Controversy follows over loans to Colombian airlines
By: Nc Airways
Tags: Aviation, Airlines, News

A fresh controversy is being faced by Colombian airlines. This is over loans to survive the current pandemic crisis. While the company needs it desperately, some groups oppose the proposition.

The future of the 105-year-old aviation industry now seems questionable with a global cessation of flights attributed to the influence of coronavirus. As a result, people directly or indirectly involved with the airline industry are suffering great ambiguity regarding their employment protection. As per the estimates of the International Air Transport Association (IATA), an industry trade group, global aviation maintains 65.5 million jobs, once its broader supply chain is analysed.



The day of reckoning has almost arrived for airline industry amid corona challenges. Various governments have offered aid as airlines forced to deepen cuts to flights, staffing. Governments worldwide — from Australia to America — have dedicated more than $85 billion to assist airlines during the coronavirus pandemic.



In Colombia, the government is actively considering offering loans to the airlines of the country, as the covid-19 pandemic has put a stop to their business. International borders are closed, no person is willing to fly, and the economy has slowed down significantly. As a result, all airlines had no option but to ground most of their aeroplanes. The companies neither had any Plan B in their business models to deal in crisis situations, nor they had alternative means to commercially exploit their other fixed assets and resources — vis-a-vis — land, building, and miscellaneous assets. Hence, most of their cash reserves vanished quickly. Given the conditions, companies’ myopic vision, their over-dependence on ‘aid’, no recovery seems possible in the near term.



Avianca had recently filed for Chapter 11 bankruptcy protection in the United States.



Bogota-based Avianca, the second-oldest regularly performing airline in the world after KLM, used to be Latin America’s second-largest airline during pre-covid-19 days. It, however, somehow failed to meet a bond payment deadline. Avianca has not flown a regular flight since late March 2020. Most of its 20,000 workforces have not received their salaries through the crisis. It appears that the company had put too much hope on its pleas for coronavirus aid from the government of Colombia. When this also could not succeed, it was finally compelled to file for bankruptcy.



Altogether, Colombian airlines would need nearly $1.2 billion in financial help to linger in business a little while longer without flying through the middle of 2020 according to IATA. A major part of the cash would likely go to Avianca, which accounts for about half of Colombia’s flights and passengers.



The controversy. The request for financial aid is debatable in less rich Latin American countries, where millions of people are still poor and the general public health systems are not adequately equipped to counter a large-scale health crisis.



Colombia’s largest LCC, Vivia Air, based at Medellín, has not removed any of its 700 workers but has initiated across-the-board wage cuts. The salary of its top management personnel has also been decreased by over 70%.



The company is urging the government for a $50 million bridge loan to start its business once air traffic returns which is, however, mired with controversy.



“Not for a bailout, not for relief,” Felix Antelo, Viva Air CEO, clarified in response to the controversy surrounding the issue. “It’s a loan that we will repay, obviously, and those are figures that are reasonable for a country like Colombia.”



According to Carolina Cortizo, managing director of Wingo, an airline based at Bogotá, the company has lessened its costs by 20% which would have appeared quite impressive during the pre-COVID-19 period. The company may make further cuts. The company with its team of about 230 people is putting a huge effort to bring the airline back to its normal state. It is seeking a loan from the government of around $12 million.



The engine may have just started, but it certainly cannot be on higher gear now. It will be a trial and error learning as to how to get better every day.



However, controversy regarding such support to airlines emerged as many leaders in Latin America view air travel as a luxury and may dislike the idea of offering help to airlines during this crisis.



In Colombia, about 25% of the population live below the poverty line. And in Mexico, President Andrés Manuel López Obrador blocked the building of a new airport for Mexico City. He reasoned by saying that it would not serve any advantage to the working poor.



According to Tomás Serebrisky, an economist with the Inter-American Development Bank, ‘Latin American nations have more limited “fiscal space” than richer countries to help airlines. They are designating those means to more immediate and urgent needs like the need to reconstruct the health system, or present income support to the most defenceless poor of the population.’

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