS 15.
At December, 31, 2018 the Group had a deferred gain for $70,070 for previous sale and lease back transactions
that subsequent lease was accounted for as a sale and a finance lease applying IAS 17, the group choose not evaluate the sale transactions with the subsequent lease made prior to determine whether the transfer of the asset meets the requirements of
IFRS 15 shall be accounted for as a sale, because we chose account for the subsequent lease in the same way as to account for any other financial lease that exists on the date of initial application; and we will continue to amortize any gain on the
sale over the term of the lease.
Impacts due to the adoption of the standard (January 1, 2019)
The effects of the adoption of the standard in the Groups consolidated statement of financial position was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
December 31,
2018
|
|
|
Application of the
new standard
(1)(2)(3)(4)
|
|
|
Adjusted
Balances
|
|
Total assets
|
|
|
7,118,643
|
|
|
|
1,079,733
|
|
|
|
8,198,376
|
|
Total liabilities
|
|
|
6,126,182
|
|
|
|
1,079,733
|
|
|
|
7,205,915
|
|
Total equity
|
|
|
992,461
|
|
|
|
|
|
|
|
992,461
|
|
(1)
|
The adjustment corresponds to $1,010,200 recognized as assets and liabilities for the right to use aircraft
leases, which are presented as Property and Equipment as flight equipment.
|
(2)
|
The adjustment corresponds to $69,533 recognized as assets and liabilities for the right to use leases on non-aeronautical assets, which are presented into other property.
|
(3)
|
When measuring lease liabilities for leases that were classified as operating lease, the group discounted
leases using its incremental borrowing rate at January 1, 2019. The weighted average rate applied is 5.09%.
|
(4)
|
The adjustment has no impact on deferred tax.
|
F-50
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Amounts recognized in the consolidated statement of financial position and profit or
loss
2019 Leases under IFRS 16
Set out below, are the amounts recognized consolidated statement of comprehensive income:
|
|
|
|
|
|
|
For the year
ended December 31,
2019
|
|
Depreciation expense of
right-of-use assets
|
|
$
|
206,434
|
|
Interest expense on lease liabilities
|
|
|
51,885
|
|
Rent expense - short-term leases
|
|
|
1,008
|
|
Rent expense - leases of low-value assets
|
|
|
1,934
|
|
Rent expense - variable lease payments
|
|
|
8,770
|
|
|
|
|
|
|
Total amounts recognized in profit or loss
|
|
$
|
270,031
|
|
|
|
|
|
|
2018 Leases under IAS 17
Set out below, are the amounts recognized consolidated statement of comprehensive income:
|
|
|
|
|
|
|
For the year
ended December 31,
2018
|
|
Rentals
|
|
$
|
308,722
|
|
Amounts recognized in the consolidated statement of cash flow
For the year ended December, 31, 2019 for the total cash outflow for leases was $259,165
Set out below, are the carrying amounts of the Groups
right-of-use assets and lease liabilities and the movements during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
|
|
Flight
Equipment
|
|
|
Other
|
|
|
Total
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS 16 Adoption
|
|
$
|
1,010,200
|
|
|
$
|
69,533
|
|
|
$
|
1,079,733
|
|
Additions
|
|
|
172,526
|
|
|
|
4,222
|
|
|
|
176,748
|
|
Modifications contracts
|
|
|
97,956
|
|
|
|
3,432
|
|
|
|
101,388
|
|
Depreciation expense
|
|
|
(198,219
|
)
|
|
|
(8,215
|
)
|
|
|
(206,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
$
|
1,082,463
|
|
|
$
|
68,972
|
|
|
$
|
1,151,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Summary of the new accounting policy
The following is a summary of the Groups new accounting policies after the adoption of IFRS 16:
Assets by right of use
The Group recognizes the assets for right of use on the start date of the lease (that is, the date on which the underlying asset is available
for use). The right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and are adjusted for any new measurement of lease
liabilities. The cost of the assets with the right to use includes the amount of the recognized lease liabilities, the initial direct costs incurred, and the lease payments made on or before the start date, less the lease incentives received. The
assets recognized by right of use are depreciated in a straight line during the shortest period of their estimated useful life and the term of the lease. The assets by right of use are subject to deterioration.
Lease liabilities
On the
start date of the lease, the Group recognizes the lease liabilities measured at the present value of the lease payments that will be made during the term of the lease. Lease payments include fixed payments and variable lease payments that depend on
an index or a rate.
Lease payments also include the price of a purchase option that the Group can reasonably exercise and penalty payments
for terminating a lease.
Variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in
which the event or condition that triggers the payment occurs.
IFRIC 23- Uncertainty over
Income Tax Treatments
The interpretation refers to income tax accounting in cases in which the tax treatment includes
uncertainties that affect the application of IAS 12 and does not apply to taxes that are outside the scope of this standard, nor does it include specific requirements related to it. with interests and penalties associated with uncertain tax
treatments. The interpretation establishes the following:
|
|
|
Whether the Group considers uncertain tax treatments separately
|
|
|
|
The assumptions made by the entity about the examination of tax treatments by the corresponding authorities.
|
|
|
|
The manner in which the entity determines the fiscal profit (or fiscal loss), fiscal bases, unused fiscal losses
or credits, and fiscal rates.
|
|
|
|
The manner in which the entity considers changes in events and circumstances.
|
F-52
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Group determined there aren´t impacts in the application of this standard.
|
4.2
|
Standards issued but not yet effective
|
The Group has not applied the following new and revised IFRSs that are not yet effective:
|
|
|
IFRS 17
|
|
Insurance Contracts
|
|
|
IFRS 3
|
|
Business Combinations
|
|
|
IAS 1
|
|
Presentation of financial statements
|
|
|
IAS 8
|
|
Accounting policies, changes in accounting estimates and errors
|
Effective for annual periods beginning on or after January 1, 2020 and 2021, with earlier application
permitted.
IFRS 17 Insurance contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering
recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary
participation features.
A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for
insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance
contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:
|
|
|
A specific adaptation for contracts with direct participation features (the variable fee approach)
|
|
|
|
A simplified approach (the premium allocation approach) mainly for short-duration contracts
|
IFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with comparative figures
required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group.
F-53
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether
an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities
assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments.
Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will
not be affected by these amendments on the date of transition.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors to align the definition of material across the standards and to clarify certain aspects of the definition. The new definition states that, Information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
The amendments to the definition of material is not expected to have a significant impact on the Groups consolidated financial
statements.
The Group reports information by segments as established in IFRS 8 Operating segments. The Group has two reportable segments, as
follows:
|
|
|
Air transportation: Corresponds to passenger and cargo operating revenues on scheduled flights and freight
transport, respectively.
|
|
|
|
Loyalty: Corresponds to the coalition loyalty program, the frequent flyer program for the airline subsidiaries of
Avianca Holdings S.A.
|
The Board of Directors is the Chief Operating Decision Maker (CODM) and monitors the operating
results of its reportable segment separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on statement of comprehensive income and is measured consistently with the
Group´s consolidated financial statements.
F-54
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Groups operational information by reportable segment for the year ended
December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2019
|
|
|
|
Air
transportation
|
|
|
Loyalty (1)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Operating revenue: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
4,284,901
|
|
|
$
|
336,595
|
|
|
$
|
|
|
|
$
|
4,621,496
|
|
Inter-segment
|
|
|
149,595
|
|
|
|
1,856
|
|
|
|
(151,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
$
|
4,434,496
|
|
|
$
|
338,451
|
|
|
$
|
(151,451
|
)
|
|
$
|
4,621,496
|
|
|
|
|
|
|
Operating expenses
|
|
|
4,067,372
|
|
|
|
196,116
|
|
|
|
(151,768
|
)
|
|
|
4,111,720
|
|
Depreciation, amortization and impairment
|
|
|
1,061,766
|
|
|
|
11,991
|
|
|
|
(9,700
|
)
|
|
|
1,064,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
|
(694,642
|
)
|
|
|
130,344
|
|
|
|
10,017
|
|
|
|
(554,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(263,049
|
)
|
|
|
(36,893
|
)
|
|
|
|
|
|
|
(299,942
|
)
|
Interest income
|
|
|
6,741
|
|
|
|
2,300
|
|
|
|
|
|
|
|
9,041
|
|
Derivative instruments
|
|
|
(1,892
|
)
|
|
|
(272
|
)
|
|
|
|
|
|
|
(2,164
|
)
|
Foreign exchange
|
|
|
(24,117
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
(24,190
|
)
|
Equity method
|
|
|
1,524
|
|
|
|
|
|
|
|
|
|
|
|
1,524
|
|
Income tax expense
|
|
|
(24,042
|
)
|
|
|
59
|
|
|
|
|
|
|
|
(23,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) profit for the period
|
|
$
|
(999,477
|
)
|
|
$
|
95,465
|
|
|
$
|
10,017
|
|
|
$
|
(893,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,219,611
|
|
|
$
|
243,249
|
|
|
$
|
(188,950
|
)
|
|
$
|
7,273,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
6,522,422
|
|
|
$
|
880,483
|
|
|
$
|
(134,162
|
)
|
|
$
|
7,268,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Groups operational information by reportable segment for the year ended
December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2018
|
|
|
|
Air
transportation
|
|
|
Loyalty (1)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Operating revenue: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
4,577,021
|
|
|
$
|
313,809
|
|
|
$
|
|
|
|
$
|
4,890,830
|
|
Inter-segment
|
|
|
148,882
|
|
|
|
1,867
|
|
|
|
(150,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
4,725,903
|
|
|
|
315,676
|
|
|
|
(150,749
|
)
|
|
|
4,890,830
|
|
|
|
|
|
|
Operating expenses
|
|
|
4,226,414
|
|
|
|
193,269
|
|
|
|
(150,357
|
)
|
|
|
4,269,326
|
|
Depreciation, amortization and impairment
|
|
|
388,960
|
|
|
|
12,976
|
|
|
|
(12,548
|
)
|
|
|
389,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
110,529
|
|
|
|
109,431
|
|
|
|
12,156
|
|
|
|
232,116
|
|
|
|
|
|
|
Interest expense
|
|
|
(182,230
|
)
|
|
|
(30,064
|
)
|
|
|
|
|
|
|
(212,294
|
)
|
Interest income
|
|
|
8,062
|
|
|
|
2,053
|
|
|
|
|
|
|
|
10,115
|
|
Derivative instruments
|
|
|
567
|
|
|
|
(827
|
)
|
|
|
|
|
|
|
(260
|
)
|
Foreign exchange
|
|
|
(9,238
|
)
|
|
|
18
|
|
|
|
|
|
|
|
(9,220
|
)
|
Equity method
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
|
899
|
|
Income tax expense
|
|
|
(20,258
|
)
|
|
|
45
|
|
|
|
|
|
|
|
(20,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net segment profit (loss) for the period
|
|
$
|
(91,669
|
)
|
|
$
|
80,656
|
|
|
$
|
12,156
|
|
|
$
|
1,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,098,272
|
|
|
$
|
248,937
|
|
|
$
|
(228,566
|
)
|
|
$
|
7,118,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
5,426,718
|
|
|
$
|
862,834
|
|
|
$
|
(163,370
|
)
|
|
$
|
6,126,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Groups operational information by segment reportable for the year ended
December 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017
|
|
|
|
Air
transportation
|
|
|
Loyalty (1)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Operating revenue: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
4,167,658
|
|
|
$
|
274,026
|
|
|
$
|
|
|
|
$
|
4,441,684
|
|
Inter-segment
|
|
|
112,037
|
|
|
|
4,366
|
|
|
|
(116,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
4,279,695
|
|
|
|
278,392
|
|
|
|
(116,403
|
)
|
|
|
4,441,684
|
|
|
|
|
|
|
Operating expenses
|
|
|
3,797,456
|
|
|
|
156,627
|
|
|
|
(119,456
|
)
|
|
|
3,834,627
|
|
Depreciation and
amortization
|
|
|
313,314
|
|
|
|
12,876
|
|
|
|
(12,777
|
)
|
|
|
313,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
168,925
|
|
|
|
108,889
|
|
|
|
15,830
|
|
|
|
293,644
|
|
|
|
|
|
|
Interest expense
|
|
|
(174,657
|
)
|
|
|
(8,675
|
)
|
|
|
|
|
|
|
(183,332
|
)
|
Interest income
|
|
|
11,998
|
|
|
|
1,550
|
|
|
|
|
|
|
|
13,548
|
|
Derivative instruments
|
|
|
(2,536
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,536
|
)
|
Foreign exchange
|
|
|
(20,161
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(20,163
|
)
|
Equity method
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
|
980
|
|
Income tax expense
|
|
|
(19,457
|
)
|
|
|
(652
|
)
|
|
|
|
|
|
|
(20,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net segment profit (loss) for the period
|
|
$
|
(34,908
|
)
|
|
$
|
101,110
|
|
|
$
|
15,830
|
|
|
$
|
82,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
6,796,848
|
|
|
$
|
248,919
|
|
|
$
|
(184,371
|
)
|
|
$
|
6,861,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
5,082,763
|
|
|
$
|
545,951
|
|
|
$
|
(107,018
|
)
|
|
$
|
5,521,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loyalty revenue for redeemed miles is found in the entry of passengers; and other loyalty income is recorded in
other income.
|
(2)
|
The results, assets and liabilities allocated to the loyalty segment reportable correspond to those
attributable directly to the subsidiary LifeMiles Corp., and exclude assets, liabilities, income and expenses of the loyalty program recognized in the Avianca Holdings Subsidiaries.
|
For the year 2019 and 2018, the financial information is prepared under IFRS 15 Revenue from contracts with customers and for 2017
it is prepared under IFRIC 13 Loyalty program with customers.
Inter-segment revenues are eliminated upon consolidation
and reflected in the Eliminations column.
F-57
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Groups revenues by geographic area for the years ended December 31, 2019, 2018
and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
United States of America
|
|
$
|
681,728
|
|
|
$
|
462,091
|
|
|
$
|
565,910
|
|
Central America and the Caribbean
|
|
|
289,543
|
|
|
|
248,896
|
|
|
|
539,682
|
|
Colombia
|
|
|
2,378,772
|
|
|
|
2,580,979
|
|
|
|
1,961,600
|
|
South America (excluding Colombia)
|
|
|
754,574
|
|
|
|
732,586
|
|
|
|
933,569
|
|
Other
|
|
|
516,879
|
|
|
|
866,278
|
|
|
|
440,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
$
|
4,621,496
|
|
|
$
|
4,890,830
|
|
|
$
|
4,441,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group allocates revenues by geographic area based on the point of origin of the flight. Non-current assets are composed primarily of aircraft and aeronautical equipment, which are used throughout different countries and are therefore not assignable to any particular geographic area. Within the
geographic areas presented there are no individually significant countries.
|
(6)
|
Financial risk management
|
The Group has exposure to different risks from its use of financial instruments, namely, liquidity risk, fuel price risk, foreign currency
risk, interest rate risk, credit risk and capital risk management.
The Board of Directors has overall responsibility for the establishment
and oversight of the Groups risk management framework. The Board has established mechanisms for developing and monitoring the Groups risk management policies. The Groups risk management policies are established to identify and
analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Groups
activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Groups approach to
managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the
Groups reputation.
Our primary sources of funds are cash provided by operations and cash provided by financing activities. Our
primary uses of cash are for working capital, capital expenditures, operating leases and general corporate purposes. Historically, we have been able to fund our short-term capital needs with cash generated from our operations. Our long-term capital
needs relate to aircraft purchases.
In line with Avianca Holdings S.A.s initiatives directed towards enhancing profitability,
achieving a leaner capital structure as well as reducing the current levels of debt; On January 6, 2020 the Group negotiated with Airbus the cancellation of 20 A320 Family aircraft and a significant reduction of its
F-58
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
scheduled aircraft deliveries in 2020, 2021, 2022, 2023 and 2024. In addition to this, it structured that all the A321neo of the order would become A320neo to handle a single type of fleet in the
Purchase Agreement with Airbus S.A.S. with deliveries scheduled between 2025 and 2029.
Furthermore, we also finance the acquisition of
aircraft through sale-leaseback financings in which we sell an aircraft to a financial institution or leasing company immediately upon delivery from the manufacturer and lease the aircraft back under an operating agreement for a period of time,
typically six to eight years.
As of December 31, 2019, and 2018, the Group had unsecured revolving lines of credit with different
financial institutions in the aggregate amounts of $258,206, and $423,880, respectively. As of December 31, 2019, and 2018, there were $20,925 and $109,059, unused credit line balances, respectively, under these facilities. These revolving
lines of credit are preapproved by the financial institutions and the Group may withdraw funds if it has working capital requirements.
As
a result of the spread of COVID-19 and related government travel restrictions (see Note 38(b)). in March 2020, we began to take multiple measures to reduce our expenses and the scale of our operations. Nonetheless, our business remains capital
intensive. In addition to the cash requirements necessary to fund our ongoing operations, we have incurred significant professional fees and other costs in connection with the effects of the COVID-19 pandemic on our business. Our liquidity, as well
as our ability to meet our ongoing operational obligations, depend on, among other things, our ability to (i) maintain adequate cash on hand and (ii) generate cash flow from operations, which in turn depends largely on factors beyond our
control relating to developments deriving from the spread of COVID-19.
The following are the contractual maturities of nonderivative
financial liabilities, including estimated interest payments. Amounts under the Years columns represent the contractual undiscounted cash flows of each liability.
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
|
Carrying
amount
|
|
|
Contractual
cash flows
|
|
|
One
|
|
|
Two
|
|
|
Three
|
|
|
Four
|
|
|
Five and
thereafter
|
|
|
|
|
|
|
|
|
|
Shortterm borrowings
|
|
$
|
118,137
|
|
|
$
|
123,734
|
|
|
$
|
123,734
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Longterm Debt
|
|
|
3,008,412
|
|
|
|
3,640,008
|
|
|
|
554,021
|
|
|
|
540,615
|
|
|
|
853,756
|
|
|
|
612,874
|
|
|
|
1,078,742
|
|
Bonds
|
|
|
531,244
|
|
|
|
698,436
|
|
|
|
105,022
|
|
|
|
43,598
|
|
|
|
43,598
|
|
|
|
506,218
|
|
|
|
|
|
Use rights IFRS 16
|
|
|
1,198,530
|
|
|
|
1,321,871
|
|
|
|
264,510
|
|
|
|
246,759
|
|
|
|
234,094
|
|
|
|
206,367
|
|
|
|
370,141
|
|
Debt assets held for sale
|
|
|
490,458
|
|
|
|
490,458
|
|
|
|
490,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
5,346,781
|
|
|
|
6,274,507
|
|
|
|
1,537,745
|
|
|
|
830,972
|
|
|
|
1,131,448
|
|
|
|
1,325,459
|
|
|
|
1,448,883
|
|
Accounts payable
|
|
|
542,546
|
|
|
|
542,546
|
|
|
|
530,615
|
|
|
|
11,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
|
87,610
|
|
|
|
87,610
|
|
|
|
87,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities
|
|
$
|
5,976,937
|
|
|
$
|
6,904,663
|
|
|
$
|
2,155,970
|
|
|
$
|
842,903
|
|
|
$
|
1,131,448
|
|
|
$
|
1,325,459
|
|
|
$
|
1,448,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
|
Carrying
amount
|
|
|
Contractual
cash flows
|
|
|
One
|
|
|
Two
|
|
|
Three
|
|
|
Four
|
|
|
Five and
thereafter
|
|
Shortterm borrowings
|
|
$
|
119,866
|
|
|
$
|
121,194
|
|
|
$
|
121,194
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Longterm Debt
|
|
|
3,300,422
|
|
|
|
3,992,304
|
|
|
|
627,272
|
|
|
|
595,696
|
|
|
|
645,103
|
|
|
|
690,558
|
|
|
|
1,433,675
|
|
Bonds
|
|
|
587,292
|
|
|
|
649,020
|
|
|
|
75,988
|
|
|
|
573,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,007,580
|
|
|
|
4,762,518
|
|
|
|
824,454
|
|
|
|
1,168,728
|
|
|
|
645,103
|
|
|
|
690,558
|
|
|
|
1,433,675
|
|
Accounts payable
|
|
|
671,399
|
|
|
|
671,399
|
|
|
|
664,272
|
|
|
|
7.127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
|
108,712
|
|
|
|
108,712
|
|
|
|
108,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities
|
|
$
|
4,787,691
|
|
|
$
|
5,542,629
|
|
|
$
|
1,597,438
|
|
|
$
|
1,175,855
|
|
|
$
|
645,103
|
|
|
$
|
690,558
|
|
|
$
|
1,433,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group maintains a commoditypricerisk management strategy that uses derivative instruments to minimize significant,
unanticipated earnings fluctuations caused by commodityprice volatility. The operations of the Group require a significant volume of jet fuel purchases. Price fluctuations of oil, which are directly related with price fluctuations of jet fuel,
cause market values of jet fuel to differ from its cost and cause the actual purchase price of jet fuel to differ from the anticipated price.
All such transactions are carried out within the guidelines set by the Risk Management Committee.
The Group enters into derivative financial instruments using heating oil and jet fuel to reduce the exposure to jet fuel price risks. Such
financial instruments are deemed to be highly effective hedge because changes in their fair value are closely correlated with variations in jet fuel prices. The Group determines fair value of the contracts based on the notional future curves as
observed in the market; gain or loss of hedge instruments are recognized directly in net equity, through other comprehensive income (OCI), based on Hedge Accounting procedures.
Sensitivity analysis
A
change in 1% in jet fuel prices would have increased/decreased profit or loss for the years ended December 31, 2019, 2018 and 2017 by $12,041, $12,163 and $9,235. This calculation assumes that the change occurred at the reporting date and had
been applied to risk exposures existing at that date.
F-60
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
This analysis assumes that all other variables remain constant and considers the effect of changes in jet fuel price and underlying hedging contracts. The analysis is performed on the same basis
for 2018.
|
(c)
|
Foreign currency risk
|
The foreign currency risk arises when the Group carries out transactions and maintains monetary assets and liabilities in currencies other than
its functional currency.
The functional currency used by the Group to establish the prices of its services is the US dollar. The Group
sells most of its services at prices equivalent to the US dollar and a large part of its expenses are denominated in US dollars or are indexed to that currency, particularly fuel costs, maintenance costs, aircraft leases, lease payments, aircraft,
insurance and aircraft components and accessories. The remuneration expenses are denominated in local currencies.
The Group maintains its
freight and passenger rates in US dollars. Although sales in domestic markets are made in local currencies, prices are indexed to the US dollar.
The loss in foreign currency is derived primarily from the depreciation of the Colombian Peso against the US Dollar. For the years ended
December 31, 2019, 2018 and 2017, the Group recognized a net loss from currency exchanges of $(24,190), $(9,220) and $(20,163), respectively.
