On August 10, Avianca’s Board of Directors approved the filing of the company’s reorganisation plan with the US Bankruptcy Court for the Southern District of New York. The plan outlines Avianca’s proposal to satisfy pre-bankruptcy obligations to creditors, while its disclosure statement describes the terms of the plan and the corresponding approval process.
Avianca describes this moment as an “important milestone” as the company continues toward the successful completion of its financial and operational restructuring. Avianca maintains that it has made significant progress in repositioning and simplifying the business with the adoption of more competitive pricing for passengers, continuing its aircraft reconfiguration process, expanding network routes both domestically and internationally as well as securing long-term labour agreements and strengthening relationships with pilots and other employee groups.
The next step in the Chapter 11 process will be a hearing for the United States Bankruptcy Court to consider the approval of the Disclosure Statement, which is scheduled for September 14, 2021.
In July, the court approved Avianca’s DIP-to-exit facility that would seek an amendment to its existing DIP documents to provide for two new tranches of loans or notes, which would refinance in full its existing $1.4 billion “Tranche A” DIP obligations, provide approximately $220 million in additional liquidity and convert into long-term debt financing upon Avianca’s emergence from Chapter 11.
Avianca stated in July that it had already received two financial commitments for replacement DIP financing and long-term financing upon its emergence from Chapter 11.
Meanwhile, the United Nations issued a stark warning on climate change this week with a call for immediate large-scale action on cutting emissions. The Intergovernmental Panel on Climate Change's report put the blame "unequivocally" on human activity and U.N. Secretary-General António Guterres said the findings were a "code red for humanity".
More and more companies are being pressured by investors to cut carbon emissions and disclose plans to net zero by 2050 but it is now being proposed that the US Securities & Exchange Commission (SEC) will require all listed firms to report climate data. The SEC as well as other regulators around the world are looking at establishing criteria for ESG investment funds or products.
The Biden Administration is reported to be considering a bipartisan infrastructure bill that includes meaningful climate legislation, which will include a push to electrify the auto industry as well as including targets for airlines to fly on 100% sustainable aviation fuel (SAF) made from renewable sources. Sources state that the proposals may also include incentives to support private-sector production of SAF and other methods to reduce carbon emissions from the aviation industry.
The SAF topic has been hotting up for some months now as is the debate over the shortage of production, inadequacy of existing infrastructure, not to mention the cost. The global industry – in a normal year – consumes about 106bn gallons of jet fuel every year, which is expected to rise to more than 230bn gallons by 2050. In contrast, SAF production stands at approximately 60 million gallons per year, with plans for this to rise to 746 million gallons next year and 1bn gallons by 2025. However, with additional investment and increased adoption by airlines using 100% SAF rather than the preferred 50/50 blend with jet fuel, this could be increased substantially. Of course, anything more than a 50/50 blend would require adapted engines – another expense airlines can ill afford at the moment.
Airlines are tuned to cost reductions at the moment and have always been keenly aware of the fluctuations in the price of oil. Due to the low production, SAF prices are currently about five times higher than prices for conventional jet fuel. Even though Europe and the US are considering tax credits for the adoption of SAF over conventional fuel, there remains little support for the switch outside of those areas and for a global market that presents a problem.