UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F/A

Amendment No. 1

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-36142

 

 

AVIANCA HOLDINGS S.A.

(Exact name of registrant as specified in its charter)

 

 

Avianca Holdings S.A.

(Translation of registrant’s name into English)

Republic of Panama

(Jurisdiction of incorporation or organization)

Arias, Fábrega & Fábrega, P.H. ARIFA, Floors 9 and 10, West Boulevard, Santa María Business District

Panama City, Republic of Panama

(+507) 205-6000

(Address of principal executive offices)

Luca Pfeifer

Tel: (57+1) 587 77 00 ext. 7575 • Fax: (57+1) 423 55 00 ext. 2544/2474

Address: Avenida Calle 26 # 59 – 15 P5, Bogotá, Colombia

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol

 

Name of each exchange on which registered

American Depositary Shares (as evidenced by American Depositary Receipts), each representing 8 preferred shares, with a par value of $0.125 per preferred share   AVH   N/A*

 

*

The New York Stock Exchange filed Form 25 with the U.S. Securities and Exchange Commission on May 27, 2020 in order to delist the American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2019:

Common Shares — 660,800,003

Preferred Shares — 340,507,917 (includes 4,320,632 preferred shares held on behalf of the registrant)

 

 

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.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Emerging growth company  

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.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐   International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒   Other  ☐

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  ☐

 

 

 


EXPLANATORY NOTE

This Amendment No. 1 on Form 20-F/A (this “Amendment”) amends the Annual Report on Form 20-F of Avianca Holdings S.A. for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”) on June 11, 2020 (the “Form 20-F”). In the Form 20-F we inadvertently omitted “/s/ KPMG S.A.S.” on the signature line in each of the documents titled “Report of Independent Registered Public Accounting Firm” (the “Audit Reports”) under Item 18 in the report of KPMG S.A.S., and in Exhibit 15.2. The Audit Reports were signed by KPMG S.A.S. and delivered to us prior to the original filing of the Form 20-F, but the conformed signature line was inadvertently omitted from the versions of the Audit Reports included in the filing.

This Form 20-F/A is being filed solely to include the inadvertently omitted conformed signature of KPMG S.A.S. in the Audit Reports relating to the consolidated financial statements and the effectiveness of internal control over financial reporting. In order to comply with certain requirements of the SEC rules in connection with this filing, this Amendment includes Item 18. Financial Statements and Item 19. Exhibits. No other changes were made to the Audit Reports or to the Form 20-F. The consolidated financial statements and notes to consolidated financial statements have remained the same as that previously filed in the Form 20-F.

This Amendment reflects information as of the filing date of the Form 20-F, does not reflect events occurring after that date and does not modify or update in any way disclosures made in the Form 20-F, except as specifically noted above.

Consistent with the rules of the SEC, the certifications of the Company’s principal executive officer and principal financial officer as of the date of this Amendment are attached as exhibits to this Amendment. The only change in these certifications from the certifications of the Company’s principal executive officer and principal financial officer filed as exhibits to the Form 20-F is their date. In addition, the Company is also attaching as Exhibit 101 hereto the Interactive Data File disclosure furnished as Exhibit 101 to the Form 20-F. No changes have been made to the Interactive Data File disclosure furnished as Exhibit 101 to this Amendment from the Interactive Data File disclosure furnished as Exhibit 101 to the Form 20-F.

 

2


Item 18.

Financial Statements

See our audited consolidated financial statements beginning at page F-1.

 

Item 19.

Exhibits

Pursuant to the rules and regulations of the SEC, we have filed the following exhibits to this annual report:

 

Exhibit
Number

  

Item

1.18    English translation of our bylaws, as amended.
2.19    Description of the registrant’s securities registered under Section 12 of the Exchange Act.
2.21    English translation of Temporary Bonus Plan adopted on March 6, 2012.
2.31    Amended and Restated Registration Rights Agreement, dated as of September  11, 2013, among the registrant, Synergy Aerospace Corp. and Kingsland Holdings Limited.
2.48    Second Amended and Restated Registration Rights Agreement, dated November  29, 2018, among the registrant, Kingsland Holdings Limited, Synergy Aerospace Corp., BRW Aviation LLC and United Airlines Inc.
2.51    Joint Action Agreement, dated as of September 11, 2013, among the registrant, Synergy Aerospace Corp. and Kingsland Holding Limited
2.67    Amended and Restated Joint Action Agreement, dated November  29, 2018, by and among the registrant, Kingsland Holdings Limited, BRW Aviation LLC, United Airlines Inc. and Synergy Aerospace Corp.
2.77    Share Rights Agreement, dated November  29, 2018, among the registrant, Kingsland Holdings Limited, BRW Aviation LLC and United Airlines Inc.
3.11    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.).
4.11    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.

 

Exhibit
Number

  

Item

4.1.11    English translation of Lease Agreement No. OP-DC-CA-T1-0028-12, dated October 29, 2012, between Sociedad Concesionaria Operadora Aeroportuaria Internacional S.A.—Opain S.A. and Aerovias del Continente Americano S.A. Avianca.
4.1.21    English translation of Lease Agreement No. OP-DC-CA-T2-0061-12, dated October 29, 2012, between Sociedad Concesionaria Operadora Aeroportuaria Internacional S.A.—Opain S.A. and Aerovias del Continente Americano S.A. Avianca.
   4.21    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.
4.2.11    English translation of Amendment No. 1 to Lease Agreement, dated as of December 12, 2005.
4.2.21    English translation of Amendment No. 2 to Lease Agreement, dated as of January 5, 2009.
4.2.31    English translation of Amendment No. 3 to Lease Agreement, dated as of November 7, 2012.