F-61
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The summary quantitative data about the Groups exposure to currency risk as reported to
the management of the Group based on its risk management policy was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
USD
|
|
|
Colombian
Pesos
|
|
|
Euros
|
|
|
Mexican
Pesos
|
|
|
Argentinean
Pesos
|
|
|
Brazilian
Reals
|
|
|
Others
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
209,139
|
|
|
$
|
87,382
|
|
|
$
|
15,111
|
|
|
$
|
4,789
|
|
|
$
|
11,045
|
|
|
$
|
|
|
|
$
|
15,007
|
|
|
$
|
342,473
|
|
Trade and other receivables, net of expected credit losses
|
|
|
137,692
|
|
|
|
1,474
|
|
|
|
81,982
|
|
|
|
8,591
|
|
|
|
6,637
|
|
|
|
17,764
|
|
|
|
5,499
|
|
|
|
259,639
|
|
Secured debt and bonds
|
|
|
(4,554,328
|
)
|
|
|
(16,285
|
)
|
|
|
(120,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,690,668
|
)
|
Unsecured debt
|
|
|
(160,801
|
)
|
|
|
(4,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165,655
|
)
|
Debt Assets held for sale
|
|
|
(449,340
|
)
|
|
|
|
|
|
|
(41,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(490,458
|
)
|
Accrued expenses
|
|
|
(63,385
|
)
|
|
|
(19,560
|
)
|
|
|
(2,726
|
)
|
|
|
(408
|
)
|
|
|
|
|
|
|
(1,531
|
)
|
|
|
|
|
|
|
(87,610
|
)
|
Accounts payable
|
|
|
(363,129
|
)
|
|
|
(51,313
|
)
|
|
|
(38,716
|
)
|
|
|
(19,258
|
)
|
|
|
|
|
|
|
(17,437
|
)
|
|
|
(52,693
|
)
|
|
|
(542,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial position exposure
|
|
$
|
(5,244,152
|
)
|
|
$
|
(3,156
|
)
|
|
$
|
(105,522
|
)
|
|
$
|
(6,286
|
)
|
|
$
|
17,682
|
|
|
$
|
(1,204
|
)
|
|
|
$(32,187)
|
|
|
|
$(5,374,825)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change forecast in exchange rate
|
|
|
|
|
|
|
(6.4
|
)%
|
|
|
(0.045
|
)%
|
|
|
(4.4
|
)%
|
|
|
9.1
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
Effect on profit of the year
|
|
|
|
|
|
$
|
201
|
|
|
$
|
(48
|
)
|
|
$
|
279
|
|
|
$
|
1,617
|
|
|
$
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
USD
|
|
|
Colombian
Pesos
|
|
|
Euros
|
|
|
Argentinean
Pesos
|
|
|
Brazilian
Reals
|
|
|
Others
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
172,966
|
|
|
$
|
33,822
|
|
|
$
|
7,501
|
|
|
$
|
16,430
|
|
|
$
|
20,769
|
|
|
$
|
26,463
|
|
|
$
|
277,951
|
|
Accounts receivable, net of expected credit losses
|
|
|
186,841
|
|
|
|
56,862
|
|
|
|
6,863
|
|
|
|
6,843
|
|
|
|
33,632
|
|
|
|
38,909
|
|
|
|
329,950
|
|
Secured debt and bonds
|
|
|
(3,115,356
|
)
|
|
|
(29,316
|
)
|
|
|
(170,670
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,041
|
)
|
|
|
(3,329,383
|
)
|
Unsecured debt
|
|
|
(675,699
|
)
|
|
|
(2,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(678,197
|
)
|
Accrued expenses
|
|
|
(78,936
|
)
|
|
|
(20,363
|
)
|
|
|
(7,577
|
)
|
|
|
(231
|
)
|
|
|
(717
|
)
|
|
|
(888
|
)
|
|
|
(108,712
|
)
|
Accounts payable
|
|
|
(437,487
|
)
|
|
|
(97,830
|
)
|
|
|
(22,293
|
)
|
|
|
(5,471
|
)
|
|
|
(16,203
|
)
|
|
|
(92,115
|
)
|
|
|
(671,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial position exposure
|
|
$
|
(3,947,671
|
)
|
|
$
|
(59,323
|
)
|
|
$
|
(186,176
|
)
|
|
$
|
17,571
|
|
|
$
|
37,481
|
|
|
|
$(41,672)
|
|
|
|
$(4,179,790)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change forecast in exchange rate
|
|
|
|
|
|
|
(4.03
|
)%
|
|
|
(5.64
|
%)
|
|
|
2.36
|
%
|
|
|
(4.39
|
)%
|
|
|
|
|
|
|
|
|
Effect on profit of the year
|
|
|
|
|
|
$
|
2,391
|
|
|
$
|
10,500
|
|
|
|
415
|
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
F-62
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Sensitivity analysis
The calculation assumes that the change occurred at the reporting date and had been applied to risk exposures existing at that date. This
analysis assumes that all other variables remain constant and considers the effect of changes in the exchange rate, which is the rate that could materially affect the Groups consolidated statement of comprehensive income.
The Group incurs interest rate risk mainly on financial obligations with banks and aircraft lessors. These lease payments long-term lease
payments at interest floating rates expose the Group to the cash flow risk. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps.
The Group assesses interest rate risk by monitoring and identifying changes in interest rate exposures that may adversely impact expected
future cash flows and by evaluating hedging opportunities. The Group maintains risk management control systems to monitor interest rate risk attributable to both the Groups outstanding or forecasted debt obligations.
At the reporting date the interest rate profile of the Groups interestbearing financial instruments is:
|
|
|
|
|
|
|
|
|
Carrying amount asset/(liability)
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Fixed rate instruments
|
|
|
|
|
|
|
|
|
Financial assets
|
|
$
|
272,013
|
|
|
$
|
68,706
|
|
Financial liabilities
|
|
|
(4,421,351
|
)
|
|
|
(3,162,548
|
)
|
Interest rate swaps
|
|
|
471
|
|
|
|
5,063
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4,148,867
|
)
|
|
$
|
(3,088,779
|
)
|
|
|
|
|
|
|
|
|
|
Floating rate instruments
|
|
|
|
|
|
|
|
|
Financial assets
|
|
$
|
5,685
|
|
|
$
|
14,798
|
|
Financial liabilities
|
|
|
(925,430
|
)
|
|
|
(845,031
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(919,745
|
)
|
|
$
|
(830,233
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2019, the interest rates vary from 0.44% to 17.04% (December 31, 2018: 0.44% to 12.55%)
and the main floating rate instruments are linked to LIBOR plus a spread according to the terms of each contract.
F-63
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Sensitivity analysis
As of December 31, 2019, 2018 and 2017 an average increase of 1% in interest rates on short-term and longterm debt would be expected
to decrease the Groups income by $10,466, $10,284 and $8,825 respectively.
Credit risk is the potential loss from a transaction in the event of default by the counterparty during the term of the transaction or on
settlement of the transaction. Credit exposure is measured as the cost to replace existing transactions should a counterparty default.
There are no significant concentrations of credit risk at the consolidated statement of financial position date. The maximum exposure to credit
risk is represented by the carrying amount of each financial asset.
The Group conducts transactions with the following major types of
counterparties:
|
|
|
Trade receivables, net of expected credit losses: The Group is not exposed to significant concentrations of
credit risk since most accounts receivable arise from sales of airline tickets to individuals through travel agencies in various countries, including virtual agencies and other airlines. These receivables are short term in nature and are generally
settled shortly after the sales are made through major credit card companies.
|
Cargorelated receivables present a
higher credit risk than passenger, sales given the nature of processing payment for these sales. The Group is continuing its implementation of measures to reduce this credit risk for example, by reducing the payment terms and affiliating cargo
agencies to the IATA, Cargo Account Settlement Systems (CASS). CASS is designed to simplify the billing and settling of accounts between airlines and freight forwarders. It operates through an advanced global webenabled
ebilling solution.
|
|
|
Cash, cash equivalents and deposits with banks and financial institutions: In order to reduce counterparty risk
and to ensure that the risk assumed is known and managed by the Company, investments are diversified among different banking institution (both local and international). The Group evaluates the credit standing of each counterparty and the levels of
investment, based on (i) their credit rating, (ii) the equity size of the counterparty, and (iii) investment limits according to the Group level of liquidity. According to these three parameters, the Group chooses the most restrictive
parameter of the previous three and based on this, establishes limits for operations with each counterparty.
|
|
|
|
Foreign exchange transactions: The Group minimizes counterparty credit risk in derivative instruments by entering
into transactions with counterparties with which the Group has signed International Swaps and Derivatives Association Master Agreements. Given their high credit ratings, management does not expect any counterparty to fail to meet its
contractual obligations.
|
F-64
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(f)
|
Capital risk management
|
The Groups capital management policy is to maintain a sound capital base in order to safeguard the Groups ability to continue as a
going concern, and in doing so, face its current and longterm obligations, provide returns for its shareholders, and maintain an optimal capital structure to reduce the cost of capital. The Group monitors capital on the basis of the
debttocapital ratio.
Following is a summary of the debtto/capital ratio of the Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Debt
|
|
|
16
|
|
|
$
|
5,346,781
|
|
|
$
|
4,007,580
|
|
Less: cash and cash equivalents and restricted cash
|
|
|
7
|
|
|
|
(342,473
|
)
|
|
|
(277,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net debt
|
|
|
|
|
|
|
5,004,308
|
|
|
|
3,729,629
|
|
Total equity
|
|
|
|
|
|
|
5,167
|
|
|
|
992,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
$
|
5,009,475
|
|
|
$
|
4,722,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debttocapital ratio
|
|
|
|
|
|
|
100
|
%
|
|
|
79
|
%
|
Considering the difficulties presented in 2019, the Avianca 2021 program was implemented, where one
of the fundamental pillars is related to debt re-profiling (See detail note 2f going concern).
Fair
value financial assets and liabilities
The fair values of financial assets and liabilities, together with the carrying amounts
shown in the consolidated statement of financial position as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Notes
|
|
|
Carrying
amount
|
|
|
Fair value
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
12
|
|
|
$
|
55,440
|
|
|
$
|
55,440
|
|
Derivative instruments
|
|
|
27
|
|
|
|
536
|
|
|
|
536
|
|
Plan assets
|
|
|
20
|
|
|
|
204,527
|
|
|
|
204,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
260,503
|
|
|
$
|
260,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term borrowings and longterm debt
|
|
|
16
|
|
|
$
|
5,346,781
|
|
|
$
|
5,454,688
|
|
Derivative instruments
|
|
|
27,28
|
|
|
|
1,289
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,348,070
|
|
|
$
|
5,455,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The fair values of financial assets and liabilities, together with the carrying amounts shown
in the consolidated statement of financial position as of December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Notes
|
|
|
Carrying
amount
|
|
|
Fair value
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
12
|
|
|
$
|
67,306
|
|
|
$
|
67,306
|
|
Derivative instruments
|
|
|
27
|
|
|
|
7,456
|
|
|
|
7,456
|
|
Plan assets
|
|
|
20
|
|
|
|
178,594
|
|
|
|
178,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
253,356
|
|
|
$
|
253,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term borrowings and longterm debt
|
|
|
16
|
|
|
$
|
4,007,580
|
|
|
$
|
4,022,707
|
|
Derivative instruments
|
|
|
28
|
|
|
|
(17
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,007,563
|
|
|
$
|
4,022,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the financial assets and liabilities corresponds the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Management assessed that cash and
cash equivalents, account receivable, account payable and other current liabilities approximate their carrying amount largely due to the shortterm maturities of these instruments.
|
(7)
|
Cash and cash equivalents and restricted cash
|
Cash and cash equivalents and restricted cash as of December 31, 2019, and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Cash on hand and bank deposits
|
|
$
|
339,010
|
|
|
$
|
264,565
|
|
Demand and term deposits (1)
|
|
|
3,462
|
|
|
|
8,543
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
342,472
|
|
|
|
273,108
|
|
Restricted cash
|
|
|
1
|
|
|
|
4,843
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
342,473
|
|
|
$
|
277,951
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of December 31, 2019, and 2018, within the cash equivalents, there are demand and term deposits that
amounted to $3,462 and $ 8,543, respectively. The use of term deposits depends on the cash requirements of the Group. As of December 31, 2019, term deposits accrue annual interest rates between 3.61% and 5.21% in
|
F-66
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
Colombian pesos and between 1.94% and 6.02% in dollars. As of December 31, 2018, term deposits accrue annual interest rates between 2.61% and 4.85% in Colombian pesos and between 2.05% and
4.59% in dollars.
|
|
(8)
|
Trade and other receivables
|
Trade and other receivables as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Trade
|
|
$
|
222,694
|
|
|
$
|
258,186
|
|
Employee advances
|
|
|
3,267
|
|
|
|
4,848
|
|
Other (1)
|
|
|
72,331
|
|
|
|
73,056
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
298,292
|
|
|
$
|
336,090
|
|
Less provision for expected credit losses
|
|
|
(42,001
|
)
|
|
|
(12,430
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
256,291
|
|
|
$
|
323,660
|
|
|
|
|
|
|
|
|
|
|
Net current
|
|
$
|
233,722
|
|
|
$
|
288,157
|
|
Net non-current
|
|
|
22,569
|
|
|
|
35,503
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
256,291
|
|
|
$
|
323,660
|
|
|
|
|
|
|
|
|
|
|
Trade receivables are non-interest bearing.
(1)
|
As of December 31, 2019, corresponds mainly to accounts receivable to Chelsea Securities S.A. for $34,980.
As of December 31, 2018, corresponds mainly to amounts charged to Rolls Royce to contractual rights acquired in connection with failures in Trent 100 engines. As of December 31, 2019, the carrying amount is $11,409.
|
Changes during the year in the provision for expected credit losses for as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Balance at beginning of year
|
|
$
|
12,430
|
|
|
$
|
13,180
|
|
Adjustment implementation IFRS 9
|
|
|
|
|
|
|
(216
|
)
|
Provision bad debt expense (1)
|
|
|
50,703
|
|
|
|
4,526
|
|
Reversal against the allowance
|
|
|
(21,132
|
)
|
|
|
(5,060
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,001
|
|
|
$
|
12,430
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As December 31, 2019, includes impairment of the account receivable assigned by Grupo Aeromar SA of CV to
Chelsea Securities, S.A., this account receivable is unsecured, originated in a potential investment of the Group in the Mexican market, a decision to the invest wasnt approved ($34,980).
|
F-67
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The aging of trade receivables at the end of the reporting period is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Neither past due nor impaired
|
|
$
|
129,732
|
|
|
$
|
169,589
|
|
Past due 130 days
|
|
|
24,259
|
|
|
|
33,721
|
|
Past due 3190 days
|
|
|
16,896
|
|
|
|
17,506
|
|
Past due 91 days
|
|
|
51,807
|
|
|
|
37,370
|
|
|
|
|
|
|
|
|
|
|
Total trade
|
|
$
|
222,694
|
|
|
$
|
258,186
|
|
Less provision for expected credit losses
|
|
|
(7,021
|
)
|
|
|
(12,430
|
)
|
|
|
|
|
|
|
|
|
|
Trade receivables, net of expected credit losses
|
|
$
|
215,673
|
|
|
$
|
245,756
|
|
|
|
|
|
|
|
|
|
|
F-68
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(9)
|
Balances and transactions with related parties
|
The following is a summary of transactions and balances of related parties for the periods ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Country
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Receivables
|
|
|
Payables
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Receivables
|
|
|
Payables
|
|
|
Revenues
|
|
|
Expenses
|
|
SP SYN Participações S,A,
|
|
Brasil
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
585
|
|
|
$
|
|
|
OceanAir Linhas Aéreas, S,A,
|
|
Brasil
|
|
|
2,906
|
|
|
|
2,178
|
|
|
|
6,988
|
|
|
|
26,712
|
|
|
|
6,199
|
|
|
|
1,078
|
|
|
|
23,062
|
|
|
|
58,479
|
|
Aeromantenimiento, S,A,
|
|
El Salvador
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportadora del Meta S,A,S,
|
|
Colombia
|
|
|
|
|
|
|
448
|
|
|
|
6
|
|
|
|
4,390
|
|
|
|
13
|
|
|
|
569
|
|
|
|
19
|
|
|
|
4,781
|
|
Empresariales S,A,S,
|
|
Colombia
|
|
|
|
|
|
|
475
|
|
|
|
|
|
|
|
2,755
|
|
|
|
|
|
|
|
364
|
|
|
|
5
|
|
|
|
3,511
|
|
Global Operadora Hotelera S,A,S
|
|
Colombia
|
|
|
4
|
|
|
|
368
|
|
|
|
6
|
|
|
|
2,532
|
|
|
|
9
|
|
|
|
532
|
|
|
|
7
|
|
|
|
5,954
|
|
Corp Hotelera Internac,, S,A,
|
|
El Salvador
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
731
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
745
|
|
Servicios Aéreos Nacionales S,A,
|
|
Costa Rica
|
|
|
180
|
|
|
|
104
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbo Leasing Corp,
|
|
Bahamas
|
|
|
196
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
62
|
|
|
|
9
|
|
|
|
3
|
|
|
|
58
|
|
|
|
59
|
|
|
|
81
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
$
|
3,348
|
|
|
$
|
3,713
|
|
|
$
|
7,412
|
|
|
$
|
37,178
|
|
|
$
|
6,290
|
|
|
$
|
2,827
|
|
|
$
|
23,684
|
|
|
$
|
73,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
Payables
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
Payables
|
|
|
|
|
|
|
|
Shortterm
|
|
|
|
$
|
3,348
|
|
|
$
|
3,713
|
|
|
|
|
|
|
|
|
|
|
$
|
6,290
|
|
|
$
|
2,827
|
|
|
|
|
|
|
|
|
|
F-69
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Group in December 31, 2019 recognized an estimate for impairment for accounts in
relation with OceanAir Linhas Aereas, S.A account receivable for $7,513, that corresponds mainly to aircraft rentals and interline charges during 2019.
As of December 31, 2019, the Group received convertible equity financing from Kingsland International Group and United Airlines in the
amount of $324,000. (See note 16).
The following is a description of the nature of services provided by and to related parties. These
transactions include:
|
|
|
Related party
|
|
Nature of Services
|
Corporación Hotelera Internacional S.A. Global Operadora Hotelera S.A.S.
|
|
Accommodation services for crews and employees of the Group.
|
|
|
Empresariales S.A.S.
|
|
Transportation services for employees of Avianca, S.A.
|
|
|
|
|
On December 10, 2018, Oceanair Linhas Aéreas SA, a Brazilian airline that licenses the Avianca brand, together with AVB Holding SA, its parent entity, filed a petition for judicial restructuring before the
First Bankruptcy Court of the Central District Court of the District of State of Sao Paulo, Brazil. The judicial recovery plan was approved at a general meeting of creditors on April 5, 2019. On April 12, 2019, judicial recovery was
granted, and the judge ratified the judicial recovery plan.
|
|
|
OceanAir Linhas Aéreas, S.A. in judicial reorganization (recuperação judicial)
|
|
Swissport and Petrobras two creditors in the judicial restructuring process, filed an interlocutory appeal against the decision that ratified
the judicial recovery plan and requested a court order to suspend the auction of isolated productive units (UPI); The São Paulo State Court granted the mandate of Swissport and suspended the UPI auction until a final resolution on the
appeal is pending.
Oceanair and AVB appealed against the suspension of the auction
and the São Paulo State Court granted the appeal to allow Oceanair and AVB to proceed with the auction of seven UPIs, which contain airport spaces and the Amigo Program; On July 10, 2019, Oceanair and AVB sold five of
their seven UPIs at auction. Gol acquired 3 UPI and Latam 2 UPI.
On July 11,
2019, ANAC said it would redistribute 41 slots at Congonhas airport as of July 29.
|
F-70
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
Related party
|
|
Nature of Services
|
|
|
The decision of the interlocutory appeals filed by Petrobras and Swissport in relation to the approval of the judicial recovery plan was
scheduled for July 29, 2019, where there was no unanimous decision and the sentence of said remedies was postponed until September. Subsequently, on September 26, 2019, the State Court of São Paulo, by majority, dismissed the
interlocutory appeals, so the Oceainair and AVB bankruptcy declaration did not proceed at that time, since the list of art. 73 of the LRF is exhaustive and only allows a restrictive interpretation. Swissport and Petrobras filed new appeals that are
still pending sentencing.
On the other hand, within the scope of the judicial
recovery plan, the aircraft renters submitted a declaration, requesting that the resources obtained in the auction be reserved, so that DIP creditors are paid with priority.
On November 12, 2019, Oceanair submitted a statement stating that, in view of the redistribution of the slots (and the pending decision of the appeals
that discuss this matter and that involve the ANAC), the payment of the auctions will be it would suspend under the plan and, therefore, the request made by the lessors would have lost the object. Therefore, as stated by Oceanair, it would be
necessary to wait for the decision of the appeals involving ANAC, so that the auctions continue and only then, can the creditors be paid. On December 10, 2019, the Court of Appeals of São Paulo ruled in favor of ANAC, which decided that
this entity would be able to redistribute the arrival and departure slots of Oceanair flights.
On November 12, 2019, the Judicial Administrator (trustee) submitted a petition to the Judge, opting for the bankruptcy of Oceanair and AVB, in view of
the absence of commercial activities by them. On December 18, 2019, the Judge decided, among other matters, to summon Oceanair to pronounce on the recommendation of the Judicial Administrator so that the judicial recovery plan becomes a
bankruptcy process. Given that the judicial branch in Brazil was in recess from December 20, 2019 until January 20, 2020, On January 27, 2020, Oceanair requested a period of 10 days to decide on the request of the Judicial
Administrator. The 10-day term that Oceanair had requested to rule on the recommendation of the judicial administrator to convert the case into bankruptcy was granted.
The Avianca group had signed several contracts with Oceanair for the provision of
logistics, marketing, advertising, maintenance, training, as well as an agreement with Tampa Cargo S.A.S. since November 4, 2014, reserve capacity to obtain priority rights and a minimum cargo transport capacity guaranteed on certain flights of
the airline. Such contracts to date are not valid given the current situation of Oceanair and for the most part they are not being executed, therefore, Avianca sent to Oceanair a notification of termination of the contracts, so there are no more
commercial relations between the
|
F-71
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
Related party
|
|
Nature of Services
|
|
|
companies. Also, Avianca had signed a license agreement with Oceanair for the use of the Avianca brand in Brazil, which ended in June 2019. Additionally, Avianca leased aircraft to Oceanair (see note 33).
|
|
|
Turboprop Leasing Corp
Servicios Aéreos
Nacionales S.A
|
|
Maintenance services to Avianca Guatemala S.A and Avianca Costa Rica S.A.
|
|
|
Transportadora del meta S.A.S.
|
|
It provides Avianca, S.A. ground transportation services for cargo / courier shipments.
|
Key management personnel compensation expense
During the year ended December 31, 2019, 2018 and 2017 the short-term employee benefits for key management personnel are $22,402, $26,499
and $22,074. The Group does not have any long-term benefits including post-employment benefits, defined contribution plan, termination benefits or other long-term benefits for the key management personnel.
