Traders Spooked as Colombia Airline Said to Drag Feet on Partner Deal

  • Avianca controlling holder said to not want to cede control
  • Airline facing ‘tight’ liquidity on debt, capex, Fitch says

With signs Colombia’s biggest airline may be no closer to striking a deal with a strategic partner eight months after announcing its search, shareholders are making their displeasure clear.

Avianca Holdings SA has dropped 20 percent since mid-December, when investors were expecting a deal to be announced as the carrier was said to be studying options including the sale of a controlling stake amid talks with Delta Air Lines Inc., United Continental Holdings Inc. and Copa Airlines SA. 

None of the three offers were considered attractive by Avianca’s controlling shareholder Synergy Group, according to a person familiar with the talks who asked not to be identified because the information is private. German Efromovich and his brother Jose, who control Synergy, haven’t been willing to cede control, according to the person. The airline has formed a committee tasked with negotiating improvements in the offers, according to two people. Avianca declined to comment.

Were Avianca to go it alone, it would find itself at a disadvantage at a time when its Latin American rivals are teaming up with global competitors like American Airlines, Qatar Airways and Delta to expand their networks. It would also find itself facing liquidity pressure due to its debt and investment plans in the next few months, Fitch Ratings said this month in a report. Bogota-based Avianca last reported $411 million of cash, while Fitch said it had $400 million of debt maturing in 12 months.

“The current competitive landscape for airlines makes an alliance imperative for Avianca,” Credicorp Capital analyst Steffania Mosquera said in a Jan. 24 report. With debt still high, “a transaction including a capitalization is aligned with the company’s best interests.”

A local magazine reported Jan. 21 that German Efromovich, who shares control of Avianca with his brother through Synergy Group, may block a potential deal since he isn’t willing to lose control. A separate newspaper report four days later said that while the company hasn’t rejected the three offers it’s received, Efromovich may look to other sources to repay debt owed to hedge fund Elliott Management.

Avianca responded to the media reports by saying it had nothing to report yet. Avianca’s cash situation has strengthened since the partner search began, and the process has never been about money but instead about finding a strategic partner that would allow it to be more competitive, executives had said during its last conference call.

Efromovich declined to comment in an e-mailed reply to questions and said the reports about the status of the partner search are pure speculation.

Avianca announced in June that it was looking for a partner. Chile’s Latam Airlines Group SA, the region’s biggest airline, has since sold a stake to Qatar Airways. It’s also waiting for approval from antitrust regulators including the U.S. Justice Department for the closest cooperation short of a merger with American Airlines. 

Grupo Aeromexico SAB, the largest Mexican airline, accepted regulatory conditions in December to continue its partnership with Delta. Meanwhile, Interjet, Mexico’s third-biggest carrier, said in October it was in talks to sell an equity stake to American Airlines or United Continental.

Over the past two years, the airline partnerships have helped Latin American carriers weather the region’s economic downturn and currency selloffs. Venezuela, in particular, has caused the region’s airlines to take write-offs after blocking $3.8 billion of funds for repatriation from carriers, according to air transport association IATA.

Avianca pushed back $1.4 billion in deliveries from Airbus Group SE last year as it reiterated its pledge to cut its ratio of adjusted net debt to EBITDAR to no more than 5 times by 2019.

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