 

3


4.2.41    English translation of Amendment No. 4 to Lease Agreement, dated as of March 1, 2013.
   4.32    English translation of Fuel Supply Contract, dated as of April  22, 2013, between Terpel S.A. and Aerovías del Continente Americano S.A. Avianca.
   4.41    A320 Purchase Agreement, dated March  19, 1998, between Atlantic Aircraft Holding Limited and Airbus Industry relating to Airbus A320-Family.
4.4.11    Amendment No. 1 dated as of September 9, 1998 to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S. (as successor to Airbus Industry).
4.4.21    Amendment No. 2 dated as of December 28, 1999, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.31    Amendment No. 3 dated as of December 29, 1999, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.41    Amendment No. 4 dated as of February 15, 2000, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.51    Amendment No. 5 dated as of April 6, 2001, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.61    Amendment No. 6 dated as of April 9, 2001, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.71    Amendment No. 7 dated as of September 6, 2001, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.81    Amendment No. 8 dated as of August 29, 2002, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.91    Amendment No. 9 dated as of December 6, 2002, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.101    Amendment No. 10 dated as of October 30, 2003, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.111    Amendment No. 11 dated as of November 18, 2004, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.121    Amendment No. 12 dated as of November 8, 2004, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.131    Amendment No. 13 dated as of November 18, 2004, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S
4.4.141    Amendment No. 14 dated as of February 18, 2006, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.

 

Exhibit
Number

  

Item

4.4.151    Amendment No. 15 dated as of June 22, 2007, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.161    Amendment No. 16 dated as of November 22, 2007, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.171    Amendment No. 17 dated as of April 14, 2008, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.

 

4


4.4.181    Amendment No. 18 dated as of January 30, 2009, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.191    Amendment No. 19 dated as of April 28, 2009, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.201    Amendment No. 20 dated as of February 10, 2010, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.211    Amendment No. 21 dated as of April 29, 2011, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.221    Amendment No. 22 dated as of August 26, 2011, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.231    Amendment No. 23 dated as of October 21, 2011, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.241    Amendment No. 24 dated as of March 11, 2012, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.251    Amendment No. 25 dated as of March 29, 2012, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.261    Amendment No. 26 dated as of March 29, 2012, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.271    Amendment No. 27 dated as of November 30, 2012, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.283    Amendment No. 28 dated as of October 11, 2013, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
4.4.293    Amendment No. 29 dated as of February 28, 2014, to the A320 Purchase Agreement dated as of March  19, 1998, as amended and restated, between the registrant and Airbus S.A.S.
   4.51    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.
4.5.11    Amendment No. 1 dated as of June 16, 2007, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.21    Amendment No. 2 dated as of September 10, 2007, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.31    Amendment No. 3 dated as of November 27, 2007, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.41    Amendment No. 4 dated as of January 31, 2008, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.51    Amendment No. 5 dated as of July 16, 2008, to the A320 Family Purchase Agreement dated as April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.61    Amendment No. 6 dated as of December 5, 2008, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.71    Amendment No. 7 dated as of July 6, 2009, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.

 

5


Exhibit
Number

  

Item

4.5.81    Amendment No. 8 dated as of October 10, 2009, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.91    Amendment No. 9 dated as of March 12, 2010, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.101    Amendment No. 10 dated as of November 22, 2010, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.111    Amendment No. 11 dated as of August 26, 2011, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.121    Amendment No. 12 dated as of October 10, 2011, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
4.5.131    Amendment No. 13 dated as of June 13, 2012, to the A320 Family Purchase Agreement dated as of April  16, 2007, as amended and restated, between the registrant and Airbus S.A.S.
   4.61    Assignment, Assumption and Amendment Agreement dated as of May  18, 2012, entered into among Aerovías del Continente Americano S.A. Avianca, Synergy Aerospace Corp. and Airbus S.A.S. in respect of four (4) A330-200F of the thirteen (13)  A330-200 and A330-200F under the Purchase Agreement dated September 5, 2011 (the A330-200F Purchase Agreement).
4.6.11    Amendment No. 1, dated as of August 16, 2012, to the A330-200F Purchase Agreement dated as of May  18, 2012, as amended and restated, between the registrant and Airbus S.A.S.
   4.71    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 A320 NEO Family.
4.7.11    Amendment No. 1, dated as of February  28, 2013, to the A320 Family and A320 NEO Family Purchase Agreement dated as of December 27, 2011, between the registrant and Airbus S.A.S.
4.7.24    Amendment dated as of April 30, 2015 to the A320 Family and A320 NEO Family Purchase Agreement dated as of December  27, 2011, among the registrant Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.7.35    Cancellation Amendment No. 2 dated as of April  20, 2016 among the registrant, Aerovías del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.7.45    Cancellation Amendment No. 3 dated as of August  22, 2016 among the registrant, Aerovías del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
   4.81    Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, entered into among Aerovías del Continente Americano S.A. Avianca, the registrant and Airbus S.A.S. in respect of twenty six (26)  A320 Family Aircraft and A320 NEO Family under the A320 Family and A320 NEO Family Purchase Agreement dated December 27, 2011.
4.8.13    Amendment No. 1, dated as of February 28, 2014, to the Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, entered into among Aerovías del Continente Americano S.A. the registrant and Airbus S.A.S.
4.8.23    Assignment, Assumption and Amendment Agreement dated as of December  31, 2014, entered into among Aerovías del Continente Americano S.A. Avianca, the registrant and Airbus S.A.S. (the Second Avianca Assignment).
4.8.33    Amendment No. 2, dated as of March 27, 2015 to the Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, entered into among Aerovías del Continente Americano S.A. Avianca, the registrant and Airbus S.A.S.
4.8.44    Amendment No. 3, dated as of September 21, 2015, to the Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, between Aerovías del Continente Americano S.A. Avianca and Airbus S.A.S.