Following the detail for short-term compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
2019
|
|
|
For the year ended
December 31,
2018
|
|
|
For the year ended
December 31,
2017
|
|
Salaries
|
|
$
|
12,467
|
|
|
$
|
13,791
|
|
|
$
|
13,571
|
|
Bonuses
|
|
|
6,658
|
|
|
|
8,775
|
|
|
|
5,054
|
|
Social benefits
|
|
|
2,149
|
|
|
|
3,027
|
|
|
|
2,604
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
55
|
|
Compensation
|
|
|
222
|
|
|
|
73
|
|
|
|
31
|
|
Others
|
|
|
906
|
|
|
|
833
|
|
|
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,402
|
|
|
$
|
26,499
|
|
|
$
|
22,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-72
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(10)
|
Expendable spare parts and supplies, net of provision for obsolescence
|
Expendable spare parts and supplies as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Expendable spare parts
|
|
$
|
79,427
|
|
|
$
|
83,151
|
|
Supplies
|
|
|
8,907
|
|
|
|
7,244
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88,334
|
|
|
$
|
90,395
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2019, 2018 and 2017 expendable spare parts and supplies in the amount of
$63,229, $84,662 and $60,027, respectively, were recognized as maintenance expense.
Changes during the year in the provision for
expandable spare parts and suppliers obsolescence as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Balance at beginning of year
|
|
$
|
6,505
|
|
|
$
|
18,631
|
|
Expense (reversal) for obsolete inventory
|
|
|
2,075
|
|
|
|
(3,203
|
)
|
Write-offs against the allowance
|
|
|
(3,250
|
)
|
|
|
(8,923
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
5,330
|
|
|
$
|
6,505
|
|
|
|
|
|
|
|
|
|
|
Prepayments as of December 31, 2019, and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Prepaid commissions (1)
|
|
$
|
41,727
|
|
|
$
|
27,991
|
|
Prepaid compensations clients
|
|
|
13,768
|
|
|
|
37,130
|
|
Advance payments on operating aircraft leases
|
|
|
70
|
|
|
|
12,470
|
|
Premiums for insurance policies
|
|
|
4,716
|
|
|
|
2,401
|
|
Other
|
|
|
8,731
|
|
|
|
19,872
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,012
|
|
|
$
|
99,864
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Advance payment made to IATA for service charges made by airlines. This is mainly the case with Airlines that
belong to Star Alliance for the accumulation of miles, use of VIP lounges and Reservation Systems, Travelport Global Distribution System B.V., Services of Bolivian Airports, S.A., United Airlines Inc.
|
F-73
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(12)
|
Short term investments, deposits and other assets
|
Short term investments, deposits and other assets as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Short term investments (1)
|
|
|
|
|
|
$
|
55,440
|
|
|
$
|
59,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
55,440
|
|
|
$
|
59,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets short term:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with lessors (2)
|
|
|
|
|
|
$
|
11,963
|
|
|
$
|
15,535
|
|
Guarantee deposits (3)
|
|
|
|
|
|
|
8,657
|
|
|
|
2,283
|
|
Others (4)
|
|
|
|
|
|
|
18,030
|
|
|
|
9,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
38,650
|
|
|
|
27,360
|
|
Fair value of derivative instruments
|
|
|
27
|
|
|
|
525
|
|
|
|
2,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
39,175
|
|
|
$
|
29,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets long term:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with lessors (2)
|
|
|
|
|
|
$
|
35,374
|
|
|
$
|
73,569
|
|
Long term investments restricted
|
|
|
|
|
|
|
|
|
|
|
7,459
|
|
Guarantee deposits (3)
|
|
|
|
|
|
|
10,032
|
|
|
|
14,715
|
|
Others (4)
|
|
|
|
|
|
|
8,657
|
|
|
|
14,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
54,063
|
|
|
|
110,726
|
|
Fair value of derivative instruments
|
|
|
27
|
|
|
|
11
|
|
|
|
4,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
54,074
|
|
|
$
|
115,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Short term classification corresponds to funds invested that will expire within one year. All treasury cash
surpluses are invested as defined and outlined in the Group´s Investment Policy. Otherwise, they are classified as long-term. The restricted investments correspond to CDTs and bonds constituted by the Trusts held by the Group.
|
(2)
|
Corresponds mainly to maintenance deposits in connection with leased aircraft. These deposits are applied to
future maintenance event costs and are calculated on the basis of a performance measure, such as flight hours or cycles. They are specifically intended to guarantee maintenance events on leased aircraft.
|
Maintenance deposits paid do not transfer the obligation to maintain aircraft or the costs associated with maintenance activities.
Maintenance deposits are reimbursable to the Group upon completion of the maintenance event in an amount equal to the lesser of (a) the
amount of the maintenance deposits held by the lessor associated with the specific maintenance event or (b) the qualifying costs related to the specific maintenance event.
F-74
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The variation corresponds to the change of guarantee on the debt since now the Group
constitutes letters of credit with the same lessor in order to ensure the payments.
(3)
|
Corresponds mainly to amounts paid to suppliers in connections with leasehold of airport facilities, among
other service agreements.
|
(4)
|
It mainly corresponds to guarantee deposits, national tax return and deferred charges. The increase is by
guarantee deposits in the renewal for agreements on aircraft leasing with JP Morgan bank.
|
|
(13)
|
Property and equipment, net
|
The main additions correspond to:
|
|
|
Flight equipment: During the year ended December 31, 2019, the Group acquired three Airbus A320N aircraft
for $33,500, $31,111 and $30,242 one Boeing 787-9 aircraft for $77,673 recognized as rights of use and one Airbus A300F aircraft, for $14,495. During the year ended December 31, 2018, the Group acquired
two aircraft A-330-300, two aircraft A321-200, one aircraft B-787 and one aircraft 320
under financial leasing, in the amount of $441,175.
|
|
|
|
Capitalized maintenance: Additions reported for the year ended December 31, 2019 and 2018 correspond mainly
to major repairs of the fuselage for $29,944 and $16,441, respectively, and major engine repairs for $189,922 and $197,674, respectively.
|
|
|
|
Reimbursement of predelivery payments (PDPs): In the item of aircraft advances, as of December 31,
2019 and 2018, the Group capitalized loan costs of $11,401 at an average interest rate of 6.91% and $16,355 at an interest rate average of 7.16%, respectively.
|
During the year ended December 31, 2019, the Group signed an Aircraft Purchase Agreement Assignment, assigning 3 Boeing 787-9 aircraft to Valderrama Aviation Limited, therefore, $90,312 related to this event were disposal.
|
|
|
Others: During the year ended December 31, 2019 the following capitalizations can be highlighted:
|
|
|
|
BFE process-assembly: $6,685
|
|
|
|
Security equipment: $1,838
|
|
|
|
Improvement property $2,056
|
|
|
|
On board service equipment: $682
|
|
|
|
Rights of use IFRS 16- premises and offices: $8,981
|
F-75
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
Ramp machinery and equipment: $5,103
|
|
|
|
Furniture and office equipment $421
|
|
|
|
Communication and computer equipment $643
|
|
|
|
Transport equipment $1,005
|
Impairment
In the year
2019, the impairment loss of $470,661 represented:
|
|
|
Impairment of fleet Embraer E-190 and Airbus $455,794: During the year
2019, due to the organizational transformation plan called Avianca 2021, the Group made the decision to sell 10 Embraer 190, 10 Airbus A318, 2 Airbus A319, 16 Airbus A320, 4 Airbus A321, 2 Airbus A330 and 1 Airbus A330F, in the search
for greater fleet standardization, generating benefits and operational efficiencies. The carrying amount ($1,300,032) was lower than the fair value less to cost to sell ($844,238), the impairment was recognized in the consolidated statements of
comprehensive income. Then the Group classified these assets to assets held for sale.
|
|
|
|
Administrative properties: Impairment of administrative property located in Venezuela $14,867 taking into
consideration the significantly high levels of inflation that exist in Venezuela and the volatility of foreign currency exchange rates resulting from continued political instability, we record the impairment charges of value of our five offices in
Venezuela. As a result of these impairment charges, the remaining book value of these administrative properties is zero. In the year 2019 the process of intention to sell these offices was reactivated.
|
In the year 2018, the impairment loss of $38,881 represented:
|
|
|
Impairment of fleet Embraer E-190 $38,881: The impairment of the residual
value was the result of the decision to begin withdrawing our Embraer-190 fleet from 2019, in the search for greater standardization of the fleet, generating benefits and operational efficiencies. This was
recognized in the consolidated statement of comprehensive income. The amount of the impairment value as of December 31, 2018 was based on the fact that this type of fleet has had a very significant decrease in the market value in the current
year.
|
Sale and Leaseback transactions
See changes with application under IFRS 16-Lease Agreements (see note 4)
During the year ending December 31, 2019, the group have not executed lease back transactions.
F-76
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
During the year ended December 31, 2018, the Group obtained an excess of sale proceeds
over the carrying amount for $70,070 related to subsequent sale and lease transactions:
|
|
|
Transaction results in a financial lease: $53,990 was recognized as financial leasing and it has been deferred
and will be amortized over the term of financing, $5,399 and $4,747 were recognized in the consolidated statement of comprehensive income, as amortization in December 2019 and 2018, respectively.
|
Administrative property
The Group uses the revaluation model to measure its land and buildings which are composed of administrative properties. Management determined
that this constitutes one class of asset under IAS 16, based on the nature, characteristics and risks of the property. The fair values of the properties were determined by using market comparable methods. This means that valuations performed by the
appraisals are based on active market prices, adjusted for difference in the nature, location or condition of the specific property. The Group engaged accredited independent appraisals, to assist management determine the fair value of its land and
buildings. Land and buildings were revaluated at December 31, 2019 and 2018.
In order to establish the fair value of real estate as
of December 31, 2019, the revaluation of land of $(1,376) and buildings of $4,137 originated from the figures determined in the technical studies (valuation) was recognized as a result a final balance of Land is recorded for $ 53,160 and
$83,186 for buildings.
If land and buildings were measured using the cost model, the carrying amounts would be as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Cost
|
|
$
|
102,351
|
|
|
$
|
102,351
|
|
Accumulated depreciation
|
|
|
(11,230
|
)
|
|
|
(10,371
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
91,121
|
|
|
$
|
91,980
|
|
|
|
|
|
|
|
|
|
|
F-77
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Flight equipment, property and other equipment as of December 31, 2019, and 2018 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight
Equipment
|
|
|
Capitalized
Maintenance
|
|
|
Rotable
Spare
parts
|
|
|
Reimbursement
of predelivery
payments
|
|
|
Administrative
property
|
|
|
Others
|
|
|
Total
|
|
Gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
5,244,160
|
|
|
$
|
791,004
|
|
|
$
|
225,841
|
|
|
$
|
260,000
|
|
|
$
|
135,838
|
|
|
$
|
263,433
|
|
|
$
|
6,920,276
|
|
Adoption IFRS 16 (see note 4)
|
|
|
1,010,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,533
|
|
|
|
1,079,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2019
|
|
$
|
6,254,360
|
|
|
$
|
791,004
|
|
|
$
|
225,841
|
|
|
$
|
260,000
|
|
|
$
|
135,838
|
|
|
$
|
332,966
|
|
|
$
|
8,000,009
|
|
Additions
|
|
|
303,476
|
|
|
|
219,866
|
|
|
|
16,196
|
|
|
|
21,324
|
|
|
|
|
|
|
|
38,198
|
|
|
|
599,060
|
|
Disposals
|
|
|
(48,381
|
)
|
|
|
(114,323
|
)
|
|
|
(43,207
|
)
|
|
|
(95,848
|
)
|
|
|
|
|
|
|
(46,583
|
)
|
|
|
(348,342
|
)
|
Transfers
|
|
|
18,237
|
|
|
|
(8,554
|
)
|
|
|
(5,228
|
)
|
|
|
(4,149
|
)
|
|
|
|
|
|
|
(306
|
)
|
|
|
|
|
Sale of subsidiaries
|
|
|
(31,270
|
)
|
|
|
(5,424
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,739
|
)
|
|
|
(39,631
|
)
|
Transfers to assets held for sale
|
|
|
(1,563,366
|
)
|
|
|
(288,775
|
)
|
|
|
(20,086
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,398
|
)
|
|
|
(1,874,625
|
)
|
Revaluation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,761
|
|
|
|
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
4,933,056
|
|
|
$
|
593,794
|
|
|
$
|
173,318
|
|
|
$
|
181,327
|
|
|
$
|
138,599
|
|
|
$
|
319,138
|
|
|
$
|
6,339,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
1,028,191
|
|
|
$
|
364,976
|
|
|
$
|
57,238
|
|
|
$
|
|
|
|
$
|
10,789
|
|
|
$
|
145,765
|
|
|
$
|
1,606,959
|
|
Additions
|
|
|
341,699
|
|
|
|
157,572
|
|
|
|
20,047
|
|
|
|
|
|
|
|
2,178
|
|
|
|
26,780
|
|
|
|
548,276
|
|
Impairment
|
|
|
455,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,867
|
|
|
|
|
|
|
|
470,661
|
|
Disposals
|
|
|
(39,166
|
)
|
|
|
(111,793
|
)
|
|
|
(12,960
|
)
|
|
|
|
|
|
|
(347
|
)
|
|
|
(28,396
|
)
|
|
|
(192,662
|
)
|
Transfers
|
|
|
7,682
|
|
|
|
(6,985
|
)
|
|
|
(637
|
)
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
Sale of subsidiaries
|
|
|
(11,560
|
)
|
|
|
(3,597
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,741
|
)
|
|
|
(16,932
|
)
|
Transfers to assets held for sale
|
|
|
(837,420
|
)
|
|
|
(174,200
|
)
|
|
|
(16,377
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,390
|
)
|
|
|
(1,030,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
945,220
|
|
|
$
|
225,973
|
|
|
$
|
47,277
|
|
|
$
|
|
|
|
$
|
27,487
|
|
|
$
|
139,958
|
|
|
$
|
1,385,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
4,215,969
|
|
|
$
|
426,028
|
|
|
$
|
168,603
|
|
|
$
|
260,000
|
|
|
$
|
125,049
|
|
|
$
|
117,668
|
|
|
$
|
5,313,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
3,987,836
|
|
|
$
|
367,821
|
|
|
$
|
126,041
|
|
|
$
|
181,327
|
|
|
$
|
111,112
|
|
|
$
|
179,180
|
|
|
$
|
4,953,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Flight equipment, property and other equipment as of December 31, 2018 and 2017 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight
Equipment
|
|
|
Capitalized
Maintenance
|
|
|
Rotable
Spare
parts
|
|
|
Reimbursement
of predelivery
payments
|
|
|
Administrative
property
|
|
|
Others
|
|
|
Total
|
|
Gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
4,808,885
|
|
|
$
|
555,619
|
|
|
$
|
219,067
|
|
|
$
|
159,303
|
|
|
$
|
158,217
|
|
|
$
|
294,306
|
|
|
$
|
6,195,397
|
|
Additions
|
|
|
516,614
|
|
|
|
238,597
|
|
|
|
30,098
|
|
|
|
111,711
|
|
|
|
1,615
|
|
|
|
71,437
|
|
|
|
970,072
|
|
Disposals
|
|
|
(81,381
|
)
|
|
|
(3,632
|
)
|
|
|
(22,843
|
)
|
|
|
(11,014
|
)
|
|
|
(3,546
|
)
|
|
|
(48,165
|
)
|
|
|
(170,581
|
)
|
Transfers
|
|
|
42
|
|
|
|
420
|
|
|
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
Transfers to assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,402
|
)
|
|
|
(41,402
|
)
|
Sale of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,762
|
)
|
|
|
(12,762
|
)
|
Revaluation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,448
|
)
|
|
|
|
|
|
|
(20,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
5,244,160
|
|
|
$
|
791,004
|
|
|
$
|
225,841
|
|
|
$
|
260,000
|
|
|
$
|
135,838
|
|
|
$
|
263,433
|
|
|
$
|
6,920,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
824,774
|
|
|
$
|
270,780
|
|
|
$
|
67,560
|
|
|
$
|
|
|
|
$
|
10,554
|
|
|
$
|
140,713
|
|
|
$
|
1,314,381
|
|
Additions
|
|
|
192,581
|
|
|
|
95,460
|
|
|
|
10,742
|
|
|
|
|
|
|
|
2,310
|
|
|
|
23,245
|
|
|
|
324,338
|
|
Disposals
|
|
|
(28,188
|
)
|
|
|
(1,264
|
)
|
|
|
(20,918
|
)
|
|
|
|
|
|
|
(2,075
|
)
|
|
|
(1,065
|
)
|
|
|
(53,510
|
)
|
Impairment
|
|
|
38,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,881
|
|
Transfers
|
|
|
143
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Transfers to assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,573
|
)
|
|
|
(9,573
|
)
|
Sale of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,558
|
)
|
|
|
(7,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
1,028,191
|
|
|
$
|
364,976
|
|
|
$
|
57,238
|
|
|
$
|
|
|
|
$
|
10,789
|
|
|
$
|
145,765
|
|
|
$
|
1,606,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
3,984,111
|
|
|
$
|
284,839
|
|
|
$
|
151,507
|
|
|
$
|
159,303
|
|
|
$
|
147,663
|
|
|
$
|
153,593
|
|
|
$
|
4,881,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
4,215,969
|
|
|
$
|
426,028
|
|
|
$
|
$168,603
|
|
|
$
|
260,000
|
|
|
$
|
125,049
|
|
|
$
|
117,668
|
|
|
$
|
5,313,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-79
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(14)
|
Intangible assets and good will, net
|
Intangible assets and good will, net of amortization as of December 31, 2019 and 2018 are follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Routes
|
|
$
|
31,911
|
|
|
$
|
34,299
|
|
Trademarks
|
|
|
3,938
|
|
|
|
3,959
|
|
Software and webpages
|
|
|
158,690
|
|
|
|
84,470
|
|
Other intangible rights
|
|
|
2,935
|
|
|
|
83,042
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
197,474
|
|
|
|
205,770
|
|
Goodwill
|
|
|
308,033
|
|
|
|
308,033
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
$
|
505,507
|
|
|
$
|
513,803
|
|
|
|
|
|
|
|
|
|
|
F-80
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The following is the detail of intangible assets as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Routes
|
|
|
Trade-
Marks
|
|
|
Software &
Webpages
|
|
|
Others
|
|
|
Total
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
311,180
|
|
|
$
|
52,481
|
|
|
$
|
3,959
|
|
|
$
|
171,400
|
|
|
$
|
101,447
|
|
|
$
|
640,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,751
|
|
|
|
2,099
|
|
|
|
36,850
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,025
|
|
|
|
(76,025
|
)
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
Sale of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
311,180
|
|
|
$
|
52,481
|
|
|
$
|
3,938
|
|
|
$
|
282,126
|
|
|
$
|
27,521
|
|
|
$
|
677,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization and Impairment Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
3,147
|
|
|
$
|
18,182
|
|
|
$
|
|
|
|
$
|
86,930
|
|
|
$
|
18,405
|
|
|
$
|
126,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization for the year
|
|
|
|
|
|
|
2,388
|
|
|
|
|
|
|
|
36,551
|
|
|
|
6,181
|
|
|
|
45,120
|
|
Sale of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
3,147
|
|
|
$
|
20,570
|
|
|
$
|
|
|
|
$
|
123,436
|
|
|
$
|
24,586
|
|
|
$
|
171,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
308,033
|
|
|
$
|
34,299
|
|
|
$
|
3,959
|
|
|
$
|
84,470
|
|
|
$
|
83,042
|
|
|
$
|
513,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
308,033
|
|
|
$
|
31,911
|
|
|
$
|
3,938
|
|
|
$
|
158,690
|
|
|
$
|
2,935
|
|
|
$
|
505,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The main acquisitions of other intangibles correspond to SAP project for $21,825, digital transformation
project for $2,387, CRM project $2,179, Core System project $1,108.
|
F-81
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The following is the detail of intangible assets as of December 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Routes
|
|
|
Trade-
Marks
|
|
|
Software &
Webpages
|
|
|
Others (1)
|
|
|
Total
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
314,420
|
|
|
$
|
52,481
|
|
|
$
|
3,938
|
|
|
$
|
147,512
|
|
|
$
|
8,721
|
|
|
$
|
527,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Acquisitions Internally developed
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
23,888
|
|
|
|
92,726
|
|
|
|
116,635
|
|
Acquisitions / Adjustment through Business Combinations
|
|
|
(3,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
311,180
|
|
|
$
|
52,481
|
|
|
$
|
3,959
|
|
|
$
|
171,400
|
|
|
$
|
101,447
|
|
|
$
|
640,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization and Impairment Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
3,147
|
|
|
$
|
15,978
|
|
|
$
|
|
|
|
$
|
76,585
|
|
|
$
|
4,783
|
|
|
$
|
100,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization for the year
|
|
|
|
|
|
|
2,204
|
|
|
|
|
|
|
|
10,345
|
|
|
|
13,622
|
|
|
|
26,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
3,147
|
|
|
$
|
18,182
|
|
|
$
|
|
|
|
$
|
86,930
|
|
|
$
|
18,405
|
|
|
$
|
126,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
311,273
|
|
|
$
|
36,503
|
|
|
$
|
3,938
|
|
|
$
|
70,927
|
|
|
$
|
3,938
|
|
|
$
|
426,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
308,033
|
|
|
$
|
34,299
|
|
|
$
|
3,959
|
|
|
$
|
84,470
|
|
|
$
|
83,042
|
|
|
$
|
513,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The main acquisitions of other intangibles correspond to digital transformation project for $28,567, the SAP
project for $17,566, J2C project for $13,056, SOC Project for $8,848 and CRM project 5,936.
|
F-82
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
(14.1) Goodwill and intangible assets with indefinite useful life
For the purposes of impairment testing of goodwill acquired through combinations of business and other intangibles with indefinite useful life,
acquired before 2019, have been assigned to the air transport segment, since the Group considers that according to the operational and financial synergies between the different companies of the Group, this is the most appropriate and least arbitrary
to measure the recoverable amount. In line with operative model of the Group.
The carrying value of the goodwill allocated to the air
transport segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018 (1)
|
|
Goodwill
|
|
$
|
308,033
|
|
|
$
|
308,033
|
|
Routes
|
|
|
23,463
|
|
|
|
23,463
|
|
Trademarks
|
|
|
3,938
|
|
|
|
3,938
|
|
(1)
|
Until December 31, 2018, the Group assigned goodwill and intangible assets with an indefinite life to the
following Cash Generating Units (CGU): Avianca Ecuador. S.A., Grupo Taca Holdings Limited. and Tampa Cargo S.A.S. The interrelation between the companies of the air division and given that the Company manages the division as a single business unit,
for the purposes of valuation for the year 2019 it has been decided to consider these companies and the rest of the air operators, as a single CGU.
|
The group performed its annual impairment test in the fourth quarter of 2019 consistently with previous years. As of December 31, 2019,
and 2018, the Group did not identify potential impairment of goodwill or intangible assets.
Basis for calculating recoverable amount
The recoverable amounts of CGUs have been measured based on their
value-in-use.
Value-in-use is calculated using a discounted cash flow model. Cash flow projections are based on the Business plan approved by the Board covering a five-year period. Cash flows extrapolated beyond the
five-year period are projected to increase based on long-term growth rates. Cash flow projections are discounted using the CGUs pre-tax discount rate.
Under the Board of directors approved business plan in the fourth quarter of the year. The business plan cash flows used in the value-in-use calculations reflect all restructuring of the business that has been approved by the Board and which can be executed by Management under existing agreements.
Macroeconomic assumptions are based on market data extracted from Bloomberg for both the expected WTI price and the expected interest rate
levels, which have a direct impact on our cost projections, all costs are affected by inflation.
F-83
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The main hypotheses used in the calculations of the value in use are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018 (1)
|
|
Carrying amount of goodwill, routes and trademarks with indefinite life
|
|
$
|
335,435
|
|
|
$
|
335,435
|
|
Impairment losses
|
|
|
|
|
|
|
|
|
Revenue growth p.a. over planning period
|
|
|
2.3% to 5%
|
|
|
|
-0.6% to 9.6%
|
|
Operating income over planning period
|
|
|
5.2% to 8.8%
|
|
|
|
-3.0% to 17.7%
|
|
Capital expenditures over planning period
|
|
|
(0.2%) to 12.69%
|
|
|
|
2% to 17%
|
|
Duration of planning period
|
|
|
5 years
|
|
|
|
5 years
|
|
Revenue growth p.a. after planning period
|
|
|
4.3%
|
|
|
|
4.2%
|
|
Operating Income after planning period
|
|
|
10.00%
|
|
|
|
8.13%
|
|
Capital expenditures after planning period
|
|
|
6.43%
|
|
|
|
8%
|
|
Business Enterprise Value
|
|
|
9,269,446
|
|
|
|
3,176,243
|
|
Discount rate
|
|
|
8.72%
|
|
|
|
11.7%
|
|
(1)
|
Until December 31, 2018, the Group assigned goodwill and intangible assets with an indefinite life to the
following Cash Generating Units (CGU): Avianca Ecuador. S.A., Grupo Taca Holdings Limited. and Tampa Cargo S.A.S. The interrelation between the companies of the air division and given that the Company manages the division as a single business unit,
for the purposes of valuation for the year 2019 it has been decided to consider these companies and the rest of the air operators, as a single CGU. The resulting differences between the 2018 and 2019 periods are derived from this change.
|
F-84
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(15)
|
Assets held for sale
|
Assets held for sale as of December 31, 2019 and 2018 consisted of the following assets:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Flight Simulators (1)
|
|
$
|
|
|
|
$
|
31,580
|
|
Airbus aircraft (2, 3)
|
|
|
128,640
|
|
|
|
|
|
Airbus aircraft Sale and subsequent lease (2,3,4)
|
|
|
489,149
|
|
|
|
|
|
E-190 aircraft (2, 3)
|
|
|
63,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
681,053
|
|
|
$
|
31,580
|
|
|
|
|
|
|
|
|
|
|
Liabilities associated with the assets held for sale
|
|
|
490,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt assets held for sale
|
|
$
|
490,458
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Group signed a sale agreement on January 30, 2019 with CAE International Holdings Ltd., agreeing to
sell (10) ten flight simulators belonging to the Group. As of December 31, 2019, the flight simulators were sold, and this operation generated a gain on sale of $5,970.
|
(2)
|
In August 2019, the Group began the process of selling 10 Airbus A318, 2 Airbus A319, 16 Airbus A320, 4 Airbus
A321, 2 Airbus A330, 1 Airbus A330F and 10 Embraer E-190, in accordance with the business transformation plan where greater efficiency of the operated fleet is sought. This sales process would be subject to
customary closing conditions. This plan seeks to reduce the families of older aircraft, to increase our efficiency. As of December 31, 2019, the 10 Airbus A318 were sold for $106,350 and 4 Airbus A320 were sold for $53,141. These sales
generated a loss on sale of $(3,694).
|
(3)
|
An impairment loss of $455,794 has been recognized under the heading Depreciation, amortization and
impairment, related to the difference between the carrying amount of the aircraft indicated in the preceding paragraph and the fair value less selling costs.
|
(4)
|
The Group in the month of December 2019 signed a subsequent sale and lease agreement in relation to 15 aircraft
(Airbus A320 and A321), whose deliveries begin in January and ends in March 2020.
|
(5)
|
The assets classified as held for sale belong to the operating segment of air transportation.
|
F-85
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Loans and borrowings, measured at amortized cost, as of December 31, 2019 and 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
Shortterm borrowings and current portion of longterm debt
|
|
$
|
569,292
|
|
|
$
|
589,366
|
|
Current portion-bonds
|
|
|
65,632
|
|
|
|
37,376
|
|
Short-term aircraft rentals - right of use (1)
|
|
|
229,260
|
|
|
|
|
|
Short-term other rentals - right of use (1)
|
|
|
7,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
872,044
|
|
|
$
|
626,742
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Longterm debt
|
|
$
|
2,557,257
|
|
|
$
|
2,830,922
|
|
Noncurrent portion-bonds
|
|
|
465,612
|
|
|
|
549,916
|
|
Long-term aircraft rentals right of use (1)
|
|
|
899,265
|
|
|
|
|
|
Long-term other rentals right of use (1)
|
|
|
62,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,984,279
|
|
|
$
|
3,380,838
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of January 1, 2019, as a result of the adoption of IFRS 16, the Group recognize leases liabilities in
connection with the right of use of assets recognized (see note 4).
|
Non-compliance debt
As such, on June 25, 2019 we unilaterally suspended debt amortization payments. There were pending payments for $2,255 million at
third quarter of 2019. In addition, operating lease payments for $59.3 million were suspended.
At December 31, 2019, the Group
renegotiated the conditions of most of the loans, with the following terms for most of the contracts:
|
|
|
Deferred payments for a total amount of $224.3 million.
|
|
|
|
Deadlines were extended until 36 months for deferred payments.
|
|
|
|
In addition to the negotiations for the payment of the deferred amounts mentioned above, and considering the new
situation of the company, it was possible to renegotiate mainly the clauses of financial and non-financial Covenants and clauses of Change in Control
|
F-86
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
As of December 31, 2019, we have overdue payments of $1.7 million which represents
a total amount of debt of $34.4 million, which in the financial statements is presented as short term. This debt was renegotiated on January 30, 2020, with the following conditions:
|
|
|
Payments were deferred for a total amount of EUR$3.1 million (approximately $ 3.4 million)
|
|
|
|
Deadlines were extended until 36 months for deferred payments.
|
|
|
|
In addition to the negotiations for the payment of the deferred amounts mentioned above, and considering the new
situation of the company, it was possible to renegotiate mainly the clauses of financial and non-financial Covenants and clauses of Change in Control.
|
Terms and conditions of the Groups outstanding obligations for periods ended December 31, 2019 and 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Due
through
|
|
|
Weighted
average
interest rate
|
|
|
Nominal
Value
|
|
|
Carrying
Amount
|
|
Shortterm borrowings
|
|
|
2020
|
|
|
|
6.43
|
%
|
|
$
|
128,671
|
|
|
$
|
118,137
|
|
Longterm debt
|
|
|
2029
|
|
|
|
4.68
|
%
|
|
|
4,185,526
|
|
|
|
3,008,412
|
|
Bonds Luxembourg
|
|
|
2023
|
|
|
|
9.93
|
%
|
|
|
550,000
|
|
|
|
531,244
|
|
Aircraft rentals
|
|
|
2031
|
|
|
|
4.92
|
%
|
|
|
1,347,219
|
|
|
|
1,128,525
|
|
Other rentals
|
|
|
2037
|
|
|
|
7.37
|
%
|
|
|
87,405
|
|
|
|
70,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
6,298,821
|
|
|
$
|
4,856,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Due
through
|
|
|
Weighted
average
interest rate
|
|
|
Nominal
Value
|
|
|
Carrying
Amount
|
|
Shortterm borrowings
|
|
|
2019
|
|
|
|
5.81
|
%
|
|
$
|
130,858
|
|
|
$
|
119,866
|
|
Longterm debt
|
|
|
2029
|
|
|
|
4.76
|
%
|
|
|
5,249,987
|
|
|
|
3,300,422
|
|
BondsColombia
|
|
|
2019
|
|
|
|
9.87
|
%
|
|
|
81,966
|
|
|
|
28,147
|
|
Bonds Luxembourg
|
|
|
2020
|
|
|
|
7.95
|
%
|
|
|
550,000
|
|
|
|
559,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
6,012,811
|
|
|
$
|
4,007,580
|
|
|
|
|
|
|
|
|
|
|
|
F-87
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Below we present the detail of the debt balance by type of loan:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Aircraft
|
|
$
|
1,831,470
|
|
|
$
|
2,396,748
|
|
Corporate
|
|
|
1,295,079
|
|
|
|
1,023,540
|
|
Bonds
|
|
|
531,244
|
|
|
|
587,292
|
|
Right of use IFRS 16
|
|
|
1,198,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,856,323
|
|
|
$
|
4,007,580
|
|
|
|
|
|
|
|
|
|
|
The majority of interests bearing liabilities are denominated in US dollars except for bonds and certain
financing liabilities for working capital which are denominated in Colombian Pesos, and some aircraft debts denominated in Euros.
The main
additions for the year ended December 31, 2019 and 2018 corresponds to:
|
|
|
Loans (financial leasing) to finance the purchase of aircraft:
|
|
|
|
During 2019, the Group obtained $165,838 under loans in order to refinance three A319, nine A320, two A321 and
two A330 aircraft. In addition, there were registered use rights debt for $313,001 for three Airbus A320N, Boeing 787-9 and refinancing of the fleet that is recognized as rights of use.
|
|
|
|
During 2018, the Group obtained $427,751 in loans to finance the purchase of one A320 aircraft, two A321, two
A330, and one B787.
|
|
|
|
Loans for general purposes of:
|
|
|
|
During 2019, the Group also obtained $459,717 for general working purposes. Mainly, it corresponds to a $324,000
loan with Kingsland and United Airlines and private investors through their administrative agent UMB Bank N.A. at a rate 3% for a term of 4 years. Also, there are loans acquired by LifeMiles, $100,000 at a rate Libor + 5.5 for a term of 3 years.
|
|
|
|
During 2018, the Group also obtained $303,640 for general purposes working capital. Mainly these loans are
acquired by LifeMiles, $ 95,000 at a rate Libor + 5.5 for a term of 4 years, with the purpose of paying dividends.
|
Secured loan agreement with United Airlines Inc. and Kingsland International Group S.A.
On November 18, 2019, Avianca Holdings S.A. signed a $250,000 convertible secured loan agreement with United Airlines, Inc.
(United) and Kingsland International Group, S.A. or its affiliates (collectively, Kingsland), as creditors, which was added for $ 74,000 for a total of $324,000.
F-88
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The main terms and conditions of convertible loan are:
|
|
|
Expiration: Four years from the date of initial disbursement.
|
|
|
|
Interest: 3% annual PIK.
|
|
|
|
Guarantee: A pledge on the shares of the most relevant subsidiaries of the Company.
|
|
|
|
Conversion Price - $4.6217 (in dollars) for each ADS, representing a 35% surcharge to the weighted average price
volume at 90 days, as of October 3, 2019, of $3.4235 (in dollars). If there is a change of control event of the Company, the conversion price will be reduced to $4.1595 (in dollars).
|
The conversion price can be adjusted if the price adjustment events contemplated in the agreement are given.
|
|
|
Mandatory conversion - The Company may require that the entire amount due under the Convertible Loan, together
with all the corresponding PIK interest and cash caused, be converted into the Companys capital in the event that the following conditions are met: (i) (a) Company ADSs are priced at a price of $7.00 (in dollars), or greater, at a
weighted average price volume at 112 of 150 consecutive business days (if such conversion occurs after the first anniversary of the Convertible Loan disbursement) or (b) the Company ADSs are quoted at a price of $7.00 (in dollars), or greater,
at a weighted price volume of 90 consecutive 120 business days (if such conversion occurs after the first anniversary of the disbursement of the Convertible Loan), (ii) the total average consolidated cash balance of the Company is equal to or
exceeds $700,000 in the immediately preceding six-month period, (iii) the non-existence of defaults under the Convertible Loan documentation and (iv) the non-existence of material disputes.
|
|
|
|
According to the contractual conditions, this financial instrument is classified as debt.
|
Senior bonds
As part of
the Avianca Holdings debt reprofiling program, on December 31, 2019, the automatic and mandatory exchange of $ 484,419 of the aggregate principal amount of the Guaranteed Senior Bonds issued and in circulation with a 8.375% coupon with maturity
in 2020 for an amount of nominal equivalent Senior Guaranteed, with a coupon of 9.00% and maturity in 2023 (the New Bonds). The non-exchanged bonds (Existing Bonds) amount to an amount
of $65,581 that have the same conditions of the initial issuance and whose maturity is in May 2020.
F-89
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
As of December 31, 2019, and 2018 the Senior Notes outstanding, and the corresponding
balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuing entities
|
|
Original
currency
|
|
|
Total placed in
original currency
|
|
|
Balance as of
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2019
|
|
|
2018
|
|
Avianca Holdings S.A., Avianca Leasing LLC and Grupo Taca Holdings Limited
|
|
|
USD
|
|
|
|
550,000
|
|
|
$
|
65,632
|
|
|
$
|
559,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers:
|
|
Avianca Holdings S.A., Avianca Leasing, LLC, and Grupo Taca Holdings Limited
|
|
|
Guarantors:
|
|
Avianca Costa Rica, S.A., Avianca Perú S.A., and Taca International Airlines, S.A. fully and unconditionally guarantee the total Notes. Aerovías del Continente Americano Avianca, S.A. unconditionally guarantee
the obligations of Avianca Leasing, LLC under the Senior Notes in an amount equal to $367 million.
|
|
|
Pending bonds
|
|
$ 65,581 aggregate capital amount of 8.375% Senior Bonds payable in 2020.
|
|
|
Initial Issue Price:
|
|
98.706%
|
|
|
Initial Issue Date:
|
|
May 10, 2013
|
|
|
Issue Amount:
|
|
$300 million
|
|
|
Interest:
|
|
The Senior Notes will bear interest at a fixed rate of 8.375% per year. The first issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on November 10, 2013. Interest will
accrue from May 10, 2013. The second issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on May 10, 2014.
|
|
|
Second Issue Price:
|
|
104.50%
|
|
|
Second Issue Date:
|
|
April 8, 2014
|
|
|
Maturity Date:
|
|
The Senior Notes will mature on May 10, 2020.
|
F-90
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
Issuing entities
|
|
Original
currency
|
|
|
Total placed in
original currency
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2019
|
|
|
2018
|
|
Avianca Holdings S.A.
|
|
|
USD
|
|
|
|
484,419
|
|
|
$
|
465,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers:
|
|
Avianca Holdings S.A.
|
|
|
Guarantors:
|
|
Avianca Costa Rica, S.A., Avianca Perú S.A., and Taca International Airlines, S.A. fully and unconditionally guarantee the total Notes. Aerovías del Continente Americano Avianca, S.A. unconditionally guarantee
the obligations of Avianca Leasing, LLC under the Senior Notes in an amount equal to $367 million.
|
|
|
Pending bonds
|
|
$484,419 aggregate capital amount of 9.00% Senior Bonds payable in 2023
|
|
|
Initial Issue Date:
|
|
December 31, 2019
|
|
|
Issue Amount:
|
|
$484,419
|
|
|
Interest:
|
|
The Senior Notes will bear interest at a fixed rate of 9.00% per year. The first issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on November 10. Interest will accrue from
May 10, 2020. The interest are accumulated from December 31, 2019
|
|
|
Transaction costs
|
|
The transaction costs associated with this new bond issue were $18,807, which are presented as a lower value of the initial carry amounts.
|
|
|
Maturity Date:
|
|
The Senior Notes will mature on May 10, 2023
|
Local bonds
As of December 31, 2019, and 2018, bonds issued and the corresponding balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuing entity
|
|
Issue
|
|
|
Total
placed in
original
currency
(1)
|
|
|
Balance as of
|
|
|
December 31,
|
|
|
December 31
|
|
|
2019
|
|
|
2018
|
|
|
Denominated
currency (1)
|
|
|
In US
Dollars
|
|
|
Denominated
currency (1)
|
|
|
In US
Dollars
|
|
Avianca
|
|
|
Series A
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avianca
|
|
|
Series B
|
|
|
|
158,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avianca
|
|
|
Series C
|
|
|
|
266,370
|
|
|
|
|
|
|
|
|
|
|
|
90,566
|
|
|
|
28,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
28,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Presentation of denominated currency in millions of Colombian pesos
|
F-91
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
On August 25, 2009 a bond issue was completed on the Colombian stock exchange, which was
collateralized by Credibanco and Visa credit cards ticket sales in Colombia.
On August 26, 2019, these bonds were redeemed for
$23,207.
The specific conditions of the 2009 bond issue in Colombia are as follows:
|
|
|
|
|
Representative of bondholders:
|
|
Helm Trust, S.A.
|
|
|
Amount of issue:
|
|
$500,000 million Colombian Pesos
|
|
|
Managing agent:
|
|
Fiduciaria Bogota, S.A.
|
|
|
Series:
|
|
Series A: Authorized issue $100,000 million Colombian Pesos
Series B: Authorized issue $200,000 million Colombian Pesos
Series C: Authorized issue $300,000 million Colombian Pesos
|
|
|
Coupon:
|
|
Series A: Indexed to Colombian consumer price index
Series B: Indexed to Colombian consumer price index
Series C:
Indexed to Colombian consumer price index
Interest is payable at quarterend
|
|
|
Term:
|
|
Series A: 5 years
Series B: 7 years
Series C: 10 years
|
|
|
Repayment of capital:
|
|
Series A: At the end of 5 years
Series B: 50%
after 6 years and 50% after 7 years
Series C: 33% after 8 years, 33% after 9 years and 34% after 10 years
|
Future payments on longterm debt
The following future payments including interests on longterm debt for the periods ended December 31, 2019 and 2018.
The amounts are gross and undiscounted and include contractual interest payments and exclude the impact of netting agreements.
Aircraft and corporate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
|
One
|
|
|
Two
|
|
|
Three
|
|
|
Four
|
|
|
Five and
thereafter
|
|
|
Total
|
|
December 31, 2019
|
|
$
|
554,021
|
|
|
$
|
540,615
|
|
|
$
|
853,756
|
|
|
$
|
612,874
|
|
|
$
|
1,078,742
|
|
|
$
|
3,640,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
469,500
|
|
|
$
|
457,737
|
|
|
$
|
529,125
|
|
|
$
|
608,026
|
|
|
$
|
1,236,034
|
|
|
$
|
3,300,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-92
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
|
One
|
|
|
Two
|
|
|
Three
|
|
|
Four
|
|
|
Five and
thereafter
|
|
|
Total
|
|
December 31, 2019
|
|
$
|
105,022
|
|
|
$
|
43,598
|
|
|
$
|
43,598
|
|
|
$
|
506,218
|
|
|
$
|
|
|
|
$
|
698,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
37,376
|
|
|
$
|
549,916
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
587,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft rights of use
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
|
One
|
|
|
Two
|
|
|
Three
|
|
|
Four
|
|
|
Five and
thereafter
|
|
|
Total
|
|
December 31, 2019
|
|
$
|
256,192
|
|
|
$
|
238,618
|
|
|
$
|
226,537
|
|
|
$
|
198,880
|
|
|
$
|
323,329
|
|
|
$
|
1,243,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other rights of use
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
|
One
|
|
|
Two
|
|
|
Three
|
|
|
Four
|
|
|
Five and
thereafter
|
|
|
Total
|
|
December 31, 2019
|
|
$
|
8,318
|
|
|
$
|
8,141
|
|
|
$
|
7,557
|
|
|
$
|
7,487
|
|
|
$
|
46,812
|
|
|
$
|
78,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-93
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Changes in liabilities derived from financing activities at December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2019
|
|
|
Adoption
IFRS 16
|
|
|
New
acquisitions
(2)
|
|
|
New
Leases
(1)
|
|
|
Financial
Cost
|
|
|
Payments
|
|
|
Interest
Payments
|
|
|
Foreign
exchange
movement /
Others
|
|
|
Reclassification
(3)
|
|
|
December 31,
2019
|
|
Current interest-bearing loans and borrowings (excluding items listed below)
|
|
$
|
119,866
|
|
|
$
|
|
|
|
$
|
26,717
|
|
|
$
|
|
|
|
$
|
7,563
|
|
|
$
|
(27,833
|
)
|
|
$
|
(7,207
|
)
|
|
$
|
(969
|
)
|
|
$
|
|
|
|
$
|
118,137
|
|
Current portion of long-term credits (excluding items listed below)
|
|
|
469,500
|
|
|
|
|
|
|
|
144,783
|
|
|
|
|
|
|
|
155,444
|
|
|
|
(378,893
|
)
|
|
|
(162,096
|
)
|
|
|
(6,976
|
)
|
|
|
229,393
|
|
|
|
451,155
|
|
Current Bonds
|
|
|
587,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,112
|
|
|
|
(26,820
|
)
|
|
|
(53,866
|
)
|
|
|
(3,667
|
)
|
|
|
(484,419
|
)
|
|
|
65,632
|
|
Non-current bonds
|
|
|
|
|
|
|
|
|
|
|
465,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465,612
|
|
Non-current portion of long term debt
|
|
|
2,830,922
|
|
|
|
|
|
|
|
454,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,869
|
)
|
|
|
(719,851
|
)
|
|
|
2,557,257
|
|
Aircraft rentals right of use
|
|
|
|
|
|
|
1,010,200
|
|
|
|
|
|
|
|
313,001
|
|
|
|
49,081
|
|
|
|
(194,676
|
)
|
|
|
(49,081
|
)
|
|
|
|
|
|
|
|
|
|
|
1,128,525
|
|
Other rentals right of use
|
|
|
|
|
|
|
69,533
|
|
|
|
|
|
|
|
9,144
|
|
|
|
2,804
|
|
|
|
(9,518
|
)
|
|
|
(2,804
|
)
|
|
|
846
|
|
|
|
|
|
|
|
70,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities from financing activities
|
|
$
|
4,007,580
|
|
|
$
|
1,079,733
|
|
|
$
|
1,091,167
|
|
|
$
|
322,145
|
|
|
$
|
262,004
|
|
|
$
|
(637,740
|
)
|
|
$
|
(275,054
|
)
|
|
$
|
(18,635
|
)
|
|
$
|
(974,877
|
)
|
|
$
|
4,856,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Goods and equipment acquired during the period under finance and operative lease; these movements have no
effect on the consolidated statement of cash flows.
|
(2)
|
The value indicated in the cash flow is $616,555, the difference of $465,612 corresponds to the value of the
bonds exchanged ($484,419) in December 2019 less transaction costs ($18,807) and $9,000 corresponds to a loan acquired by Aerounion for the acquisition of the Airbus A330 aircraft with Scotiabank Bank, a movement that is not shown because it is
related to property and equipment.
|
(3)
|
A reclassification of long-term short-term debt of $34,407 has been made for purposes of non-compliance in some terms and conditions of our debts, which are currently being negotiated. Likewise, $490,458 was reclassified corresponding to debt associated with assets that are available for sale.