 

6


Exhibit
Number

  

Item

4.91    Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, entered into among Grupo Taca Holdings Limited, the registrant and Airbus S.A.S. in respect of twenty five (25) A320 Family and A320 NEO Family Aircraft under the A320 Family and A320 NEO Family Purchase Agreement dated December  27, 2011.
4.9.13    Amendment No. 1, dated as of March 31, 2014, to the Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, entered into among Grupo Taca Holdings Limited, the registrant and Airbus S.A.S.
4.9.23    Amendment No. 2, dated as of July 31, 2014, to the Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, entered into among Grupo Taca Holdings Limited, the registrant and Airbus S.A.S.
4.9.33    Assignment, Assumption and Amendment Agreement dated as of December  31, 2014, entered into among Grupo Taca Holdings Limited, the registrant and Airbus S.A.S. (the Second Taca Assignment).
4.9.43    Amendment No. 3, dated as of March 27, 2015, to the Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, entered into among Grupo Taca Holdings Limited, the registrant and Airbus S.A.S.
4.9.54    Amendment No. 4, dated as of September 21, 2015, to the Assignment, Assumption and Amendment Agreement dated as of February  28, 2013, between Grupo Taca Holdings Limited and Airbus S.A.S.
4.101    Purchase Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between Aerovías del Continente Americano S.A. Avianca (The Company) and The Boeing Company, relating to the purchase and sale of ten (10)  Boeing Model 787-859 aircraft.
4.10.11    Supplemental Agreement No. 1 dated as of March 28, 2007, to the Purchase Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between the registrant and The Boeing Company.
4.10.21    Supplemental Agreement No. 2 dated as of March 28, 2007, to the Purchase Agreement No. 3075, dated November  21, 2007, as amended and supplemented, between the registrant and The Boeing Company.
4.10.31    Supplemental Agreement No. 3 dated as of September 26, 2012, to the Purchase Agreement No. 3075, dated November  21, 2007, as amended and supplemented, between the registrant and The Boeing Company
4.10.41    Supplemental Agreement No. 4 dated as of January 11, 2013, to the Purchase Agreement No. 3075, dated November  21, 2007, as amended and supplemented, between the registrant and The Boeing Company.
4.10.53    Supplemental Agreement No. 5 dated as of April 15, 2014, to the Purchase Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between the registrant and The Boeing Company.
4.10.66    Supplemental Agreement No. 6 dated as of July 25, 2017, to the Purchase Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between the registrant and The Boeing Company.
4.10.76    Supplemental Agreement No. 7 dated as of September 19, 2017, to the Purchase Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between the registrant and The Boeing Company.
4.10.88    Supplemental Agreement No. 8 dated as of May 3, 2018, to the Purchase Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between the registrant and The Boeing Company.

 

7


Exhibit
Number

  

Item

4.10.98    Supplemental Agreement No. 9 dated as of February 26, 2019, to the Purchase Power Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between the registrant and The Boeing Company.
4.10.109    Supplemental Agreement No. 10 dated as of December 27, 2019, to the Purchase Agreement No. 3075, dated October  3, 2006, as amended and supplemented, between the registrant and The Boeing Company.
4.111    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.
4.121    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.
4.12.11    Amendment No. 1 to General Terms Agreement, dated February 28, 2008.
4.12.21    Amendment No. 2 to General Terms Agreement, dated February 28, 2009.
4.12.31    Amendment No. 3 to General Terms Agreement, dated September 1, 2009.
4.12.41    Amendment No. 4 to General Terms Agreement, dated March 18, 2011.
4.131    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.
4.13.13    Amendment No. 1 to General Terms Agreement, dated May 17, 2013.
4.13.23    Amendment No. 2 to General Terms Agreement, dated October 23, 2014.
4.13.33    Amendment No. 3 to General Terms Agreement, dated December 30, 2014.
4.141    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.
4.14.11    Amendment No. 1 to General Terms Agreement.
4.151    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.
4.161    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.
4.171    Rate Per Flight Hour Agreement for CFM56-5B Engine Shop Maintenance Services, dated as of February 6, 2013, between CFM International, Inc. and the registrant (formerly known as AviancaTaca Holding S.A.).
4.17.13    Amendment No. 1 to Rate Per Flight Hour Agreement dated 2014.
4.181    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.)
4.191    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.).
4.201    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.
4.20.11    Amendment No.  1 to Amended and Restated V2500® General Terms of Sale, dated December 17, 2010.
4.20.21    Second Amended and Restated Side Letter, dated as of December 17, 2010.
4.211    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.
4.222    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.
4.22.12    Side Letter Number One dated June 15, 2007, to the 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.

 

8


Exhibit
Number

  

Item

4.233    Assignment, Assumption and Amendment Agreement dated as of December  31, 2014, entered into among Aerovías del Continente Americano S.A. Avianca, the registrant, Avianca Leasing, LLC and Airbus S.A.S. in respect of A320 Family Aircraft and A320 NEO Family under the A320 Family and A320 NEO Family Purchase Agreement dated December 27, 2011 (the First Avianca Leasing Assignment).
4.244    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 A320 NEO Family.
4.24.14    Letter Agreement No. 2.1, dated as of December 29, 2015, to the A320 NEO Family Purchase Agreement dated as of April  30, 2015, between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.24    Letter Agreement No. 3.1, dated as of September 30, 2015, to the A320 NEO Family Purchase Agreement dated as of April  30, 2015, between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.35    Letter Agreement 1.1, dated as of April 28, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.45    Letter Agreement 1.2 dated as of March 15, 2019 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.55    Letter Agreement 2.2. dated as of April 28, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.65    Letter Agreement 3.2. dated as of April 28, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.75    Letter Agreement 4.1. dated as of April 28, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.85    Letter Agreement 7.1. dated as of April 28, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.95    Letter Agreement 2.3. dated as of August 22, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.105    Letter Agreement 3.3. dated as of August 22, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.115    Letter Agreement 2.4. dated as of December 17, 2016 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.126    Letter Agreement 2.5. dated as of March 31, 2017 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.136    Letter Agreement 2.6. dated as of July 13, 2017 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.146    Letter Agreement 2.7. dated as of November 03, 2017 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.