Additionally, the decrease in the debt of the initial bonds that were exchanged for $484,419 in December 2019.
|
F-94
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Changes in liabilities derived from financing activities at December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2018
|
|
|
New
acquisitions
|
|
|
New
Leases
(1)
|
|
|
Financial
Cost
(2)
|
|
|
Payments
|
|
|
Interest
Payments
|
|
|
Foreign
exchange
movement
|
|
|
December 31,
2018
|
|
Current interest-bearing loans and borrowings (excluding itmes listed below)
|
|
$
|
79,263
|
|
|
$
|
68,866
|
|
|
$
|
|
|
|
$
|
5,556
|
|
|
$
|
(27,691
|
)
|
|
$
|
(4,572
|
)
|
|
$
|
(1,556
|
)
|
|
$
|
119,866
|
|
Current portion of long-term credits (excluding items listed below)
|
|
|
463,351
|
|
|
|
|
|
|
|
|
|
|
|
141,337
|
|
|
|
(103,630
|
)
|
|
|
(56,650
|
)
|
|
|
25,092
|
|
|
|
469,500
|
|
Current Bonds
|
|
|
29,458
|
|
|
|
|
|
|
|
|
|
|
|
57,940
|
|
|
|
|
|
|
|
(51,044
|
)
|
|
|
1,022
|
|
|
|
37,376
|
|
Non-current obligations under financial lease agreements
and purchase agreements
|
|
|
2,600,450
|
|
|
|
234,774
|
|
|
|
427,751
|
|
|
|
23,063
|
|
|
|
(324,748
|
)
|
|
|
(96,443
|
)
|
|
|
(33,925
|
)
|
|
|
2,830,922
|
|
Bonds
|
|
|
579,591
|
|
|
|
|
|
|
|
|
|
|
|
5,416
|
|
|
|
(27,404
|
)
|
|
|
|
|
|
|
(7,687
|
)
|
|
|
549,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities from financing activities
|
|
$
|
3,752,113
|
|
|
$
|
303,640
|
|
|
$
|
427,751
|
|
|
$
|
233,312
|
|
|
$
|
(483,473
|
)
|
|
$
|
(208,709
|
)
|
|
$
|
(17,054
|
)
|
|
$
|
4,007,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Goods and equipment acquired during the period under finance lease; these movements have no effect on the
statement of cash flows.
|
(2)
|
This column contains the value of the pending interest for the year ended to 2018 for $212,294 and the initial
balance of interest payable related to the financial obligations of $21,018. In the year 2017 the interest caused was $183,332 and these were presented as accounts payable.
|
F-95
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Accounts payable as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Trade accounts payable
|
|
$
|
302,414
|
|
|
$
|
445,299
|
|
Taxes no related to rent (1)
|
|
|
210,330
|
|
|
|
203,915
|
|
Social Charges (2)
|
|
|
327
|
|
|
|
2,000
|
|
Other payables (3)
|
|
|
17,544
|
|
|
|
13,058
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
530,615
|
|
|
$
|
664,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
2,112
|
|
|
|
4,276
|
|
Social Charges (2)
|
|
|
2,190
|
|
|
|
2,851
|
|
Other payables (3)
|
|
|
7,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,931
|
|
|
$
|
7,127
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The variation corresponds to taxes and fees charged to passengers that will be paid to the government authority
such as airport taxes, departure and entry taxes to countries, etc. In addition to VAT and VAT withholding payable.
|
(2)
|
Represent payroll taxes and contributions based on salaries and compensation paid to employees of the Group in
the various jurisdictions in which it operates.
|
(3)
|
The other accounts payable mainly include provisions for travel expenses, provisions for fees and accrued
interest. As well as projects related to aircraft that are in the long term.
|
Accrued expenses as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Operating expenses (1)
|
|
$
|
82,117
|
|
|
$
|
105,655
|
|
Other accrued expenses (2)
|
|
|
5,493
|
|
|
|
3,057
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,610
|
|
|
$
|
108,712
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Corresponds mainly costs for landings, credit card commissions, air navigation, ground services and passenger
services.
|
(2)
|
Other accrued expenses include transport, freight and haulage, public services and maintenance.
|
F-96
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(19)
|
Provisions for return conditions
|
For certain operating leases, the Group is contractually obligated to return the aircraft in a predefined condition. The Group accrues for
restitution costs related to aircraft held under operating leases at the time the asset does not meet the return conditions criteria and throughout the remaining duration of the lease.
Provisions for return conditions as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Current
|
|
$
|
21,963
|
|
|
$
|
2,475
|
|
Non current
|
|
|
122,425
|
|
|
|
127,685
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,388
|
|
|
$
|
130,160
|
|
|
|
|
|
|
|
|
|
|
Changes in provisions for return conditions as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Balances at beginning of year
|
|
$
|
130,160
|
|
|
$
|
163,192
|
|
Provisions made
|
|
|
65,671
|
|
|
|
43,705
|
|
Provisions reverse (1)
|
|
|
(49,557
|
)
|
|
|
(70,797
|
)
|
Provisions used
|
|
|
(1,886
|
)
|
|
|
(5,940
|
)
|
|
|
|
|
|
|
|
|
|
Balances at end of year
|
|
$
|
144,388
|
|
|
$
|
130,160
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In 2019 provisions for return conditions, there are an increase in maintenance reserves, mainly explained by
changes in the schedule of maintenance visits, incorporation of aircraft and start of provision of spare engines, update of the present value of the provision and extensions of contracts.
|
F-97
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Employee benefits as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Defined benefit plan
|
|
$
|
156,732
|
|
|
$
|
144,862
|
|
Other benefits short term
|
|
|
105,792
|
|
|
|
89,567
|
|
Other benefits long term
|
|
|
4,491
|
|
|
|
803
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
267,015
|
|
|
$
|
235,232
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
148,678
|
|
|
$
|
125,147
|
|
Non current
|
|
|
118,337
|
|
|
|
110,085
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
267,015
|
|
|
$
|
235,232
|
|
|
|
|
|
|
|
|
|
|
The Group has a defined benefit plan which requires contributions to be made to separately administered funds.
The Group has also agreed to provide postemployment benefits to its retirees that consist primarily of medical benefit plans as well as certain other benefits, including scholarships, tickets, seniority and retirement. These other benefits are
unfunded.
Accounting for pensions and other postemployment benefits involves estimating the benefit cost to be provided well into
the future and attributing that cost over the time period in which each employee works for the Group. This requires the use of extensive estimates and assumptions about inflation, investment returns, mortality rates, turnover rates, medical cost
trends and discount rates, among other information. The Group has two distinct pension plans, one for pilots and the other for ground personnel. Both plans have been closed to new participants, and therefore there are a fixed number of beneficiaries
covered under these plans as of December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Fair value of plan assets
|
|
$
|
(204,527
|
)
|
|
$
|
(178,594
|
)
|
Present value of the obligation
|
|
|
361,259
|
|
|
|
323,456
|
|
|
|
|
|
|
|
|
|
|
Total employee benefit liability
|
|
$
|
156,732
|
|
|
$
|
144,862
|
|
|
|
|
|
|
|
|
|
|
F-98
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The following table summarizes the components of net benefit expense recognized in the
consolidated statement of comprehensive income and the funded status and amounts recognized in the consolidated statement of financial position for the respective plans:
|
|
|
|
|
|
|
|
|
Net benefit expense year ended December 31, 2019
(recognized in Salaries, wages and benefits)
|
|
Defined benefit
plan
|
|
|
Other benefits
|
|
|
|
|
Current service cost
|
|
$
|
1,152
|
|
|
$
|
1,359
|
|
Interest cost on net benefit obligation
|
|
|
16,376
|
|
|
|
3,780
|
|
Interest income on plan assets
|
|
|
(12,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cost
|
|
$
|
4,701
|
|
|
$
|
5,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit expense year ended December 31, 2018
(recognized in Salaries, wages and benefits)
|
|
Defined benefit
plan
|
|
|
Other benefits
|
|
|
|
|
Current service cost
|
|
$
|
1,094
|
|
|
$
|
2,353
|
|
Interest cost on net benefit obligation
|
|
|
17,375
|
|
|
|
3,706
|
|
Interest income on plan assets
|
|
|
(11,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cost
|
|
$
|
6,770
|
|
|
$
|
6,059
|
|
|
|
|
|
|
|
|
|
|
Changes in the present value of defined benefit obligation as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit
Obligation
|
|
|
Other benefits
|
|
|
Total
|
|
|
|
|
|
Benefit obligation as of December 31, 2018
|
|
$
|
268,486
|
|
|
$
|
54,970
|
|
|
$
|
323,456
|
|
Period cost
|
|
|
17,528
|
|
|
|
5,139
|
|
|
|
22,667
|
|
Benefits paid by employer
|
|
|
(27,726
|
)
|
|
|
(5,190
|
)
|
|
|
(32,916
|
)
|
Remeasurements of defined benefit liability
|
|
|
42,048
|
|
|
|
7,878
|
|
|
|
49,926
|
|
Exchange differences
|
|
|
(48
|
)
|
|
|
(1,826
|
)
|
|
|
(1,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31, 2019
|
|
|
300,288
|
|
|
|
60,971
|
|
|
|
361,259
|
|
Fair value of plan assets
|
|
|
(204,527
|
)
|
|
|
|
|
|
|
(204,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee benefit liability
|
|
$
|
95,761
|
|
|
$
|
60,971
|
|
|
$
|
156,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
39,539
|
|
|
$
|
3,346
|
|
|
$
|
42,885
|
|
Non-current
|
|
|
56,222
|
|
|
|
57,625
|
|
|
|
113,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
95,761
|
|
|
$
|
60,971
|
|
|
$
|
156,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-99
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Changes in the fair value of plan assets are as follows:
|
|
|
|
|
|
|
Defined
benefit plan
|
|
|
|
Fair value of plan assets at December 31, 2018
|
|
$
|
178,594
|
|
Interest income on plan assets
|
|
|
12,827
|
|
Remeasurement of interest assumptions
|
|
|
7,385
|
|
Employer contributions
|
|
|
34,083
|
|
Benefits paid
|
|
|
(25,509
|
)
|
Exchange differences
|
|
|
(2,853
|
)
|
|
|
|
|
|
Fair value of plan assets at December 31, 2019
|
|
$
|
204,527
|
|
|
|
|
|
|
Changes in the present value of defined benefit obligation as of December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit
Obligation
|
|
|
Other benefits
|
|
|
Total
|
|
|
|
|
|
Benefit obligation as of December 31, 2017
|
|
$
|
300,773
|
|
|
$
|
63,270
|
|
|
$
|
364,043
|
|
Period cost
|
|
|
18,469
|
|
|
|
6,059
|
|
|
|
24,528
|
|
Benefits paid by employer
|
|
|
(29,879
|
)
|
|
|
(3,188
|
)
|
|
|
(33,067
|
)
|
Remeasurements of defined benefit liability
|
|
|
850
|
|
|
|
(6,172
|
)
|
|
|
(5,322
|
)
|
Other current
|
|
|
|
|
|
|
(342
|
)
|
|
|
(342
|
)
|
Exchange differences
|
|
|
(21,727
|
)
|
|
|
(4,657
|
)
|
|
|
(26,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31, 2018
|
|
|
268,486
|
|
|
|
54,970
|
|
|
|
323,456
|
|
Fair value of plan assets
|
|
|
(178,594
|
)
|
|
|
|
|
|
|
(178,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee benefit liability
|
|
$
|
89,892
|
|
|
$
|
54,970
|
|
|
$
|
144,862
|
|
Current
|
|
|
32,205
|
|
|
|
3,374
|
|
|
|
35,579
|
|
Noncurrent
|
|
|
57,687
|
|
|
|
51,596
|
|
|
|
109,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
89,892
|
|
|
$
|
54,970
|
|
|
$
|
144,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-100
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Changes in the fair value of plan assets are as follows:
|
|
|
|
|
|
|
Defined
benefit plan
|
|
|
|
Fair value of assets at December 31, 2017
|
|
$
|
189,697
|
|
Interest income on plan assets
|
|
|
11,699
|
|
Remeasurement of interest assumptions
|
|
|
(14,361
|
)
|
Employer contributions
|
|
|
31,871
|
|
Benefits paid
|
|
|
(26,268
|
)
|
Exchange differences
|
|
|
(14,044
|
)
|
|
|
|
|
|
Fair value of plan assets at December 31, 2018
|
|
$
|
178,594
|
|
|
|
|
|
|
For the year ended December 31, 2019, 2018 and 2017, the remeasurements of defined benefit plan liability,
net of $(42,541), $(9,039) and $(33,385) respectively were recognized in other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Actuarial gains (losses) recognized in other comprehensive income
|
|
$
|
(49,926
|
)
|
|
$
|
5,322
|
|
|
$
|
(38,205
|
)
|
Return on plan assets adjustment
|
|
|
7,385
|
|
|
|
(14,361
|
)
|
|
|
4,672
|
|
Adjustments for translation
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses recognized in other comprehensive income
|
|
$
|
(42,541
|
)
|
|
$
|
(9,039
|
)
|
|
$
|
(33,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group expects to contribute $38,706 to its defined benefit plan and other benefits in 2019.
Plan assets correspond to net funds transferred to CAXDAC, which is responsible for the administration of the pilots pension plan. The
assets held by CAXDAC are segregated into separate accounts corresponding to each contributing Group. Additionally, the plan assets included a portion relating to pension plan of ground personnel.
F-101
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The principal assumptions (inflationadjusted) that are used in determining pension and
postemployment medical benefit obligations for the Groups plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Discount rate on all plans
|
|
|
6.25
|
%
|
|
|
7.25
|
%
|
Price inflation
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
Future salary increases
|
|
|
|
|
|
|
|
|
Pilots
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Cabin crew
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Other employees
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Future pension increase
|
|
|
3.00
|
%
|
|
|
3.18
|
%
|
Healthcare cost increase
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Ticket cost increase
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
Education cost increase
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
The major categories of plan assets as a percentage of the fair value of the total plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Equity securities
|
|
|
31.00
|
%
|
|
|
31.00
|
%
|
Debt securities
|
|
|
18.00
|
%
|
|
|
21.00
|
%
|
Domestic Corporate bonds
|
|
|
44.00
|
%
|
|
|
32.00
|
%
|
Foreign government/corporate bonds
|
|
|
1.00
|
%
|
|
|
10.00
|
%
|
Other
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Equity securities comprise investments in Colombian entities with a credit rating between AAA and BBB. The debt
securities include investments in bonds of the Colombian government, in banks and in Colombian public and private entities. Domestic corporate bonds include bonds issued by private companies and Foreign Government Corporate Bonds include Yankee
bonds and bonds issued by financial and private entities abroad.
F-102
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The following are the expected payments or contributions to the defined benefit plan in
future years:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Year 1
|
|
$
|
34,655
|
|
|
$
|
26,773
|
|
Year 2
|
|
|
21,413
|
|
|
|
24,798
|
|
Year 3
|
|
|
21,868
|
|
|
|
24,309
|
|
Year 4
|
|
|
22,537
|
|
|
|
24,781
|
|
Year 5
|
|
|
23,288
|
|
|
|
25,626
|
|
Next 5 years
|
|
|
117,918
|
|
|
|
132,969
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
241,679
|
|
|
$
|
259,256
|
|
|
|
|
|
|
|
|
|
|
The average duration of the benefit plan obligation at December 31, 2019 and 2018 are 11.35 and 10.79,
years, respectively.
Pension plans for ground personnel
In 2008, the Group entered into a commutation agreement with Compañía Aseguradora de Vida Colseguros S.A. (Insurance Company) in
connection with the pension liability of two of the Companys pension plans.
As of December 31, 2019, and 2018, there are 12
beneficiaries, which have not been commuted. Consequently, the Group estimates through an actuarial calculation the pension liability of these beneficiaries.
Pension plans for flight personnel
Due to local regulations for two of the Groups pension plans, the Group has to make contributions to a fund which is externally
administrated. The amount of the annual contribution is based on the following:
|
|
|
Basic contribution for the year: equal to the expected annual pension payments.
|
|
|
|
Additional contribution for the year (if necessary): equal to the necessary amount to match the actuarial
liability under local accounting rules and the plan assets as of year 2023 (determined with an actuarial calculation).
|
F-103
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Sensitivity Analysis
The calculation of the defined benefit obligation is sensitive to the aforementioned assumptions. The following table summarizes how the impact
on the defined benefit obligation at the end of the reporting period would have increased (decreased) as a result of a change in the respective assumptions:
|
|
|
|
|
|
|
|
|
|
|
0.5% increase
|
|
|
0.5% decrease
|
|
Discount rate
|
|
|
(19,352
|
)
|
|
|
21,358
|
|
Pension increase
|
|
|
16,738
|
|
|
|
(15,276
|
)
|
Mortality table
|
|
|
6,295
|
|
|
|
(6,380
|
)
|
Other employee benefits
In the year 2018, the Group implemented a new incentive plan denominated options of shares: Avianca Holdings.
Annually, the beneficiaries of the plan will receive a package of virtual shares to which they can be made creditors at the end of the period,
as long as the financial and customer satisfaction goals of the business plan are met.
Once the goal board is closed, and at the end of
the period, the number of virtual shares the beneficiary takes can go from 0% to 200%, depending on the performance of long-term indicators. These indicators are measured in the short term (1 year), but their payment is long term, which will be
deferred in 3 payments as long as there is employment linkage at the time of payment.
The beneficiaries of the plan are those positions of
Vice President and Director level, in addition all those persons who are defined as high potential and / or who hold critical positions which must be approved by the CEO.
Each year a new package of virtual shares will be settled, which according to the performance of the period will be delivered in thirds during
the following three years. The value to be paid for each third will be the result of calculating the number of virtual shares to be paid, multiplied by the value of the Avianca Holdings S.A. share. in NYC for the period. The payment will be made in
the base country of work of the beneficiary, the value will be subject to the deductions of taxes that correspond to each country at the time of payment.
Based on the aforementioned assumptions, the Group recorded a liability of $2,619 and $1,312 on December 31, 2019 and 2018 which is
considered within the other long-term employee benefits as a non-current liability in the consolidated statement of financial position.
F-104
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(21)
|
Air traffic liability and frequent flyer deferred revenue
|
The air traffic liability comprises the proceeds from the unused air ticket or the revenues corresponding to the unused portion of a ticket
sold. This income also includes the deferred income from the loyalty programs. The Group periodically evaluates this liability and any significant adjustment is recorded in the consolidated statements of comprehensive income. These adjustments are
mainly due to differences between actual events and circumstances
such as historical sales rates and customer travel patterns that may
result in refunds, changes or expiration of tickets that change substantially from the estimates (see note 3(e)).
The balance as of
December 31, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
Air traffic liability
|
|
$
|
337,363
|
|
|
$
|
424,579
|
|
Miles deferred revenue
|
|
|
187,931
|
|
|
|
186,378
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
525,294
|
|
|
$
|
610,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miles deferred revenue
|
|
$
|
229,701
|
|
|
$
|
234,260
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
|
|
$
|
229,701
|
|
|
$
|
234,260
|
|
|
|
|
|
|
|
|
|
|
The other liabilities as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
Derivative instruments
|
|
|
27,28
|
|
|
$
|
1,289
|
|
|
$
|
(129
|
)
|
Deferred Revenue
|
|
|
|
|
|
|
55,256
|
|
|
|
71,649
|
|
Other
|
|
|
|
|
|
|
14
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
56,559
|
|
|
$
|
72,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
$
|
5,110
|
|
|
$
|
3,861
|
|
Non-current
|
|
|
|
|
|
|
51,449
|
|
|
|
68,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
56,559
|
|
|
$
|
72,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Corresponds mainly to deferred profits from sales and subsequent leases prior to January 1, 2019 which,
prior to the implementation of IFRS 16, were deferred during the term of the financial lease contract.
|
F-105
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Common and preferred shares
On November 5, 2013 The Company issued 12,500,000 American Depository Shares (ADS) and each represented eight preferred
shares. The net income derived from this offer amounts to $183,553 million (net of deduction of emission costs for $3,956), the preferred shares do not have the right to vote nor can they become common shares, the holders of the preferred
shares and ADSs will be entitled to receive a minimum dividend to be paid with preference over the holders of the common shares, provided that the dividends have been declared by our shareholders at the annual meeting, If no dividends are declared,
none of our shareholders will be entitled to dividends, If the dividends are declared and our annual distributable earnings are sufficient to pay a dividend of at least COP$50 per share to all of our holders of preferred and ordinary shares, such
benefits will be paid equally with respect to our preferred and ordinary shares, however, if our earnings Annual distributions are insufficient to pay a dividend of at least COP$50 per share to all our holders of preferred and ordinary shares, a
minimum preferred dividend of COP$50 per share will be distributed in proportion to the holders of preferred shares, and any excess over said minimum preferred dividend will be distributed exclusively to holders of ordinary shares.
In relation to this offer, common shareholders (selling shareholders) converted 75,599,997 common shares to preferred shares
representing 14,734,910 ADS. As a result, the number of common shares was reduced to 665,800,003 and the number of preferred shares increased by 75,599,997 for a total of 331,187,285 preferred shares. The Company did not receive any part of the net
income from the sale of the ADS by the selling shareholders.
As of December 31, 2013, the Company acquired 197,141 of its
current preferred shares consequently, current preferred shares decreased by $25 and the additional capital paid in preferred shares was reduced by $452.
On November 28, 2014, common shareholders (selling shareholders) converted 5,000,000 ordinary shares to preferred shares, as a
consequence, the number of common shares was reduced to 660,800,003 and the number of preferred shares increased by 5,000,000 to 336,187,285 preferred shares.
The following is a summary of authorized, issued and paid shares:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Authorized shares
|
|
|
4,000,000,000
|
|
|
|
4,000,000,000
|
|
Common shares issued and paid
|
|
|
660,800,003
|
|
|
|
660,800,003
|
|
Preferred shares issued and paid
|
|
|
336,187,285
|
|
|
|
336,187,285
|
|
The nominal value per share is $0.12 Expressed in cents.
F-106
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Other Comprehensive Income (OCI) Reserves
The movement of the other comprehensive income as of December 31, 2018, to December 31, 2019, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax reserves relating to (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging
reserves (1)
|
|
|
Fair value
reserves (2)
|
|
|
Reserves relating
to actuarial
gains and
losses (3)
|
|
|
Fair value
reserves
|
|
|
Reserves
relating to
actuarial
gains and
losses
|
|
|
Revaluation of
administrative
property (5)
|
|
|
Total
|
|
|
NCI
|
|
|
Total OCI
|
|
As of December 31, 2018
|
|
$
|
(7,194
|
)
|
|
$
|
(748
|
)
|
|
$
|
(74,177
|
)
|
|
$
|
3
|
|
|
$
|
86
|
|
|
$
|
37,934
|
|
|
$
|
(44,096
|
)
|
|
$
|
194
|
|
|
$
|
(43,902)
|
|
Other comprehensive Income (loss) for the Period
|
|
|
4,096
|
|
|
|
1,205
|
|
|
|
(42,527
|
)
|
|
|
|
|
|
|
441
|
|
|
|
2,761
|
|
|
|
(34,024
|
)
|
|
|
(178
|
)
|
|
|
(34,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
$
|
(3,098
|
)
|
|
$
|
457
|
|
|
$
|
(116,704
|
)
|
|
$
|
3
|
|
|
$
|
527
|
|
|
$
|
40,695
|
|
|
$
|
(78,120
|
)
|
|
$
|
16
|
|
|
$
|
(78,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The movement of the other comprehensive income as of December 31 2017, to December 31, 2018, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax reserves relating to (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging
reserves (1)
|
|
|
Fair value
reserves (2)
|
|
|
Reserves relating
to actuarial
gains and
losses (3)
|
|
|
Fair value
reserves
|
|
|
Reserves
relating to
actuarial
gains and
losses
|
|
|
Revaluation of
administrative
property (5)
|
|
|
Total
|
|
|
NCI
|
|
|
Total OCI
|
|
As of December 31, 2017
|
|
$
|
6,507
|
|
|
$
|
(681
|
)
|
|
$
|
(65,138
|
)
|
|
$
|
3
|
|
|
$
|
125
|
|
|
$
|
58,382
|
|
|
$
|
(802
|
)
|
|
$
|
455
|
|
|
$
|
(347)
|
|
Other comprehensive Income (loss) for the Period
|
|
|
(13,701
|
)
|
|
|
(67
|
)
|
|
|
(9,039
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
(20,448
|
)
|
|
|
(43,294
|
)
|
|
|
(261
|
)
|
|
|
(43,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
$
|
(7,194
|
)
|
|
$
|
(748
|
)
|
|
$
|
(74,177
|
)
|
|
$
|
3
|
|
|
$
|
86
|
|
|
$
|
37,934
|
|
|
$
|
(44,096
|
)
|
|
$
|
194
|
|
|
$
|
(43,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-107
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow
hedges pending subsequent recognition of the hedged cash flows (See note 27).
The fair value reserve comprises the cumulative net change in the fair value of availableforsale financial assets until the assets
are derecognized or impaired.
(3)
|
Reserve relating to actuarial gains and losses
|
It comprises actuarial gains or losses on defined benefit plans and postretirement medical benefits recognized in other comprehensive
income.
(4)
|
Income tax on other comprehensive income
|
Whenever an item of other comprehensive income gives rise to a temporary difference, a deferred income tax asset or liability is recognized
directly in other comprehensive income
(5)
|
Revaluation of administrative property
|
Revaluation of administrative property is related to the revaluation of administrative buildings and property in Colombia, Costa Rica, and El
Salvador. The revaluation reserve is adjusted for increases or decreases in fair values of such property.
The following provides an
analysis of items presented net in the statement of consolidated statement of comprehensive income which have been subject to reclassification, without considering items remaining in OCI which are never reclassified to profit of loss:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
Reclassification during the year to profit or loss
|
|
$
|
(4,481
|
)
|
|
$
|
(17,179
|
)
|
Effective valuation of cash flow hedged
|
|
|
8,413
|
|
|
|
3,478
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,932
|
|
|
$
|
(13,701
|
)
|
|
|
|
|
|
|
|
|
|
Fair value reserves:
|
|
|
|
|
|
|
|
|
Valuations of investments in fair value with changes in OCI
|
|
$
|
1,205
|
|
|
$
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,205
|
|
|
$
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
F-108
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(24)
|
Non-controlling interest
|
The information related to each of the subsidiaries of the Group that has material NCI as of December 31, 2019 and 2018 is summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LifeMiles
Ltd.
|
|
|
Taca
International
Airlines S.A.
|
|
|
Avianca
Costa Rica
S.A.
|
|
|
Other
individually
intangible
subsidiaries.
|
|
|
Total
|
|
Percentage non-controlling interest
|
|
|
30.00
|
%
|
|
|
3.17
|
%
|
|
|
7.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
52,807
|
|
|
$
|
30,762
|
|
|
$
|
28,747
|
|
|
$
|
7,274
|
|
|
$
|
119,590
|
|
Non-current assets
|
|
|
20,168
|
|
|
|
14,113
|
|
|
|
5,470
|
|
|
|
5,345
|
|
|
|
45,096
|
|
Current liabilities
|
|
|
(94,047
|
)
|
|
|
(18,421
|
)
|
|
|
(34,584
|
)
|
|
|
(5,492
|
)
|
|
|
(152,544
|
)
|
Non-current liabilities
|
|
|
(172,582
|
)
|
|
|
(37,848
|
)
|
|
|
(806
|
)
|
|
|
(3,072
|
)
|
|
|
(214,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
(193,654
|
)
|
|
|
(11,394
|
)
|
|
|
(1,173
|
)
|
|
|
4,055
|
|
|
|
(202,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
|
26,829
|
|
|
|
(3,524
|
)
|
|
|
(4,066
|
)
|
|
|
478
|
|
|
|
19,717
|
|
Other comprehensive income
|
|
$
|
(163
|
)
|
|
$
|
7
|
|
|
$
|
(25
|
)
|
|
$
|
3
|
|
|
$
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LifeMiles
Ltd.
|
|
|
Taca
International
Airlines S.A.
|
|
|
Aerotaxis la
Costeña S.A.
|
|
|
TurboProp
Leasing
Corp.
|
|
|
Avianca
Costa Rica
S.A.
|
|
|
Other
individually
intangible
subsidiaries.
|
|
|
Total
|
|
Percentage non-controlling interest
|
|
|
30.00
|
%
|
|
|
3.17
|
%
|
|
|
31.92
|
%
|
|
|
32.00
|
%
|
|
|
7.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
50,344
|
|
|
$
|
28,269
|
|
|
$
|
2,597
|
|
|
$
|
4,155
|
|
|
$
|
25,818
|
|
|
$
|
5,719
|
|
|
$
|
116,902
|
|
Non-current assets
|
|
|
24,337
|
|
|
|
8,932
|
|
|
|
687
|
|
|
|
7,615
|
|
|
|
5,444
|
|
|
|
2,529
|
|
|
|
49,544
|
|
Current liabilities
|
|
|
(98,034
|
)
|
|
|
(18,861
|
)
|
|
|
(1,268
|
)
|
|
|
(2,658
|
)
|
|
|
(27,515
|
)
|
|
|
(3,481
|
)
|
|
|
(151,817
|
)
|
Non-current liabilities
|
|
|
(160,816
|
)
|
|
|
(26,210
|
)
|
|
|
|
|
|
|
(3,995
|
)
|
|
|
(827
|
)
|
|
|
(774
|
)
|
|
|
(192,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
(184,169
|
)
|
|
|
(7,870
|
)
|
|
|
2,016
|
|
|
|
5,117
|
|
|
|
2,920
|
|
|
|
3,993
|
|
|
|
(177,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain
|
|
|
24,321
|
|
|
|
(3,684
|
)
|
|
|
(499
|
)
|
|
|
1,283
|
|
|
|
841
|
|
|
|
3,683
|
|
|
|
25,946
|
|
Other full benefits
|
|
$
|
(94
|
)
|
|
$
|
(158
|
)
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
(9)
|
|
$
|
(261
|
)
|
F-109
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(25)
|
(Losses) / earnings per share
|
The calculation of basic (losses)/ earnings per share at December 31, 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
Net (losses) / earnings attributable to Avianca Holdings S,A,
|
|
$
|
(913,712
|
)
|
|
$
|
(24,803
|
)
|
|
$
|
48,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
660,800
|
|
|
|
660,800
|
|
|
|
660,800
|
|
Preferred stock
|
|
|
336,187
|
|
|
|
336,187
|
|
|
|
336,187
|
|
(Losses) / earnings per share (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
(0.92
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.05
|
|
Preferred stock
|
|
$
|
(0.92
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.05
|
|
(1)
|
Expressed in dollars.
|
There are no interests in convertible preferred shares.
The Group had no major customers which represented more than 10% of revenues in 2019 and 2018. The Group tracks its segmented gross revenue
information by type of service provided and by region, as follows:
By type of service provided
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2019
|
|
|
Percentage
|
|
|
Year ended
December 31,
2018
|
|
|
Percentage
|
|
|
Year on
Year
Variation
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
$
|
2,000,222
|
|
|
|
43
|
%
|
|
$
|
2,001,825
|
|
|
|
41
|
%
|
|
|
(1,603
|
)
|
Cargo and mail
|
|
|
285,802
|
|
|
|
6
|
%
|
|
|
303,343
|
|
|
|
6
|
%
|
|
|
(17,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,286,024
|
|
|
|
49
|
%
|
|
|
2,305,168
|
|
|
|
47
|
%
|
|
|
(19,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
1,904,542
|
|
|
|
41
|
%
|
|
|
2,072,566
|
|
|
|
42
|
%
|
|
|
(168,024
|
)
|
Cargo and mail
|
|
|
282,576
|
|
|
|
6
|
%
|
|
|
315,433
|
|
|
|
7
|
%
|
|
|
(32,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,187,118
|
|
|
|
47
|
%
|
|
|
2,387,999
|
|
|
|
49
|
%
|
|
|
(200,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (1)
|
|
|
148,354
|
|
|
|
4
|
%
|
|
|
197,663
|
|
|
|
4
|
%
|
|
|
(49,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
4,621,496
|
|
|
|
100
|
%
|
|
$
|
4,890,830
|
|
|
|
100
|
%
|
|
|
(269,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-110
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2018
|
|
|
Percentage
|
|
|
Year ended
December 31,
2017
|
|
|
Percentage
|
|
|
Year on
Year
Variation
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
$
|
2,001,825
|
|
|
|
41
|
%
|
|
$
|
1,900,627
|
|
|
|
42
|
%
|
|
|
101,198
|
|
Cargo and mail
|
|
|
303,343
|
|
|
|
6
|
%
|
|
|
279,666
|
|
|
|
6
|
%
|
|
|
23,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,305,168
|
|
|
|
47
|
%
|
|
|
2,180,293
|
|
|
|
48
|
%
|
|
|
124,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
2,072,566
|
|
|
|
42
|
%
|
|
|
1,649,533
|
|
|
|
37
|
%
|
|
|
423,033
|
|
Cargo and mail
|
|
|
315,433
|
|
|
|
7
|
%
|
|
|
271,313
|
|
|
|
6
|
%
|
|
|
44,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,387,999
|
|
|
|
49
|
%
|
|
|
1,920,846
|
|
|
|
43
|
%
|
|
|
467,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (1)
|
|
|
197,663
|
|
|
|
4
|
%
|
|
|
340,545
|
|
|
|
9
|
%
|
|
|
(142,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
4,890,830
|
|
|
|
100
|
%
|
|
$
|
4,441,684
|
|
|
|
100
|
%
|
|
|
449,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income
Other operating revenue for the years ended December 31, 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
Frequent flyer program
|
|
$
|
40,794
|
|
|
$
|
46,376
|
|
|
$
|
178,841
|
|
Ground operations (a)
|
|
|
18,448
|
|
|
|
23,592
|
|
|
|
20,172
|
|
Leases
|
|
|
11,590
|
|
|
|
22,610
|
|
|
|
22,232
|
|
Maintenance
|
|
|
8,162
|
|
|
|
58,032
|
|
|
|
11,639
|
|
Interline
|
|
|
2,087
|
|
|
|
2,025
|
|
|
|
1,900
|
|
Other (b)
|
|
|
67,273
|
|
|
|
45,028
|
|
|
|
105,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,354
|
|
|
$
|
197,663
|
|
|
$
|
340,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Group provides services to other airlines at main hub airports.
|
(b)
|
Corresponds mainly to income from penalties, access to VIP rooms and additional services.
|
Contract balances
The following table provides information on accounts receivable, assets and liabilities of contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Net of accounts receivable
|
|
8
|
|
$
|
215,673
|
|
|
$
|
245,756
|
|
Prepaid compensation customers
|
|
11
|
|
|
13,768
|
|
|
|
37,130
|
|
Air traffic responsibility
|
|
21
|
|
|
(337,363
|
)
|
|
|
(424,579
|
)
|
Deferred frequent flyer income
|
|
21
|
|
$
|
(417,632
|
)
|
|
$
|
(420,638
|
)
|
F-111
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(27)
|
Derivatives recognized as hedging instruments
|
Financial instruments recognized as hedging instruments at fair value though other comprehensive income as of December 31, 2019 and
December 31, 2018, are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Cash flow hedges assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel price
|
|
|
12
|
|
|
$
|
525
|
|
|
$
|
2,566
|
|
Interest rate
|
|
|
12
|
|
|
|
11
|
|
|
|
4,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
536
|
|
|
$
|
7,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
|
22
|
|
|
$
|
1,241
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,241
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notional value of derivatives recognized as hedging instruments for the year ended December 31, 2019
and 2018 is equivalent to 6,792,000 and 92,560,000, respectively, gallons of jet fuel for aircraft.
Financial assets and liabilities at
fair value through other comprehensive income reflect the change in fair value of fuel price derivative contracts designated as cash flow hedges. Hedged items are designated future purchases deemed as highly probable forecast transactions.
Cash flow hedges liabilities are recognized within other liabilities in the consolidated statement of financial position.
The Group purchases jet fuel on an ongoing basis as its operating activities require a continuous supply of this commodity. The increased
volatility in jet fuel prices has led the Group to the decision to enter into commodity contracts. These contracts are expected to reduce the volatility attributable to fluctuations in jet fuel prices for highly probable forecast jet fuel purchases,
in accordance with the risk management strategy outlined by the Board of Directors. The contracts are intended to hedge the volatility of the jet fuel prices for a period between three and twelve months based on existing purchase agreements.
F-112
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The following table indicates the periods in which the cash flows associated with cash flow
hedges are expected to occur, and the fair values of the related hedging instruments to December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Fair Value
|
|
|
112 months
|
|
|
1224 months
|
|
Fuel price
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
525
|
|
|
$
|
525
|
|
|
$
|
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Liabilities
|
|
$
|
1,241
|
|
|
$
|
|
|
|
$
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Fair Value
|
|
|
112 months
|
|
|
1224 months
|
|
Fuel price
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
2,566
|
|
|
$
|
2,566
|
|
|
$
|
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
4,890
|
|
|
$
|
112
|
|
|
$
|
4,778
|
|
The terms of the cash flow hedging contracts have been negotiated for the expected highly probable forecast
transactions to which hedge accounting has been applied. As of December 31, 2019, 2018 and 2017, a net (loss)/gain relating to the hedging instruments of $3,932, $(13,701) and $6,385 respectively is included in other comprehensive income (see
note 23).
|
(28)
|
Derivative financial instruments
|
Derivative financial instruments at fair value through profit or loss as of December 31, 2019 and December 31, 2018 are the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Derivatives not designated as hedges liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts of interest rate
|
|
|
22
|
|
|
$
|
48
|
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
48
|
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments to fair value financial instruments to fair value without effect in other comprehensive
income are derivative contracts not designated as hedges instruments for accounting purposes that are intended to reduce the levels of risk of foreign currency and interest rates.
Liabilities on derivatives not designated as hedges are recognized within other liabilities in the consolidated statement of financial
position.
Foreign currency risk
Certain foreign currency forward contracts are measured at fair value through profit or loss and are not designated as hedging instruments for
accounting purposes. The foreign currency forward contract balances vary with the level of expected foreign currency sales and purchases and changes in foreign currency forward rates.
F-113
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Interest rate risk
The Group incurs interest rate risk primarily on financial obligations to banks and aircraft lessors. Certain financial derivative instruments
are recognized at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The interest rate contracts vary according to the level of expected interest payable and changes in interest rates of
financial obligations. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps and options. Under these agreements, the Group pays a fixed rate and receives a variable
rate.
|
(29)
|
Offsetting of Financial Instruments
|
The Group has derivative instruments that could meet the offsetting criteria in paragraph 42 of IAS 32 given that the Group has signed with its
counterparties enforceable master netting arrangements. Consequently, when derivatives signed with the same counterparty and for the same type of notional result in gross assets and liabilities, the positions are set off resulting in the
presentation of a net derivative. As of December 31, 2019, and 2018, the Group has not set off derivative instruments because it has not had gross assets and liabilities with the same counterparty for the same type of notional.
|
(30)
|
Fair value measurements
|
The following table provides the fair value measurement hierarchy of the Groups assets and liabilities as of December 31, 2019:
Quantitative disclosures of fair value measurement hierarchy for assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using
|
|
Assets measured at fair value
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
Significant
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Total
|
|
Derivative financial assets (note 27 and 28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel hedges
|
|
$
|
|
|
|
$
|
525
|
|
|
$
|
|
|
|
$
|
525
|
|
Interest rate derivatives
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Investments
|
|
|
|
|
|
|
55,440
|
|
|
|
|
|
|
|
55,440
|
|
Assets of the benefits plan
|
|
|
|
|
|
|
204,527
|
|
|
|
|
|
|
|
204,527
|
|
Assets held for sale (1)
|
|
|
|
|
|
|
694,336
|
|
|
|
|
|
|
|
694,336
|
|
Revalued administrative property (note 13)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
111,112
|
|
|
$
|
111,112
|
|
(1)
|
Represents the fair value of assets held for sale excluding costs to sell.
|
F-114
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Quantitative disclosures of fair value measurement hierarchy for liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using
|
|
Liabilities measured at fair value
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
Significant
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Total
|
|
Interest rate derivatives (notes 27 and 28)
|
|
$
|
|
|
|
$
|
1,289
|
|
|
$
|
|
|
|
$
|
1,289
|
|
Liabilities for which fair values are disclosed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shortterm borrowings and longterm debt
|
|
$
|
|
|
|
$
|
5,454,688
|
|
|
$
|
|
|
|
$
|
5,454,688
|
|
The following table provides the fair value measurement hierarchy of the Groups assets and liabilities as
of December 31, 2018:
Quantitative disclosures of fair value measurement hierarchy for assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using
|
|
Assets measured at fair value
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
Significant
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Total
|
|
Derivative financial assets (note 27 and 28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel hedges
|
|
$
|
|
|
|
$
|
2,566
|
|
|
$
|
|
|
|
$
|
2,566
|
|
Interest rate derivatives
|
|
|
|
|
|
|
4,890
|
|
|
|
|
|
|
|
4,890
|
|
Investments
|
|
|
|
|
|
|
67,306
|
|
|
|
|
|
|
|
67,306
|
|
Assets plan
|
|
|
|
|
|
|
178,594
|
|
|
|
|
|
|
|
178,594
|
|
Revalued administrative property (note 13)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125,049
|
|
|
$
|
125,049
|
|
F-115
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Quantitative disclosures of fair value measurement hierarchy for liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using
|
|
Liabilities measured at fair value
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
Significant
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Total
|
|
Foreign currency derivatives (note 27 and 28)
|
|
$
|
|
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
(17
|
)
|
Liabilities for which fair values are disclosed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shortterm borrowings and longterm debt
|
|
$
|
|
|
|
$
|
4,022,707
|
|
|
$
|
|
|
|
$
|
4,022,707
|
|
Fair values hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows:
|
|
|
Level 1
|
|
Observable inputs such as quoted prices in active markets
|
|
|
Level 2
|
|
inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly: or
|
|
|
Level 3
|
|
inputs are unobservable inputs for the asset or liability.
|
For assets and liabilities that are recognized in the financial statements on a recurring basis, the
Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Fair values have been determined for measurement and/or disclosure purposes based on the following methods.
|
(a)
|
The fair value of financial assets which changes in OCI is determined by reference to the present value of
future principal and interest cash flows, discounted at a market based on interest rate at the reporting date.
|
|
(b)
|
The Group enters into derivative financial instruments with various counterparties, principally financial
institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate contracts, foreign currency forward contracts and commodity contracts. The most frequently
applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign currency spot and forward rates, interest rate
curves and forward rate curves of the underlying commodity.
|
|
(c)
|
The fair value of shortterm borrowings and longterm debt, which is determined for
disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at a market-based interest rate at the reporting date. For finance leases, the market rate is determined by reference to
similar lease agreements.
|
F-116
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
(d)
|
The Group uses the revaluation model to measure its land and buildings which are composed of administrative
properties. Management determined that this constitutes one class of asset under IAS 16, based on the nature, characteristics and risks of the property. The fair values of the properties were determined by using market comparable methods. This means
that valuations performed by the appraisals are based on active market prices, adjusted for difference in the nature, location or condition of the specific property. The Group engaged accredited independent appraisals, to determine the fair value of
its land and buildings.
|
Level 3 Fair value
The fair value measurements for our administrative property have been categorized as reasonable level 3 values based on the contributions to
the valuation techniques used.
The following table shows a breakdown of the total recognized gains (losses) with respect to the fair
values of level 3 (administrative property):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Profit included in OCI
|
|
|
|
|
|
|
|
|
Change in fair value (not realized)
|
|
$
|
2,761
|
|
|
$
|
(20,448
|
)
|
Change in fair value (realized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (loss) included in OCI
|
|
$
|
2,761
|
|
|
$
|
(20,448
|
)
|
|
|
|
|
|
|
|
|
|
Valuation technique and significant unobservable entries
The company revaluates its administrative property related to buildings and land every 3 years by country, for 2018 the administrative property
located in Colombia appraised, for 2019 the administrative property located in El Salvador was appraised.
F-117
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The following table shows the valuation technique used to measure the fair value of the
administrative property, as well as the unobservable investment used.
|
|
|
|
|
Country
|
|
Valuation technique
|
|
Significant unobservable entries
|
El Salvador
Year:
2019
|
|
The criteria for valuing the assets object of this offer was the fair value defined by IFRS (international financial reporting standards), as the value that corresponds to the price that would
be received for selling an asset or paid to transfer a liability in a transaction, tender, orderly and mutual among duly informed market participants and on a specific date.
|
|
Consumer price index (2019: 111.09)
Rental yields (2019: 8.49%)
Square meter prices (2019: $1,193)
Property purchase costs (2019: 9.21%)
|
|
|
|
Colombia
Year:
2018
|
|
Market comparison approach: a method of assessing property by analyzing the prices of similar properties sold in the past and then making adjustments based on differences between the
properties and the relative age of the other sale.
|
|
Expected market rental growth: (2018: 1% -2%)
Employment rate (2018: weighted average of 87%)
Construction GDP (2018: weighted average of 1%.