 

9


Exhibit
Number

  

Item

4.24.158    Letter Agreement 2.8 dated as of March 15, 2019 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.179    Letter Agreement 2.9 dated as of January 6, 2020 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.189    Side Letter No. 1 to the Letter Agreement 2.9 dated as of January  6, 2020 to the A320 NEO Family Purchase Agreement dated as of April 30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
4.24.199    Letter Agreement 1.3 dated as of January 6, 2020 to the A320 NEO Family Purchase Agreement dated as of April  30, 2015 between Aerovias del Continente Americano S.A. Avianca, Grupo Taca Holdings Limited and Airbus S.A.S.
     4.266    Liquid Aviation Fuel Supply Agreement (Regional) dated August 30, 2017 between Organización 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.
     8.19    Subsidiaries of the Registrant.
   12.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   12.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   13.1    Certifications of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   13.2    Certifications of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 101. INS9    XBRL Instance Document.
 101. SCH9    XBRL Taxonomy Extension Schema Document.
 101. CAL9    XBRL Taxonomy Extension Calculation Linkbase Document.
 101. LAB9    XBRL Taxonomy Extension Label Linkbase Document.
 101. PRE9    XBRL Taxonomy Extension Presentation Linkbase Document.
 101. DEF9    XBRL Taxonomy Extension Definition Document.

 

(1)

Filed as an exhibit to our registration statement, as amended, on Form F-1 (File No. 333-191258), filed on September 19, 2013, as amended on September 23, 2013, October 2, 2013, October 8, 2013, October 11, 2013, October 21, 2013, October 30, 2013 and November 4, 2013.

(2)

Filed as an exhibit to our Form 20-F for the year ended December 31, 2013 filed with the SEC on April 30, 2014.

(3)

Filed as an exhibit to our Form 20-F for the year ended December 31, 2014 filed with the SEC on April 30, 2015.

(4)

Filed as an exhibit to our Form 20-F for the year ended December 31, 2015 filed with the SEC on April 29, 2016.

(5)

Filed as an exhibit to our Form 20-F for the year ended December 31, 2016 filed with the SEC on May 1, 2017.

(6)

Filed as an exhibit to our Form 20-F for the year ended December 31, 2017 filed with the SEC on May 1, 2018.

 

10


(7)

Filed as an exhibit to our Form 6-K furnished to the SEC on November 30, 2018.

(8)

Filed as an exhibit to our Form 20-F for the year ended December 31, 2018 filed with the SEC on April 29, 2019.

(9)

Filed as an exhibit to our Form 20-F for the year ended December 31, 2019 filed with the SEC on June 10, 2020.

 

11


SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this Amendment on its behalf.

 

Avianca Holdings S.A.
By:  

/s/ Richard Galindo

  Name:   Richard Galindo
  Title:   General Secretary

Dated: November 30, 2020

 

12


AVIANCA HOLDINGS S.A.

AND SUBSIDIARIES

(Republic of Panama)

Consolidated Financial Statements

As of December 31, 2019, and 2018 and

for each of the years ended December 31, 2019, 2018 and 2017

 

F-1


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Index

 

Report of Independent Auditors

     F-3  

Consolidated Statement of Financial Position

     F-8  

Consolidated Statement of Comprehensive Income

     F-10  

Consolidated Statement of Changes in Equity

     F-12  

Consolidated Statement of Cash Flows

     F-13  

Notes to the Consolidated Financial Statements

     F-15  

 

F-2


LOGO    KPMG S.A.S.    Teléfono    57(1)6188000
   Calle 90 No. 19C – 74       57(1)6188100
   Bogota D.C. – Colombia    Fax    57(1)6233316
      57(1)6233380
      www.kpmg.com.co

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Avianca Holdings S.A.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of Avianca Holdings S.A. and Subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated June 10, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 38 to the consolidated financial statements, subsequent to year-end the Company did not make payments on its long-term leases or principal payments on certain loan obligations and is not in compliance with loan covenants or lease contracts. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 38. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements, the Company has changed its leases accounting policy, effective for the period beginning on January 1, 2019, due to the adoption of IFRS 16 Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or

 

KPMG S.A.S., sociedad colombiana por acciones simplificada y firma miembro de la red de firmas miembro independientes de    KPMG S.A.S.
KPMG afiliadas a KPMG International Cooperative (“KPMG International”), una entidad suiza.    Nit 860.000.846 - 4

 

F-3


LOGO

 

fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2018.

/s/ KPMG S.A.S.

Bogotá, Colombia

June 10, 2020

 

F-4


LOGO    KPMG S.A.S.    Teléfono    57(1)6188000
   Calle 90 No. 19C – 74       57(1)6188100
   Bogota D.C. – Colombia    Fax    57(1)6233316
         57(1)6233380
      www.kpmg.com.co

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Avianca Holdings S.A.:

Opinion on Internal Control Over Financial Reporting

We have audited Avianca Holdings S.A. and Subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated June 10, 2020, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management´s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions

 

KPMG S.A.S., sociedad colombiana por acciones simplificada y firma miembro de la red de firmas miembro independientes de    KPMG S.A.S.
KPMG afiliadas a KPMG International Cooperative (“KPMG International”), una entidad suiza.    Nit 860.000.846 - 4

 

F-5


LOGO

 

are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG S.A.S.