Appreciation or depreciation of the Colombian peso against the US dollar 2018:
(8.91%).
|
|
(31)
|
Income tax expense and other taxes
|
Assets and liabilities for taxes as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Current income tax assets
|
|
$
|
99,973
|
|
|
$
|
152,601
|
|
Other current taxes
|
|
|
|
|
|
|
|
|
Current VAT assets
|
|
|
90,955
|
|
|
|
72,857
|
|
Other taxes current
|
|
|
7,791
|
|
|
|
6,456
|
|
|
|
|
|
|
|
|
|
|
Total other current taxes
|
|
|
98,746
|
|
|
|
79,313
|
|
|
|
|
|
|
|
|
|
|
Total current tax assets
|
|
$
|
198,719
|
|
|
$
|
231,914
|
|
Non-current income tax assets
|
|
|
1
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Total tax assets
|
|
$
|
198,720
|
|
|
$
|
231,933
|
|
|
|
|
|
|
|
|
|
|
Current income tax liabilities
|
|
$
|
(26,421
|
)
|
|
$
|
(26,702
|
)
|
|
|
|
|
|
|
|
|
|
F-118
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
a)
|
Components of income tax expense
|
The major components of income tax expense for the years ended December 31, 2019, 2018 and 2017 are:
Consolidated statement of comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
Current income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax charge
|
|
$
|
25,171
|
|
|
$
|
24,208
|
|
|
$
|
32,934
|
|
Changes in estimates related to prior years
|
|
|
1,304
|
|
|
|
2,943
|
|
|
|
2,225
|
|
Deferred tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to origination and reversal of temporary differences
|
|
|
(2,492
|
)
|
|
|
(6,938
|
)
|
|
|
(15,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense reported in the income statement
|
|
$
|
23,983
|
|
|
$
|
20,213
|
|
|
$
|
20,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
Coverage reservations
|
|
$
|
|
|
|
|
|
|
|
$
|
3,558
|
|
Reserves relating to actuarial gains and losses
|
|
|
441
|
|
|
|
(39
|
)
|
|
|
(15,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense charged directly to other comprehensive income
|
|
$
|
441
|
|
|
$
|
(39
|
)
|
|
$
|
(11,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Tax Rate reconciliation in accordance with the Tax Provisions and the Effective Rate:
|
Standards in other countries
Subsidiary companies in Ecuador must pay a capital gains tax at a 28% rate. For subsidiaries in Costa Rica, México, Salvador and Peru
the rate is 30%, in Guatemala the rate is 25%.
F-119
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Tax Reform Colombia
Income Tax
In
2019, the national government issued law 2010 in accordance with the objectives that the law 1943 of 2018 promoted on the subject, however, it presents the following modifications:
Income tax rate for taxable year 2020 and following:
|
|
|
|
|
|
|
|
|
Year
|
|
General Rate (1)
|
|
|
Rate Applicable to
Financial Entities (2)
|
|
2020
|
|
|
32
|
%
|
|
|
36
|
%
|
2021
|
|
|
31
|
%
|
|
|
34
|
%
|
2022 and next
|
|
|
30
|
%
|
|
|
33
|
%
|
(1)
|
Rate applicable to national societies, permanent establishments and foreign entities.
|
(2)
|
Rate applicable to financial entities with taxable income equal to or greater than 120,000 UVT, as provided in
paragraph 7 included in article 240 of the Tax Statute.
|
On the other hand, it reduces for the year 2020, the applicable
rate for the purpose of calculating the income tax under the presumptive income system which will be 0.5% of the taxpayers net worth of the previous year. From the year 2021 the applicable rate will be 0%.
Dividend Tax
The
rate is reduced from 15% to 10% for resident natural persons, illiquid successions. Likewise, the rate is increased from 7.5% to 10% for non-resident natural and legal persons and permanent establishments. The
rate applicable to national companies is maintained at the rate of 7.5%
Equity tax
For the taxable years 2020 and 2021 equity tax is maintained, for resident natural persons and for
non-resident natural and legal persons.
Tax procedure
The applicable audit benefit is extended to the 2019 taxable year for the 2020 and 2021 taxable years.
The term of firmness applicable to the declarations in which fiscal losses are compensated or generated is reduced to five years and compared
to the years that it is obliged to comply with the transfer pricing regime.
F-120
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The term to voluntarily correct tax returns in which the balance in favor is reduced or the
value to be increased is extended to three years.
Firmness of Income Tax Statements and Complementary
As of 2017 and with the entry into force of law 1819 of 2016, the general term of firmness of tax returns is 3 years from the date of
expiration or from the date of its presentation, when you are having been presented extemporaneously. The term of firmness is 6 years when there are obligations regarding transfer pricing.
With respect to those declarations in which balances are presented in favor, the term of firmness is 3 years, from the date of the submission
of the return or compensation request.
Regarding those tax returns in which fiscal losses are compensated, the firmness corresponds to the
same term that the taxpayer has to compensate it, that is, 12 years. This term extends from the date of compensation for another 3 years in relation to the statement in which said loss was settled.
From 2019 and with the entry into force of law 1943 of 2018, the extension of the firmness of 3 additional years for compensation of tax losses
is eliminated.
Other Aspects
Dividend Tax
On
the profits generated from 2017, the tax on dividends applies to foreign companies and entities.
The rate of this tax for dividends
distributed to foreign companies and entities until 2018 was 5% (which is collected through the withholding mechanism at the source) in the event that dividends come from profits that were not subject to taxation at the level of society. Otherwise,
that is, the profits have not been subject to taxation at the company level, the dividend will be taxed with income tax at a rate of 35%. In this scenario, the 5% dividend tax applies to the amount of the taxed distribution, once it has been reduced
with the income tax at the rate of 35%.
Law 1943 of 2018 established that, as of January 1, 2019, dividends and participations paid
or credited to accounts from distributions made between Colombian companies, are subject to a withholding tax at source of dividend tax at a 7.5% rate. On the other hand, if the profits charged to which dividends were distributed were not subject to
taxation at the company level, said dividends are taxed with the applicable income tax in the distribution period (2019 year applicable rate 33% ). In this case, the withholding of 7.5% will apply to the value of the dividend once it has been
reduced with the income tax (33% for the year 2019).
The withholding fee of 7.5% will be caused only in the first distribution of
dividends between Colombian companies and may be credited against the tax on dividends once paid by the resident natural shareholder or the investor resident abroad.
F-121
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
It should be noted that the 7.5% withholding does not apply to: (i) Colombian Holding
Companies, including decentralized entities; and (ii) entities that are part of a duly registered business group, in accordance with commercial regulations.
Equity Tax
Law
1943 of 2018, created from 2019 the new estate tax, in charge of natural persons and illiquid inheritance with residence or without residence in the country and foreign companies and entities not declaring income in Colombia, who own goods in
Colombia , other than stocks, accounts receivable, and portfolio investments. Nor will foreign companies or entities that do not declare income tax that sign financial lease agreements with entities resident in Colombia be taxable. The generating
event was the possession at January 1, 2019 of a liquid assets equal to more than $5,000 million pesos.
Presumptive
Income
Until the taxable year 2019, the taxpayers liquid income cannot be less than 3.5% of their liquid assets, on the last
day of the immediately previous taxable year.
Transfer Pricing
The taxpayers of the income tax that carry out operations with economic associates or related parties from abroad, are obliged to determine,
for purposes of income tax, their ordinary and extraordinary income, their costs and deductions, their assets and liabilities, considering for these operations the prices and profit margins that would have been used in operations comparable to or
between economically unrelated.
F-122
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
A reconciliation between tax expense and the product of accounting profit multiplied by
domestic tax rate for the years ended December 31, 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2019
|
|
|
Year ended
December 31, 2018
|
|
|
Year ended
December 31, 2017
|
|
Net (loss) profit for the year
|
|
|
|
|
|
$
|
(893,995
|
)
|
|
|
|
|
|
$
|
1,143
|
|
|
|
|
|
|
$
|
82,032
|
|
Total income tax expense
|
|
|
|
|
|
|
23,983
|
|
|
|
|
|
|
|
20,213
|
|
|
|
|
|
|
|
20,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) profit before income tax
|
|
|
|
|
|
$
|
(870,012
|
)
|
|
|
|
|
|
$
|
21,356
|
|
|
|
|
|
|
$
|
102,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax at Colombian statutory rate
|
|
|
33
|
%
|
|
|
(287,104
|
)
|
|
|
37
|
%
|
|
|
7,902
|
|
|
|
40
|
%
|
|
|
40,856
|
|
Productive fixed assets special deduction
|
|
|
0
|
%
|
|
|
|
|
|
|
(267
|
%)
|
|
|
(57,229
|
)
|
|
|
(45
|
%)
|
|
|
(45,868
|
)
|
Permanent differences (1)
|
|
|
(16
|
%)
|
|
|
136,798
|
|
|
|
(391
|
%)
|
|
|
(83,458
|
)
|
|
|
139
|
%
|
|
|
141,508
|
|
Nondeductible taxes
|
|
|
0
|
%
|
|
|
(167
|
)
|
|
|
16
|
%
|
|
|
3,413
|
|
|
|
3
|
%
|
|
|
3,124
|
|
Effect of tax exemptions and tax rates in foreign jurisdictions
|
|
|
(1
|
%)
|
|
|
8,974
|
|
|
|
125
|
%
|
|
|
26,699
|
|
|
|
(118
|
%)
|
|
|
(120,797
|
)
|
Non recognized deferred tax assets
|
|
|
(9
|
%)
|
|
|
82,362
|
|
|
|
(545
|
%)
|
|
|
(116,362
|
)
|
|
|
(142
|
%)
|
|
|
(144,965
|
)
|
Losses of tax reversion
|
|
|
0
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
185
|
%
|
|
|
188,640
|
|
Exchange rate differences
|
|
|
(10
|
%)
|
|
|
82,596
|
|
|
|
(1066
|
)%
|
|
|
227,692
|
|
|
|
(49
|
%)
|
|
|
(49,595
|
)
|
Prior year adjustments
|
|
|
0
|
%
|
|
|
(36
|
)
|
|
|
(6
|
%)
|
|
|
(1,245
|
)
|
|
|
0
|
%
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
9
|
%
|
|
|
9,498
|
|
Changes in tax rates
|
|
|
0
|
%
|
|
|
560
|
|
|
|
60
|
%
|
|
|
12,801
|
|
|
|
(2
|
%)
|
|
|
(2,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
%)
|
|
$
|
23,983
|
|
|
|
95
|
%
|
|
$
|
20,213
|
|
|
|
20
|
%
|
|
$
|
20,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This item includes various permanent differences that are
non-deductible expenses for the purposes of corporate income tax in Colombia. Consequently, they are necessary for reconciliation between nominal and effective tax rates. These other permanent differences
include items such as the consolidation of special purpose entities and losses of property, plant and equipment.
|
c)
Subsidiaries Investments
During the year ended as December 31, 2019 Avianca S.A. and Tampa Cargo S.A. are the dominant companies
in their subsidiaries and are able to control the future moment in which the temporary difference related to their investments in such subsidiaries can be reversed and additionally these arent expected to reverse predictable future.
Consequently, and in accordance with the exception permitted by paragraphs 39 and 44 of IAS 12, deferred tax liabilities with respect to temporary differences of investments in subsidiaries, were not recognized for a value of $237 million as of
December 31, 2019, for the year 2018 this figure amounted to $60 million.
F-123
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
d) Tax Credits
As of December 31, 2019, and 2018, the following is the detail of the tax loss carryforwards and excesses of presumptive income of the
Company that have not been used and for which no deferred tax asset has been recognized:
Tax losses originated in the year:
|
|
|
|
|
2015
|
|
$
|
4,347
|
|
2016
|
|
|
19,756
|
|
2017
|
|
|
104,874
|
|
2018
|
|
|
167,241
|
|
2019
|
|
|
200,824
|
|
|
|
|
|
|
Total:
|
|
$
|
497,042
|
|
|
|
|
|
|
Excess of presumptive income originated in the year:
|
|
|
|
|
Year 2016
|
|
$
|
8,424
|
|
Year 2017
|
|
|
1,260
|
|
Year 2018
|
|
|
356
|
|
|
|
|
|
|
Total:
|
|
$
|
10,040
|
|
|
|
|
|
|
The Group has deferred tax asset corresponding to the aforementioned tax losses for $151. However, according
to the Companys financial projections no tax income will be generated for the next 5 years to allow the compensation of the deferred tax assets. Therefore, said deferred tax assets has only been recognized by an amount up to the concurrence of
deferred tax liabilities, according to IAS12 paragraph 35.
e) Deferred tax by type of temporary difference:
The differences between the carrying value of assets and liabilities and the tax bases, lead to temporary differences that generate deferred
taxes, calculated and registered in the periods December 31, 2019 and 2018 applying the tax rate for the taxable year in which those temporary differences will be reversed.
F-124
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Below is an analysis of the deferred tax assets and liabilities of the Group:
Consolidated statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Variation
|
|
Assets (liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
44,939
|
|
|
$
|
88,920
|
|
|
$
|
(43,981
|
)
|
Deposits and other assets
|
|
|
|
|
|
|
(11,481
|
)
|
|
|
11,481
|
|
Aircraft maintenance
|
|
|
(8,727
|
)
|
|
|
(3,573
|
)
|
|
|
(5,154
|
)
|
Pension liabilities
|
|
|
10,599
|
|
|
|
3,089
|
|
|
|
7,510
|
|
Provisions
|
|
|
24,330
|
|
|
|
19,037
|
|
|
|
5,293
|
|
Loss carry forwards
|
|
|
5,333
|
|
|
|
603
|
|
|
|
4,730
|
|
Non-monetary items
|
|
|
(36,626
|
)
|
|
|
(49,343
|
)
|
|
|
12,717
|
|
Intangible assets
|
|
|
(7,061
|
)
|
|
|
(8,220
|
)
|
|
|
1,159
|
|
Other
|
|
|
(24,092
|
)
|
|
|
(32,896
|
)
|
|
|
8,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets / (liabilities)
|
|
$
|
8,695
|
|
|
$
|
6,136
|
|
|
$
|
2,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reflected in the statement of financial position as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Variation
|
|
Deferred tax assets
|
|
$
|
27,166
|
|
|
$
|
24,573
|
|
|
$
|
(2,593
|
)
|
Deferred tax liabilities
|
|
|
(18,471
|
)
|
|
|
(18,437
|
)
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities) net
|
|
$
|
8,695
|
|
|
$
|
6,136
|
|
|
$
|
(2,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with paragraph 74 of IAS 12, the Group has compensated the deferred tax assets and liabilities
for presentation purposes in the statement of financial position. The impact of this application, in consideration of the quantitative analysis and economic facts involved, does not significantly alter and is not relevant regarding to the statement
of financial position.
F-125
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Reconciliation of deferred tax assets net
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Opening balance as of January 1,
|
|
$
|
6,136
|
|
|
$
|
155
|
|
Tax income during the period recognized in profit or loss
|
|
|
2,492
|
|
|
|
6,938
|
|
Tax income during the period recognized in other comprehensive income
|
|
|
441
|
|
|
|
(39
|
)
|
Exchange differences
|
|
|
(374
|
)
|
|
|
(918
|
)
|
|
|
|
|
|
|
|
|
|
Closing balance as of December 31
|
|
$
|
8,695
|
|
|
$
|
6,136
|
|
|
|
|
|
|
|
|
|
|
The Groups companies prepared transfer-pricing studies regarding their transactions within and between enterprises under common ownership
or control during fiscal year 2018. There were no adjustments to taxable income or deductible expenses that affected the Group, due to these studies. Although the Group is currently working on the transfer pricing studies for 2019, we dont
anticipate any significant changes in contrast with fiscal year 2018.
|
g)
|
Position for uncertain tax uncertainties
|
For the consolidated financial statements as of December 31, 2019 and 2018, the tax positions adopted in the declarations still subject to
review by the Tax Authority have been analyzed, in order to identify uncertainties associated with a difference between such positions and those of the Tax Administration. According to the evaluations carried out, no facts have been identified that
lead to the registration of additional provisions for this concept.
|
(32)
|
Provisions for legal claims
|
As of December 31, 2019 and 2018 the Group is involved in different lawsuits and legal actions that arise in the development of commercial
activities.
The changes in provisions for litigation as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Balances at the beginning of the period
|
|
$
|
7,809
|
|
|
$
|
11,720
|
|
Provisions constituted
|
|
|
21,208
|
|
|
|
2,034
|
|
Provisions reverse
|
|
|
(6,537
|
)
|
|
|
(5,007
|
)
|
Provisions used
|
|
|
(2,236
|
)
|
|
|
(938
|
)
|
|
|
|
|
|
|
|
|
|
Balances at the end of the period
|
|
$
|
20,244
|
|
|
$
|
7,809
|
|
|
|
|
|
|
|
|
|
|
F-126
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Among the provisions for litigation are those related to labor processes (December 31, 2019:
$6,413, December 31, 2018: $3,695), consumer protection processes (December 31, 2019: $4,101, December 31, 2018: $1,133) and civil processes (December 31, 2019: $766, December 31, 2018: $795).
Certain proceedings are considered possible obligations. Based on the plaintiffs claims, as of December 31, 2019 and
December 31, 2018, these contingencies amount to a total of $206,382 and $123,216 respectively. Certain losses which may result from those proceedings will be covered either by insurance companies or with funds provided by third parties. The
proceedings that will be settled using the aforementioned forms of payment are estimated $28,174 as of December 31, 2019 and $56,210 as of December 31, 2018.
In accordance with IAS 37, the legal claims that the Group considers representing a remote risk are not contemplated in the consolidated
financial statements.
Current Situation with Oceanair Linhas Aereas S.A.
On December 10, 2018 Oceanair Linhas Aereas S.A. (See Note 10-Balances and transactions with
related parties) and AVB Holdings S.A., both separate related companies not integrated with the Group, filed for a judicial recovery request before the 1st Judicial Recovery and bankruptcy court of Sao Paulo, Brazil.
The Group has formally requested the termination and redelivery of four aircraft in compliance with the terms and conditions set forth in each
of the sublease agreements.
The parties agreed to finish four subleased aircraft Sublease Agreements (1 A330, 1A330F and 2 A319) in
February 2019 the first two in August 2019 the third, and the four in November 2019. To date, the aircrafts are in the custody of Avianca.
As of December 31, 2019, the two Airbus A319 aircraft are classified as assets held for sale.
Internal investigations to determine whether we may have violated the U.S. Foreign Corrupt Practices Act and other laws
In August 2019, the Group disclosed that it had discovered a business practice at the Group whereby Group employees, including members of
senior management, as well as certain members of the board of directors, provided things of value, which based on its current understanding have been limited to free and discounted airline tickets and upgrades, to government employees in
certain countries. The Group commenced an internal investigation, supervised by the Audit Committee, and retained reputable outside counsel and a specialized forensic investigatory firm to determine whether this practice may have violated the FCPA
or other potentially applicable U.S. and non-U.S. anti-corruption laws. In 2018, the Group implemented certain revisions to its policies designed to prevent such practice from occurring, including limiting the
number of persons at the Group who are authorized to issue free and discounted airline tickets and upgrades, and
F-127
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
requiring additional internal approvals. On August 13, 2019, the Group voluntarily disclosed this investigation to both the U.S. Department of Justice and the SEC, and, subsequently, to the
Colombian Financial Superintendence.
Also, in February 2020, the Office of the Attorney General of Colombia served Avianca with a search
warrant of its offices with the objective of collecting information related to this investigation. As has been its practice, Avianca has cooperated and will continue to cooperate with all pertinent authorities. Avianca will provide the information
being requested to the Office of the Attorney General of Colombia, while exercising its legal rights to ensure that its confidential and privileged information remains protected.
The U.S. and Colombian government inquiries described above, related inquiries and developments in other countries, and the Groups
internal investigations are continuing. Any action in these or related inquiries, proceedings or other developments, or any agreement the Group enters into to settle the same, may result in substantial fines, reputational harm and other sanctions
and adverse consequences. Based upon the opinion of its outside counsel, the Group believes that there is no adequate basis at this time for estimating accruals or quantifying any contingency with respect to these matters.
Internal Investigation regarding potential impacts at the group due to corrupt business practices at Airbus
In January 2020, our primary aircraft supplier Airbus entered into a settlement with authorities in France, the United Kingdom and the United
States regarding corrupt business practices. Airbus settlement with French authorities references a possible request by an Avianca senior executive in 2014 for an irregular commission payment, which was ultimately not made. As a
result of this development, we have voluntarily initiated an internal investigation to analyze our commercial relationship with Airbus and to determine if we have been the victim of any improper or illegal acts. We have disclosed this internal
investigation to the U.S. Department of Justice and the SEC, as well as the Superintendence of Industry and Commerce and the Colombian Office of the Attorney General. We are cooperating with all agencies. Our internal investigations are not complete
and we cannot predict the outcome of these internal investigations or what potential actions may be taken by the U.S. Department of Justice, the SEC or local regulators or officials. If it is found that these business practices violated the FCPA or
other similar laws applicable to us, or we were at any time not in compliance with any other laws governing the conduct of our business, we could be subject to criminal and civil remedies, including sanctions, monetary penalties and regulatory
actions, which could materially and adversely affect us.
Review of potential inadvertent violations of the U.S. Cuban Assets
Control Regulations
In September 2019, the Group disclosed that it had become aware that it had become subject to U.S.
jurisdiction for purposes of certain U.S. sanctions laws and regulations administered by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury. This jurisdictional nexus was established as a result of the transfer, on
November 9, 2018, by the Groups parent company, Synergy Aerospace Corp. (Synergy), of approximately 78% of the Groups voting common shares (Share Transfer) from a Panama based company to a Delaware limited liability company
wholly-owned by Synergy (BRW). Synergy had formed BRW and effected the Share Transfer unilaterally in connection with BRW obtaining a loan from United Airlines. Having become aware
F-128
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
that as a consequence of the ownership change the Group is considered a person subject to U.S. jurisdiction under certain of OFACs sanctions programs, the Group engaged outside counsel to
conduct a review aimed at identifying any potential violations of U.S. sanctions regulations. As a result of this review, the Group identified that the regularly scheduled commercial passenger flights between cities in Central and South America and
Havana, Cuba and related Cuba operations that it has historically conducted may have constituted inadvertent violations of the U.S. Cuban Assets Control Regulations (CACR) during the period following the Share Transfer. During the period beginning
on the date of the Share Transfer and ending on September 30, 2019, such flights to and from Havana, Cuba comprised an inconsequential amount of the Groups gross revenues. On September 25, 2019, the Group submitted to OFAC a
preliminary voluntary self-disclosure addressing such potential inadvertent violations, followed by more detailed full narrative voluntary self-disclosures submitted on October 4, 2019, and November 25, 2019. OFAC is currently reviewing
these voluntary self-disclosures. In concert with these voluntary disclosures, the Group commenced the termination of all of its Cuba-related activities. As of to date of issuance of these consolidated financial statements, the Group no longer
operates any flights to Cuba, nor does the Group sell any passenger or cargo tickets involving Cuba (including via its codeshare and interline partners). The Group no longer maintains a physical presence in Cuba and has issued termination notices
for all of its legacy Cuba-related contracts and employees (for example, ground services, ticket sales, and other services in Cuba that supported the Companys now-terminated Cuba passenger flights). The
Group has kept OFAC apprised of these actions and remains in communication with OFAC concerning the Groups voluntary self-disclosures and the termination of the Companys Cuba-related activities. Based on the above, the Group believes
that there is no adequate basis at this time for estimating accruals or quantifying any contingency with respect to these matters.