Bogotá, Colombia

June 10, 2020

 

F-6


LOGO

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Avianca Holdings S.A. and subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of comprehensive income, shareholders’ equity and cash flows for the year ended December 31, 2017 of Avianca Holdings S.A. and subsidiaries (the Company), and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated results of the Company’s operations and its cash flows for the year ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

 

/s/ Ernst & Young Audit S.A.S.
We have served as the Company‘s auditor since 2011 through 2017.
Bogota, Colombia
April 30, 2018

 

Ernst & Young Audit S.A.S.    Ernst & Young Audit S.A.S.    Ernst & Young Audit S.A.S.    Ernst & Young Audit S.A.S.
Bogotá D.C.    Medellín – Antioquía    Cali – Valle del Cauca    Barranquilla - Atlántico
Carrera 11 No. 98-07    Carrera 43 A # 3 Sur - 130    Avenida 4 Norte No. 6N – 61    Calle 77b No 59 - 61
Edificio Pijao Green Office    Edificio Milla de Oro    Edificio Siglo XXI    Edificio Centro Empresarial Las Américas II
Tercer Piso    Torre 1 – Piso 14    Oficina 502 | 510    Oficina 311
Tel: +57 (1) 484 7000    Tel: +57 (4) 369 8400    Tel: +57 (2) 485 6280    Tel: +57 (5) 385 2201
Fax: +57 (1) 484 7474    Fax: +57 (4) 369 8484    Fax: +57 (2) 661 8007    Fax: +57 (5) 369 0580

A member firm of Ernst & Young Global Limited

 

F-7


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Consolidated Statement of Financial Position

(In USD thousands)

 

 

 

     Notes      December 31,
2019
     December 31,
2018
 

Assets

        

Current assets:

        

Cash and cash equivalents

     7      $ 342,472      $ 273,108  

Restricted cash

     7        1        4,843  

Short term investments

     12        55,440        59,847  

Trade and other receivables, net of expected credit losses

     8        233,722        288,157  

Accounts receivables from related parties

     9        3,348        6,290  

Current tax assets

     31        198,719        231,914  

Expendable spare parts and supplies, net of provision for obsolescence

     10        88,334        90,395  

Prepayments

     11        69,012        99,864  

Deposits and other assets

     12        39,175        29,926  
     

 

 

    

 

 

 
        1,030,223        1,084,344  

Assets held for sale

     15        681,053        31,580  
     

 

 

    

 

 

 

Total current assets

        1,711,276        1,115,924  

Noncurrent assets:

        

Deposits and other assets

     12        54,074        115,504  

Trade and other receivables, net of expected credit losses

     8        22,569        35,503  

Non-current taxes assets

     31        1        19  

Intangible assets and goodwill, net

     14        505,507        513,803  

Deferred tax assets

     31        27,166        24,573  

Property and equipment, net

     4,13        4,953,317        5,313,317  
     

 

 

    

 

 

 

Total non–current assets

        5,562,634        6,002,719  
     

 

 

    

 

 

 

Total assets

      $ 7,273,910      $ 7,118,643  
     

 

 

    

 

 

 

See accompanying notes to consolidated financial statements

 

F-8


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Consolidated Statement of Financial Position

(In USD thousands)

 

 

 

     Notes    December 31,
2019
    December 31,
2018
 

Liabilities and equity

       

Current liabilities:

       

Short-term borrowings and current portion of long-term debt

   16    $ 872,044     $ 626,742  

Accounts payable

   17      530,615       664,272  

Accounts payable to related parties

   9      3,713       2,827  

Accrued expenses

   18      87,610       108,712  

Current tax liabilities

   31      26,421       26,702  

Provisions for legal claims

   32      20,244       7,809  

Provisions for return conditions

   19      21,963       2,475  

Employee benefits

   20      148,678       125,147  

Air traffic liability

   21      337,363       424,579  

Frequent flyer deferred revenue

   21      187,931       186,378  

Other liabilities

   22      5,110       3,861  
     

 

 

   

 

 

 
        2,241,692       2,179,504  

Liabilities associated with the assets held for sale

   15      490,458       —    
     

 

 

   

 

 

 

Total current liabilities

        2,732,150       2,179,504  

Noncurrent liabilities:

       

Long–term debt

   16      3,984,279       3,380,838  

Accounts payable

   17      11,931       7,127  

Provisions for return conditions

   19      122,425       127,685  

Employee benefits

   20      118,337       110,085  

Deferred tax liabilities

   31      18,471       18,437  

Frequent flyer deferred revenue

   21      229,701       234,260  

Other liabilities

   22      51,449       68,246  
     

 

 

   

 

 

 

Total non–current liabilities

        4,536,593       3,946,678  
     

 

 

   

 

 

 

Total liabilities

      $ 7,268,743     $ 6,126,182  
     

 

 

   

 

 

 

Equity:

   23     

Common stock

        82,600       82,600  

Preferred stock

        42,023       42,023  

Additional paid–in capital on common stock

        234,567       234,567  

Additional paid–in capital on preferred stock

        469,273       469,273  

Retained (losses) earnings

        (543,010     386,087  

Other comprehensive income / (loss)

        (78,120     (44,096
     

 

 

   

 

 

 

Equity attributable to owners of the Company

        207,333       1,170,454  

Non–controlling interest

   24      (202,166     (177,993
     

 

 

   

 

 

 

Total equity

        5,167       992,461  
     

 

 

   

 

 

 

Total liabilities and equity

      $ 7,273,910     $ 7,118,643  
     

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

F-9


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Consolidated Statement of Comprehensive Income

(In USD thousands, except per share data)

 

 

 

            For the year ended December 31,  
     Notes      2019     2018     2017  

Operating revenue:

         

Passenger

      $  3,904,765     $  4,074,391     $  3,550,160  

Cargo and other

        716,731       816,439       891,524  
     

 

 

   

 

 

   

 

 

 

Total operating revenue

     5, 26        4,621,496       4,890,830       4,441,684  

Operating expenses:

         

Flight operations

        75,713       153,615       92,471  

Aircraft fuel

        1,204,058       1,213,411       923,468  

Ground operations

        478,029       474,802       450,209  

Rentals

     4, 33        11,762       267,708       278,772  

Passenger services

        176,454       188,713       166,869  

Maintenance and repairs

        257,642       206,454       280,536  

Air traffic

        278,987       269,631       242,587  

Selling expenses

        500,160       530,930       515,073  

Salaries, wages and benefits

        717,342       760,758       706,778  

Fees and other expenses

        411,573       203,304       177,864  

Depreciation and amortization

     4, 13, 14        593,396       350,507       313,413  

Impairment

     13        470,661       38,881       —    

Total operating expenses

        5,175,777       4,658,714       4,148,040  
     

 

 

   

 

 

   

 

 

 

Operating (loss) profit

        (554,281     232,116       293,644  
     

 

 

   

 

 

   

 

 

 

Interest expense

        (299,942     (212,294     (183,332

Interest income

        9,041       10,115       13,548  

Derivative instruments

        (2,164     (260     (2,536

Foreign exchange, net

     6.C        (24,190     (9,220     (20,163

Equity method profit

        1,524       899       980  
     

 

 

   

 

 

   

 

 

 

(Loss) profit before income tax

        (870,012     21,356       102,141  
       

 

 

   

 

 

 

Income tax expense – current

     31        (26,475     (27,151     (35,159

Income tax income – deferred

     31        2,492       6,938       15,050  
     

 

 

   

 

 

   

 

 

 

Total income tax expense

        (23,983     (20,213     (20,109
     

 

 

   

 

 

   

 

 

 

Net (loss) profit for the year

      $ (893,995   $ 1,143     $ 82,032  
     

 

 

   

 

 

   

 

 

 

Basic loss per share. Expressed in dollars

     25         

Common stock

      $ (0.92   $ (0.03   $ 0.05  

Preferred stock

      $ (0.92   $ (0.03   $ 0.05  

See accompanying notes to consolidated financial statements

 

F-10


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Consolidated Statement of Comprehensive Income

(In USD thousands, except per share data)

 

 

 

            For the year ended December 31,  
     Notes      2019     2018     2017  

Net (loss) income for the year

      $ (893,995   $ 1,143     $ 82,032  

Other comprehensive income (loss):

         

Items that will not be reclassified to profit or loss in future periods:

     23         

Revaluation (devaluation) of administrative property

        2,761       (20,448     31,017  

Remeasurements of defined benefit liability

        (42,541     (9,039     (33,385

Income tax

        441       (39     (15,018
     

 

 

   

 

 

   

 

 

 
        (39,339     (29,526     (17,386

Items that will be reclassified to profit or loss in future periods:

     23         

Effective portion of changes in fair value of hedging instruments

        3,932       (13,701     6,385  

Net change in fair value of financial assets with changes in OCI

        1,205       (328     19  

Income Tax

        —         —         3,558  
     

 

 

   

 

 

   

 

 

 
        5,137       (14,029     9,962  
     

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of income tax

        (34,202     (43,555     (7,424
     

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) profit net of income tax

      $ (928,197   $ (42,412   $ 74,608  

(Loss) profit attributable to:

         

Equity holders of the parent

      $ (913,712   $ (24,803   $ 48,237  

Non–controlling interest

        19,717       25,946       33,795  
     

 

 

   

 

 

   

 

 

 

Net (loss) profit

      $ (893,995   $ 1,143     $ 82,032  

Total comprehensive (loss) income attributable to:

         

Equity holders of the parent

      $ (947,736   $ (68,097   $ 40,358  

Non–controlling interest

        19,539       25,685       34,250  
     

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income

      $ (928,197   $ (42,412   $ 74,608  
     

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

F-11


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Consolidated Statement of Changes in Equity

(In USD thousands)

 

 

 

            Common
Stock
     Preferred
Stock
     Additional paid-in
capital
     Other comprehensive
income
    Retained
(losses)
earnings
    Equity
attributable to
owners of the
Company
    Non-
controlling
interest
    Total
equity
 
     Notes      Common
Stock
     Preferred
Stock
     OCI
Reserves
    Revaluation  

Balance at January 1, 2017

      $ 82,600      $ 42,023      $ 234,567      $ 469,273      $ (20,457   $ 27,365     $ 565.138     $ 1,400,509     $ 19,752     $ 1,420,261  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit

        —          —          —          —          —         —         48,523       48,523       33,509       82,032  

Increase in non–controlling interest

        —          —          —          —          —         —         —         —         504       504  

Other comprehensive income (loss)

        —          —          —          —          (38,727     31,017       —         (7,710     286       (7,424

Dividends decreed

        —          —          —          —          —         —         (25,672     (25,672     (130,001     (155,673
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

      $ 82,600      $ 42,023      $ 234,567      $ 469,273      $ (59,184   $ 58,382     $ 587,989     $ 1,415,650     $ (75,950   $ 1,339,700  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjustment on initial application of new standards

        —          —          —          —          —         —         (141,591     (141,591     (57,958     (199,549
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance adjusted at January 1, 2018

      $ 82,600      $ 42,023      $ 234,567      $ 469,273      $ (59,184   $ 58,382     $ 446,398     $ 1,274,059     $ (133,908   $ 1,140,151  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

        —          —          —          —          —         —         (24,803     (24,803     25,946       1,143  

Other comprehensive income (loss)

     23        —          —          —          —          (22,846     (20,448     —         (43,294     (261     (43,555

Sale of subsidiaries

     1        —          —          —          —          —         —         —         —         (7,674     (7,674

Dividends decreed

     35        —          —          —          —          —         —         (35,508     (35,508     (62,096     (97,604
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2018

      $ 82,600      $ 42,023      $ 234,567      $ 469,273      $ (82,030   $ 37,934     $ 386,087     $ 1,170,454     $ (177,993   $ 992,461  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) profit

        —          —          —          —          —         —         (913,712     (913,712     19,717       (893,995

Other comprehensive income (loss)

     23        —          —          —          —          (36,785     2,761       —         (34,024     (178     (34,202