In
light of the above, the Group has embarked on a comprehensive effort to improve and expand its compliance program worldwide, including enhancements to the Groups existing sanctions screening processes, implementation of a comprehensive
sanctions compliance program, and sanctions training for key Group employees.
|
(33)
|
Future aircraft leases payments
|
The Group has 100 aircraft that are under financial leasing. The following is the summary of future financial lease commitments:
|
|
|
|
|
|
|
Aircraft
|
|
Less than one year
|
|
$
|
394,379
|
|
Between one and five years
|
|
|
1,221,111
|
|
More than five years
|
|
|
717,693
|
|
|
|
|
|
|
|
|
$
|
2,333,183
|
|
|
|
|
|
|
F-129
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Group has 58 aircraft that are under operating leases, of which 1 aircraft is leased
under wet lease for approximately 2 months and the others 57 aircraft have an average lease term of 62 months. Operating leases can be renewed, in accordance with the administrations business plan. The following is the summary of the future
commitments of operating leases:
|
|
|
|
|
|
|
Aircraft
|
|
Less than one year
|
|
$
|
266,135
|
|
Between one and five years
|
|
|
856,655
|
|
More than five years
|
|
|
317,642
|
|
|
|
|
|
|
|
|
$
|
1,440,432
|
|
|
|
|
|
|
(1)
|
As of January 1, 2019, as a result of the adoption of IFRS 16, the leases that are legally denominated
operative are recorded in the consolidated statement of financial position as part of ownership of plant and equipment-flight equipment as well as the recognition of the related financial liability that represents the present value of the minimum
payments of the lease contract. (see note 4).
|
The Group has 9 engines under an operating lease contract for its aircraft
fleet of the E190 and A320 families. The following is the summary of the future commitments of operating leases:
|
|
|
|
|
|
|
Engines
|
|
Less than one year
|
|
$
|
9,833
|
|
Between one and five years
|
|
|
25,590
|
|
More than five years
|
|
|
4,663
|
|
|
|
|
|
|
|
|
$
|
40,086
|
|
|
|
|
|
|
In the year 2019, the Group finished the aircraft operating lease agreements with Oceanair Linhas Aéreas
S.A. As of December 31, 2019, the Group had two E-190 to Aerolitoral, S.A. de C.V. Future minimum income from these lease agreements is as follows:
|
|
|
|
|
|
|
Aircraft
|
|
Less than one year
|
|
$
|
2,485
|
|
|
|
|
|
|
|
|
$
|
2,485
|
|
|
|
|
|
|
During the year ended by December 31, 2019, Avianca Holdings S.A. extended 16 A320, 4 A321 and 2 A330
operating leases, signed 3 A320neo Operating Lease Agreements 1 A300F was destroyed (damages) and sold 10 financial A318, 2 financial A320 and 2 owned A320. Avianca Holdings S.A. also signed a B797-9 Operative
Lease Agreement in 2019.
F-130
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The amount of recognized payments has expenses during ended December 31, 2019, 2018 and
2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Leases minimum payments
|
|
$
|
11,762
|
|
|
$
|
267,708
|
|
|
$
|
278,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34)
|
Acquisition of aircraft
|
The Groups contractual obligations reflecting aggregate aircraft and engine purchase commitments, which include related pre-delivery payments to be made, based on discounted prices negotiated with suppliers under the contracts in effect as of the balance sheet date.
In accordance with the agreements in effect, future commitments related to the acquisition of aircraft and engines as of December 31,
2019, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one
year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
|
Total
|
|
Aircraft and engine purchase commitments
|
|
$
|
364,332
|
|
|
$
|
797,170
|
|
|
$
|
2,570,507
|
|
|
$
|
3,003,541
|
|
|
$
|
6,735,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts disclosed reflect certain discounts negotiated with suppliers as of the consolidated statement of
financial position date, which discounts are calculated on highly technical bases and are subject to multiple conditions and constant variations. Among the factors that may affect discounts are changes in our purchase agreements, including order
volumes. In addition, the amounts and timing of our actual cash disbursements relating to our aircraft and engine purchase commitments may differ due to our right to offset certain obligations with credits we have against suppliers.
In January 6, 2020, we reached agreements with Airbus to optimize our fleet plan as part of our implementation of the Avianca 2021 Plan,
the Group negotiated with Airbus the cancellation of some orders and a significant reduction of its scheduled aircraft deliveries in 2020, 2021, 2022, 2023 and 2024 for delivery in 2025 through 2029, which modifies the advanced payments and aircraft
acquisition as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one
year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
|
Total
|
|
Aircraft and engine purchase commitments
|
|
$
|
10,913
|
|
|
$
|
74,538
|
|
|
$
|
524,567
|
|
|
$
|
5,090,109
|
|
|
$
|
5,700,127
|
|
The Group plans to finance the acquisition of the commitments acquired with the resources generated by the
Group and the financial operations that can be formalized with financial entities and aircraft leasing companies.
F-131
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
The Group decreed dividends during ended December 31, 2019, based on the retained earnings as of December 31, 2018, and dividends
were decreed by the Group during ended December 31, 2018, based on retained earnings as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Dividends decreed
|
|
|
|
|
|
|
|
|
Dividend - Ordinary shared
|
|
$
|
9,862
|
|
|
$
|
23,433
|
|
Dividend - Preferred shared
|
|
|
5,523
|
|
|
|
12,075
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,385
|
|
|
$
|
35,508
|
|
|
|
|
|
|
|
|
|
|
The General Shareholders Meeting of Avianca Holdings S.A. at an ordinary session on March 22, 2019, agreed
distribution of profits for the year 2018 as dividend to the shareholders preferent and ordinary of the Group that will be paid the amount of COP$50 (Preferred shared) and COP$46 (Ordinary shared) per share, respectively. The dividends decreed were
paid on May 24, 2019 by the amount of COP$16 and COP$3 per share, August 23, 2019 COP$16 and COP$3 per share and September 20, 2019 COP$18 and COP$40 per share, respectively.
The decree of dividends was made with a TRM of COP $3,082.45. The payment of the dividends was made to the corresponding TRM on the date on
which the transaction was made.
The General Shareholders Meeting of Avianca Holdings S.A. at an ordinary session on March 16, 2018,
agreed the project for the distribution of profits for the year 2017 as dividend to the shareholders of the Group that were paid the amount of COP$98.6 per share. The dividends declared were paid in four equal installments of COP$24.65 per share, on
June 29, July 31, August 31 and September 28, 2018.
Dividends declared and paid to minority shareholding
During the year ended December 31, 2019 and, 2018, the subsidiaries with minority interest, declared and paid dividends as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Subsidiaries
|
|
Minority
Interest
|
|
|
AVH
Participation
|
|
|
Total
Dividends
|
|
|
Minority
Interest
|
|
|
AVH
Participation
|
|
|
Total
Dividends
|
|
LifeMiles Ltd (1) (2)
|
|
$
|
36,000
|
|
|
$
|
84,000
|
|
|
$
|
120,000
|
|
|
$
|
61,500
|
|
|
$
|
143,500
|
|
|
$
|
205,000
|
|
Turbo Prop Leasing Corp (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
596
|
|
|
|
1,265
|
|
|
|
1,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,000
|
|
|
$
|
84,000
|
|
|
$
|
120,000
|
|
|
$
|
62,096
|
|
|
$
|
144,765
|
|
|
$
|
206,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The dividends received for AVH are eliminated in consolidation process.
|
F-132
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
(2)
|
As of December 31, 2019, there arent outstanding balances payable for dividends for minority
interest. As of December 31, 2018, it is pending payment to the minority interest of LifeMiles (Advent) for $6,000.
|
As of December 31, 2019, we have overdue payments of the debt associated with the ATR 72 fleet, as indicated in Note 16- Long-term debt Non-compliance debt, which affects the debt related to the Cross Default E-190 fleet to the
amount of $55,977. This total debt is classified as a short term in the Debt Assets held for sale.
On February 21, 2020, the
total payment of the debt associated with E190 fleet was realized, as a result of the sale of the associated aircraft. Therefore, as of the issue date of these financial statements, we have remedied this default.
Special charges include expenses associated with the organizational transformation plan, called Avianca 2021, which seeks to
strengthen the companys competitiveness and accelerate the financial adjustments necessary to ensure its sustainability.
The
Avianca 2021 started in 2019 and is expected to be completed by 2021.
The fundamental pillars of the transformation plan are:
|
|
|
Operating efficiency. Since November 2018, the Group began a systematic effort to improve punctuality indicators.
Changes will continue to be made in itineraries, routes, schedules and frequencies and, working with the aeronautical authority, to achieve a simpler operation and provide a better service to its customers.
|
|
|
|
Fleet plan adjustment: Renegotiation of the agreement with the Airbus manufacturer was achieved, which consists
in the cancellation of 37 aircraft and the postponement of the incorporation of aircraft, generating a reduction of $3.3 billion in financial commitments and committed payments were postponed between 2020 and 2024 for $5.1 billion to be
made from 2025 onwards.
|
|
|
|
Divestment of non-strategic assets: It seeks to focus the efforts of the
holding company on passengers, cargo and loyalty; therefore, it has been decided to divest certain assets, among which are:
|
|
|
|
Sale of flight simulators to CAE (see note 15),
|
|
|
|
Sale of participation in Aerotaxis La Costeña and Turboprop Leasing (see note 1),
|
F-133
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
Sales plan fleet, ten Embraer 190, ten Airbus A318, two Airbus A319, sixteen Airbus A320, four Airbus A321, 2
Airbus A330 and 1 Airbus A330F. (See note 15).
|
Special charges in the consolidated statement of income consisted of the
following for the twelve months ended December 31, 2019:
|
|
|
|
|
|
|
Year ended
December 31, 2019
|
|
Aircraft impairment (1)
|
|
$
|
469,586
|
|
Loss on sale of subsidiaries (2)
|
|
|
40,467
|
|
Impairment of Venezuela assets (6)
|
|
|
14,867
|
|
Fees and others (3)
|
|
|
62,274
|
|
Staff Settlement agreement (4)
|
|
|
17,900
|
|
Gain in sale of simulators (5)
|
|
|
(5,970
|
)
|
|
|
|
|
|
Total
|
|
$
|
599,124
|
|
|
|
|
|
|
(1)
|
Corresponds to the value of the impairment loss recognized at the moment of reclassify the aircraft that have
been determined as available for sale ($455,794) 10 E190, 10 A318, 2 A319, 16 A320, 4 A321, 2 A330 and 1 A330F, given that the net book value of said aircraft compared to the value expected sale less sale cost, was lower. (See note 13 and 15). This
amount is included on Depreciation, amortization and impairment of the income statement.
|
Additional
($10,098) for maintenance on aircraft for delivery and loss on assets sale by ($3,694). This amount is included on Maintenance and repairs of the income statement.
(2)
|
Corresponds to the value of the loss recognized by the share sale of AVH in Aerotaxis la Costeña and
Turboprop Leasing. ($5,487) (See note 1). Additionally, impairment of the account receivable assigned by Grupo Aeromar S.A. de CV to Chelsea Securities, S.A., originated in a potential investment of the AVH Group in the Mexican market, a decision
that was not approved ($34,980). These amounts are included on Fees and other expenses of the income statement.
|
(3)
|
Includes expenses of financial and legal advice for structuring the transformation plan. This amount is
included on Fees and other expenses of the income statement.
|
(4)
|
Includes the values related to compensation to employees that have been removed, as a result of the
organizational restructuring plan Avianca 2021. Estimated cash outflow that is expected to be carried out in 2020 is for $12,750. This amount is included on Salaries, wages and benefits of the income statement.
|
F-134
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
(5)
|
Corresponds to the value of the gain on sale of simulators to CAE International, made in January 2019 by
$5,970. This amount is included on Cargo and other of the income statement.
|
(6)
|
The Group recognized an impairment of the Venezuela operations of ($14,867). The impairment is caused by the
deterioration of the political-economic situation and is an immaterial correction of an error, which should have been recorded in a prior year. In the year 2019, the process of intention to sell these offices was reactivated. This amount is
presented as an element of Impairment in the income statement.
|
Aircraft Sale
As of December 31, 2019, the Group have 15 aircraft (11 Airbus A320 and 4 Airbus A321) as assets held for sale, which they planned to
execute sale and leaseback agreements for during 2020. From January 2020 to the date of issuance of these financial statements, sale and leaseback agreements of 9 aircraft have been executed, with the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
|
|
Asset held for
sale
|
|
|
Previous
debt
|
|
|
Sale price
|
|
|
Net cash
|
|
|
Net gain
(loss)
|
|
|
Asset right
of use
|
|
|
Debt by
right of use
|
|
A320
|
|
$
|
264,921
|
|
|
$
|
92,319
|
|
|
$
|
263,293
|
|
|
$
|
170,974
|
|
|
$
|
4,180
|
|
|
$
|
197,707
|
|
|
$
|
191,899
|
|
Additionally, from January, 2020 to the date of issuance of this report, the Group sold 10 aircraft Embraer
E190, with the followings effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
|
|
Asset held for
sale
|
|
|
Previous
debt
|
|
|
Sale price
|
|
|
Net cash
|
|
|
Net gain
(loss)
|
|
E-190
|
|
$
|
59,611
|
|
|
$
|
52,840
|
|
|
$
|
64,856
|
|
|
$
|
12,016
|
|
|
$
|
5,245
|
|
Spare parts
|
|
|
3,716
|
|
|
|
|
|
|
|
3,360
|
|
|
|
3,360
|
|
|
|
(356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63,327
|
|
|
$
|
52,840
|
|
|
$
|
68,216
|
|
|
$
|
15,376
|
|
|
$
|
4,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-135
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Also, at the date of issuance of this report, the Group sold 2
A300-200 aircraft, with the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
|
|
Carrying amount
|
|
|
Sale price
|
|
|
Net gain
|
|
A-300-200
|
|
$
|
404
|
|
|
$
|
1,651
|
|
|
$
|
1,247
|
|
COVID-19, Subsequent Chapter 11 Filing and Insolvency of
Avianca Peru
The World Health Organization declared COVID-19 a pandemic and, in
March 2020, governments around the world, including those of the United States, Colombia and most Latin American countries, declared states of emergency in their respective jurisdictions and implemented measures to halt the spread of the virus,
including enhanced screenings, quarantine requirements and severe travel restrictions.
Following orders by the governments of Colombia and
of other countries in which we operate, we have temporarily ceased international passenger operations to and from Colombia, ceased all Colombian domestic passenger flight operations and cancelled all passenger flights to and within Peru, El Salvador
and Ecuador. As a result of these measures, substantially all of our passenger flights have been cancelled and our corresponding fleet has been grounded.
In addition to reducing capacity, in order to mitigate the effects of these developments, we implemented additional cost savings and liquidity
preservation measures, including temporary deferral of non-essential expenses, capital expenditures and labor contracts, as well as a suspension on hiring of new employees, an implementation of voluntary unpaid leave of absence and temporary salary
reductions, which have resulted in a reduction of approximately 34% in salary wages and benefits expenses year to date, as compared to the same period in 2019.
Additionally, Avianca has cut all non-essential capital expenditures, and has temporarily deferred payments on its long-term leases and on
payment of principal on certain loan obligations. Avianca is actively seeking mutually satisfactory agreements with its key suppliers, strategic lenders and other creditors to address the current scenario.
The spread of COVID-19 and the government measures taken to address it have already had a material and adverse effect on the airline industry
and on us and have resulted in unprecedented revenue and demand drop as well as overall macroeconomic uncertainty. As of the date of this report, Avianca Holdings passenger revenues have decreased 51% year to date, as compared to the same period in
2019.
We cannot foresee or quantify the final extent of the impact of COVID-19 on our operational and financial performance, which will
depend on developments relating to the spread of the outbreak, the duration and extent of quarantine measures and travel restrictions and the impact on overall demand for air travel, all of which are highly uncertain and cannot be predicted.
As a result of the aforementioned adverse developments, in order to preserve and reorganize our businesses, Avianca Holdings S.A. and certain
of its affiliated entities filed, on May 10, 2020, voluntary petitions for Chapter 11 relief under title 11 of the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the Southern District of New York,
which cases are being jointly administered under Case No. 20-11133 (MG). LifeMiles, Aviancas loyalty program, is administered by a separate company and is not part of the Chapter 11
filing.
F-136
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
Through the Chapter 11 reorganization process, Avianca intends to:
|
|
|
Protect and preserve operations so Avianca can continue to operate and serve customers with safe and reliable air
travel, under the strictest biosafety protocols, as COVID-19 travel restrictions are gradually lifted;
|
|
|
|
Ensure connectivity and drive investment and tourism by continuing as Colombias flagship airline, serving
over 50% of the domestic market in Colombia and providing essential non-stop service across South America, North America and European markets as well as continuing cargo operations, playing a key role in the
economic recovery of Colombia and the Companys other core markets following the COVID-19 pandemic;
|
|
|
|
Preserve jobs in Colombia and other markets where the Company operates, with Avianca directly responsible for
more than 21,000 jobs throughout Latin America, including more than 14,000 in Colombia, and working with more than 3,000 vendors; and
|
|
|
|
Restructure the Companys balance sheet and obligations to enable Avianca to navigate the effects of the COVID-19 pandemic as well as comprehensively address liabilities, leases, aircraft orders and other commitments.
|
As a consequence of our filing Chapter 11 petitions, our operations and our ability to develop and execute our business plan, as well as our
continuation as a going concern, will be subject to the risks and uncertainties associated with bankruptcy. These risks include our ability to:
|
|
|
to comply with the terms and conditions of the cash management order entered by the bankruptcy court in
connection with our Chapter 11 proceedings,
|
|
|
|
to maintain adequate cash on hand,
|
|
|
|
to generate cash flow from operations, which depends largely on factors beyond our control relating to
developments deriving from the spread of COVID-19,
|
|
|
|
confirm and consummate a plan of reorganization with respect to our Chapter 11 proceedings;
|
|
|
|
obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence,
as well as comply with the terms and conditions of that financing;
|
F-137
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
|
|
maintain our relationships with our creditors, suppliers, service providers, customers, directors, officers and
employees; and
|
|
|
|
maintain contracts that are critical to our operations on reasonably acceptable terms and conditions.
|
|
|
|
the high costs of bankruptcy proceedings and related fees;
|
|
|
|
the ability of third parties to seek and obtain court approval to (i) terminate contracts and other
agreements with us, (ii) shorten the exclusivity period for us to propose and confirm a Chapter 11 plan or to appoint a Chapter 11 trustee or (iii) convert the Chapter 11 proceedings to Chapter 7 liquidation proceedings; and
|
|
|
|
the actions and decisions of our creditors and other third parties who have interests in our Chapter 11
proceedings that may be inconsistent with our plans.
|
Any delays in our Chapter 11 proceedings increase the risks of our
inability to reorganize our business and emerge from bankruptcy and may increase our costs associated with the reorganization process.
Further, on May 18, 2020, we announced to the market that, following a general shareholders meeting of Avianca Peru, the board of
directors of Avianca Peru agreed to terminate its operations and begin a voluntary dissolution and liquidation process under local Peruvian law in order to preserve and protect our businesses in the face of the
COVID-19 crisis. In the future, we expect to continue to serve routes to and from Peru through our airlines in Colombia, El Salvador and Ecuador, once government flight restrictions permit us to do so.
Because of the many risks and uncertainties associated with a voluntary filing for relief under Chapter 11 and the related proceedings, we
cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 proceedings may have on us and there is no certainty as to our ability to continue as a going concern.
Notwithstanding the above, as a result of the chapter 11 process, we can anticipate the potential qualitative effects on the following line
items of our financial statements:
|
|
|
Property and equipment: Avianca filed a motion to reject the leases for 14 aircraft. However, after subsequent
negotiations with certain of its lessors, on May 19, 2020, Avianca and its filing subsidiaries revised the list of rejected leases and reduced it to 12
|
F-138
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Consolidated Financial
Statements
(In USD thousands)
|
aircraft. The rejection motion is still subject to approval by the Court and is scheduled to be discussed at a hearing currently scheduled for June 11, 2020. Avianca continues its
discussions with the applicable aircraft financing counterparties while it evaluates all available options with respect to Avianca and its filing subsidiaries fleet.
|
The negotiations with the lessors may impact our recognition of ROU as well as affect our estimates for provisions for Aircraft return
conditions.
Further, assets held for sale will have to be reviewed since scheduled sales of certain aircraft had not been closed before
the companys filing for chapter 11.
|
|
|
Goodwill Impairment: The spread of the COVID 19 pandemic could have lasting effects on the demand environment for
Air traffic and potentially result in significant adjustments to our business plan, which could adversely affect projections for recoverable amounts and valuations for goodwill.
|
|
|
|
Air Traffic liability: Typically unused tickets expire after one year, and any revenue associated with tickets
sold for future travel is recognized within 12 months. In response to COVID-19, Avianca is providing its customers with the option to receive a travel voucher that extends the expiration date of certain
tickets. As such, any revenue associated with these tickets will not be recognized until the new flight date. Additionally, given this change in travel schedule, Aviancas estimates of revenue from unused tickets may be subject to variability
and differ from historical averages. Finally, the airline industry expects a reduction in the demand for air traffic even after government imposed travel restrictions are lifted, which would adversely affect future sales and revenues.
|
Notification of the removal from listing and registration of the stated securities
On May 12, 2020, the New York Stock Exchange (NYSE) suspended trading of the American Depositary Shares (ADSs) and
requested the Securities and Exchange Commission (SEC) to deregister the ADSs of Avianca Holdings S.A, once certain procedures are finalized. Avianca confirms that, by means of a notice from the NYSE pursuant to Form 25-NSE, all the
conditions precedent to delisting set forth under SEC Rule 12d2-2(b) have been satisfied, the Companys ADSs were deregistered on May 27, 2020, under Section 12 (b) of the Securities Exchange Act of 1934.
****
F-139