Sale of subsidiaries

     1        —          —          —          —          —         —         —         —         (7,712     (7,712

Dividends decreed

     35        —          —          —          —          —         —         (15,385     (15,385     (36,000     (51,385
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

      $ 82,600      $ 42,023      $ 234,567      $ 469,273      $ (118,815   $ 40,695     $ (543,010   $ 207,333     $ (202,166   $ 5,167  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

F-12


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Consolidated Statement of Cash Flows

(In USD thousands)

 

 

 

            For the year ended December 31,  
     Notes      2019     2018     2017  

Cash flows from operating activities:

         

Net (loss) profit for the year

      $ (893,995   $ 1,143     $ 82,032  

Adjustments for:

         

Provision net of expected credit losses

     8        50,703       4,526       4,363  

Provision for expandable spare parts and suppliers obsolescence

     10        2,075       (3,203     (5,376

Provision (recovery) for return conditions, net

     19        16,114       (27,092     811  

Provisions (recovery) for legal claims, net

     32        14,671       (2,973     14,490  

Depreciation and amortization

     13,14        593,396       350,507       313,413  

Impairment of property and equipment

     13, 15        470,661       38,881       —    

Sale and leaseback transactions amortization

        (5,399     (4,747     —    

Share–based payment (income)

        —         —         (1,002

Loss (gains) on disposal of assets

        21,562       (16,081     (1,978

Loss (gains) on sale of subsidiary

     1        5,487       (10,579     —    

Fair value adjustment of financial instruments

        2,164       260       3,549  

Interest income

        (9,041     (10,115     (14,528

Interest expense

        299,942       212,294       183,332  

Deferred tax

     31        (2,492     (6,938     (15,050

Current tax

     31        26,475       27,151       35,159  

Unrealized foreign currency loss (gain)

        5,363       (32,569     20,163  

Changes in:

         

Accounts receivable

        (10,565     (103,998     (42,244

Expendable spare parts and supplies

        (3,150     10,056       (9,272

Prepayments

        30,404       (115     (49,396

Net current tax

        51,973       13,497       (49,930

Deposits and other assets

        43,655       95,247       38,611  

Accounts payable and accrued expenses

        (123,171     249,901       50,884  

Air traffic liability

        (86,731     (36.569     2,608  

Frequent flyer deferred revenue

        (3,001     37,719       21,883  

Provision for return conditions

        (1,886     (5,814     (11,458

Employee benefits

        (1,345     (29,740     (4,649

Income tax paid

        (45,534     (47,547     (39,098
     

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

      $ 448,335     $ 703,102     $ 527,317  

Cash flows from investing activities:

         

Acquisition of investments available for sale

        —         —         85  

Restricted cash

        4,558       378       (505

Interest received

        9,619       9,871       12,492  

 

F-13


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Consolidated Statement of Cash Flows

(In USD thousands)

 

 

 

            For the year ended December 31,  
     Notes      2019     2018     2017  

Advance payments on aircraft purchase contracts

     13        (21,324     (111,711     (119,049

Sale of advance on aircraft purchase contracts

     13        30,312       —         —    

Acquisition of property and equipment

     13        (246,591     (430,610     (215,305

Proceeds from sale of property and equipment

        233,035       132,369       161,910  

Investment in certificates of bank deposits

        —         4,640       —    

Redemption in certificates of bank deposits

        11,866       —         (15,540

Acquisition of intangible assets

     14        (29,129     (116,635     (30,619

Proceeds from acquisition of subsidiary

        —         —         6  

Sale of subsidiaries

     1        (875     18,000       —    

Acquisition of investments

        —         (78     —    

Sale of investments

        —         —         484  
     

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

      $ (8,529   $ (493,776   $ (206,041

Cash flows from financing activities:

         

Proceeds from loans and borrowings

     16        616,555       303,640       510,360  

Transaction costs related to bonds

     16        (18,807     —         —    

Repayments of loans and borrowings

     16        (637,740     (483,473     (388,096

Interest paid

     16        (275,054     (208,709     (162,144

Sale & finance leaseback transactions

        —         53,990       —    

Dividends paid

     35        (14,057     (35,508     (25,671

Dividends paid to minority shareholding

     35        (36,000     (56,096     (130,002
     

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

      $ (365,103   $ (426,156   $ (195,553

Net increase (decrease) in cash and cash equivalents

        74,703       (216,830     125,723  

Effect of movements in exchange rates on cash held

        (5,339     (17,280     7,506  

Cash on deconsolidation of subsidiary

     1        —         (1,764     —    

Cash and cash equivalents at beginning of year

        273,108       508,982       375,753  
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

      $ 342,472     $ 273,108     $ 508,982  
     

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

F-14


AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Consolidated Financial Statements

(In USD thousands)

 

 

 

  (1)

Reporting entity

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 Company’s shareholding through BRW Aviation LLC, which is the Group’s 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:

 

Name of Subsidiary

   Country of
Incorporation
   Ownership
Interest%
 
   2019     2018  

Avianca Ecuador S.A.

   Ecuador      99.62     99.62

Aerovias del Continente Americano S.A. (Avianca)

   Colombia      99.98     99.98

Avianca, Inc.

   EE.UU.      100     100

Avianca Leasing, LLC

   EE.UU.      100     100

Grupo Taca Holdings Limited

   Bahamas      100     100

Latin Airways Corp.

   Panama      100     100

LifeMiles Ltd.

   Bermuda      70     70

Avianca Costa Rica S.A.

   Costa Rica      92.42     92.42

Taca International Airlines, S.A.

   El Salvador      96.83     96.83

Tampa Cargo Logistics, Inc.

   EE.UU.      100     100

Tampa Cargo S.A.S.

   Colombia      100     100

Technical and Training Services, S.A. de C.V.

   El Salvador      99     99

Avianca Peru S.A.

   Perú      100     100

Regional Express Américas S.A.S.

   Colombia      100     100

Vu–Marsat S.A.

   Costa Rica      100     100

 

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 carrier’s 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 world’s 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 GTH’s shares in Turboprop Leasing Company Ltd. (“Turbo”), and all of NICA’s 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 Int’l Investments SL

On December 28, 2018, Avianca Holdings entered into an agreement for the sale and transfer of its participation and control in Getcom Int’l 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 Int’l 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 Int’l 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 Int’l 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 Int’l Investments S.L.

   $ 1,764  

Carrying amount of the Getcom Int’l Investments S.L. assets, without cash

     20,561  

Carrying amount of the Getcom Int’l 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.

 

  (b)

Basis of measurement

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 Group’s consolidated financial statements are presented in US Dollars, which is also the parent company’s 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 third–party 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 asset’s carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s 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 post–employment 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 long–term 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.

 

  (e)

Reclassifications

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)

 

 

 

  (f)

Going Concern

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 Group’s 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 Holding’s common shares. Likewise, United appointed Kingsland Holdings Limited (“Kingsland”) as BRW’s 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 Group’s 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 Avianca’s 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 Avianca’s 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 Avianca’s 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 & Poor’s 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 Group’s 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 PDP’s payments until 2024 for $2,087 million, thereby improving the Group’s 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, Orlando—US, and Barcelona—Spain, 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 Group’s 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 Company’s entities of the Group, except where mentioned otherwise (see also note 4).

This is the first set of the Group’s 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 Group’s 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 investee’s 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 Group’s 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.

 

  (c)

Foreign currency

Foreign currency transactions

These consolidated financial statements are presented in US dollars, which is the Group’s 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. Non–monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non–monetary 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 non–controlling 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 non–controlling 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 Group’s cash–generating units that are expected to benefit from the acquisition, irrespective of whether other assets or liabilities of the acquire are assigned to those units.

 

  (e)

Revenue recognition

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)

 

 

 

  (ii)

Loyalty program

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 Group’s 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.

 

  (f)

Income tax

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.

 

  (i)

Current income tax

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.

 

  (ii)

Deferred income tax

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 re–assessed 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 under–construction assets. When under–construction 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)

 

 

 

  (ii)

Subsequent costs

The costs incurred for major maintenance of an aircraft’s 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 asset’s expected useful life based on projected cycles and flight hours. Routine maintenance expenses of aircraft and engines are charged to income as incurred.

 

  (iii)

Depreciation

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 straight–line 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 straight–line 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 asset’s 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.

 

  (h)

Assets held for sale

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.

 

  (i)

Leased assets

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.

 

  (ii)

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.

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 sale–leaseback 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 sale–leaseback transactions result in financial lease, any excess proceeds over the carrying amount shall be deferred and amortized over the lease term as another income.

 

  (j)

Borrowing costs

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.

 

  (k)

Intangible assets

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 cash–generating 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 de–recognition 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 Group’s 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 straight–line 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 management’s 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

 

  (i)

Financial assets

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 Group’s 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 Group’s 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 Group’s 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 Group’s 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 arm’s 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 non–financial item in accordance with the Group’s 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 instrument’s fair value in offsetting the exposure to changes in the hedged item’s 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 non–financial asset or non–financial liability, the amounts recognized as other comprehensive income are transferred to the initial carrying amount of the non–financial 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 non–current classification of derivatives instruments

Derivative instruments that are not designated as effective hedging instruments are classified as current or non–current or separated into a current and non–current 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 non–current (or separated into current and non–current 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 non–current 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 non–financial 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 asset’s 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 asset’s 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 short–term 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 short–term deposits as defined above, net of outstanding bank overdrafts, if any.

 

  (p)

Maintenance deposits

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)

 

 

 

  (r)

Provisions

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 pre–tax 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.”

 

  (s)

Employee benefits

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 post–employment 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.

 

  (t)

Prepaid expenses

 

  (i)

Prepaid commissions

Commissions paid for tickets sold are recorded as prepaid expenses and expensed when the tickets are used.

 

  (ii)

Prepaid rent

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 available–for–sale 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 Leases—Incentives 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 lessor’s 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 lessor’s 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 Group’s 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 terminal’s 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 Group’s 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 Group’s 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 Group’s 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 Group’s 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 Group’s consolidated financial statements.

 

  (5)

Segment information

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 Group’s 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 Group’s 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 Group’s 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 Group’s 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 Group’s risk management framework. The Board has established mechanisms for developing and monitoring the Group’s risk management policies. The Group’s 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 Group’s 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.

 

  (a)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s 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 Group’s 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 non–derivative 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
 

Short–term borrowings

   $ 118,137      $ 123,734      $ 123,734      $ —        $ —        $ —        $ —    

Long–term 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
 

Short–term borrowings

   $ 119,866      $ 121,194      $ 121,194      $ —        $ —        $ —        $ —    

Long–term 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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (b)

Fuel price risk

The Group maintains a commodity–price–risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity–price 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 Group’s 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 Group’s consolidated statement of comprehensive income.

 

  (d)

Interest rate risk

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 Group’s outstanding or forecasted debt obligations.

At the reporting date the interest rate profile of the Group’s interest–bearing 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 long–term debt would be expected to decrease the Group’s income by $10,466, $10,284 and $8,825 respectively.

 

  (e)

Credit risk

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.

Cargo–related 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 web–enabled e–billing 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 Group’s capital management policy is to maintain a sound capital base in order to safeguard the Group’s ability to continue as a going concern, and in doing so, face its current and long–term 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 debt–to–capital ratio.

Following is a summary of the debt–to/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 debt–to–capital 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 long–term 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 long–term debt

     16      $ 4,007,580      $ 4,022,707  

Derivative instruments

     28        (17      (17
     

 

 

    

 

 

 
      $ 4,007,563      $ 4,022,690