oblisk

Saw this Article on Bloomberg Today:
https://www.bloomberg.com/news/artic...k-to-the-brink

Any thoughts on how things would change if United took over the controlling stake in Avianca? JV pricing? Turn it into Copa version 2?

TominLazybrook

I, sadly, have experienced Avianca far too many times. Their customer service is atrocious. Easily the worst airline employees Ive ever experienced.

In Spanish, the airline is commonly referred to as "A vi nunca", which roughly translates to "I never saw it"

Their business class product is awful. Their economy class product is [shudder]. Their best Bogota employees make the worst UA Newark employees seem kindly in comparison.

Oddly, Aerorepublica, which was a Copa run Star Alliance carrier was actually pretty good.

People, including myself, routinely fly out of their way to avoid Avianca.

It would take a lot to save Avianca. The airline is bloated, expensive, and faces increasing competitive pressure from cheaper airlines.

JShLin

per Bloomberg, United started the process to take control today; I'm intrigued/concerned by the "handover" to this Kingsland Holdings to get around the majority ownership issue; I assume its the same contractual clauses that basically forced UA to only take 49.9% of ExpressJet, for example. United is also willing to lend up to an additional $150 million to secure its collateral.

WineCountryUA

for reference Proposed JBA between UA and CM, AV, .... for Latin America travel

AV has had a troubled history and has been on the block before -- such as in 2016 "United Continental, Delta Among Possible Bidders Circling Avianca" - WSJ Article

While the Avianca LifeMiles and Amigo forum is pretty quiet so far, that the best place to discuss the Avianca side of this situation

TominLazybrook

Here's some wild and unsubtantiated speculation on what might be the plan

Possibly shutting down the airline (or cutting its route structure back, significantly), and using the Brazilian slots as an asset (possibly for sale to other airlines) as those apparently have some value
Removing some competition on UA - South American routes by instituting JV pricing (like Air Canada) or cancelling certain routes (like IAH-San Salvador or BOG-BCN)
Shutting down the LifeMiles loopholes that provide their members with some advantages over other Star Alliance frequent flyer programs.
Removing some of the hubs/focus cities as Avianca is managing a LOT of them.
Or it might just be UA trying to keep the airline slots falling into the hands of Latam or Azul, who could then use Latin America as a fortress market.

There's a really bad culture issue at Avianca, but there's certainly demand for a consistent airline in Latin America. Copa has a truly dreadful hub and a substandard business class product. Aerolineas Argentinas is terrible in just about every way. Aeromexico has a really good hard product, especially in business class, that is well priced, but has a bad soft product and a hub that is bursting at the seams. Its truly amazing, given the fact that fares are pretty high on a per mile flown basis, especially for travel within Latin America, that no one other than perhaps Latam, has managed to figure it out.

fly18725

The Brazilian operations are separate from the assets in question. Although they share common ownership in Synergy, Avianca Brasil (aka Ocean Air) is nothing more than a affiliate of Avianca Holdings, the company that operates in Colombia, Peru, Honduras, El Salvador and Costa Rica.

I've found Avianca Colombia to be a decent operation. It has a good presence in the fastest growing Latin American economies, which is what's appealing to United.

JShLin

I doubt that, because a) Avianca Brazil is a separate entity not in this discussion, and b) United owns 8% of Azul. Clearly, to UA, Avianca has more value as a going concern, hence it's extension of an additional 150 million to keep it that way. Can't say if it's the right spend of Uniteds money yet; that's going to depend muchly on how Avianca financially performs.

Personally, I believe that it's far more likely to operate like 1998-2006 Copa, which basically became an outgrowth of Continental in the same market, increasing then COs access to Latin America via a PTY hub. Interestingly, this would result in UA becoming new competition to their former sub, which does have a BOG operation. I don't see the Avianca brand going away anytime soon, and I would expect it to maintain independent status purely for market differentions and contractual obligations. Random fact: Colombia is one of the few countries where a foreign entity, UA can actually own a majority of a national carrier.

Or, more interestingly, it'd be United reaching for the same sort of deals that defines Delta's transatlantic business, with it and AF/KLM basically co-parenting Virgin Atlantic, but applied to Latin America. Clearly this is where United is already moving, with its new JV and ownership stake in now both Avianca and Azul. I would question the logic here, however; Latin America isn't Western Europe, and while it is definitely a emerging market, I'm not yet convinced there's the same level of high value travel that defines the TPAC and Transatlantic routes. That said, AA makes their extensive LAmerica flights work.

narvik

I found the 'apropos' at the end of that article far more interesting than the MAX issue:

"Separately, United said on Friday it had launched a management overhaul at Colombia's cash-strapped Avianca Holdings, with which it is pursuing a three-way tie up with Panama's Copa.
The move, which removes Avianca's top shareholder, German Efromovich, from control and hands it to a third party, follows a default by his holding company on a $456 million loan from United.
United has been seeking to expand in Latin America, which is considered ripe for air travel growth."

coolbeans202

In apologize if this is a dumb question, but could you give some additional information on the Avianca situation? I thought I read about some financial problems, but I'm not sure how that gives leverage in pilot negotiations.

fumje

I'm sure EWR764 could give more insight, but due to those financial troubles, United has option to take ownership of Avianca.

EWR764

It has to do with this language, from the United Pilot Agreement:

The argument is that as soon as United exercises its right under the terms of its loan to Synergy, which was secured by Synergy's shares in Avianca Holdings, S.A., the parent of Avianca (airline), it falls out of compliance with the scope language. The United MEC is taking the position that this majority interest in AVH constitutes control over Avianca, and, under a strict interpretation of the United Pilot Agreement, would bring Avianca flying within the scope of the agreement.

The thinking is that this creates some leverage (on the part of the pilots) with respect to the ongoing negotiations.

mahasamatman

How would that play with foreign ownership issues?

EWR764

EmailKid

Maybe.

IIRC CO owned 49% ot Copa, because they could not own a majority under Panamanian law. And yes, Avianca isn't based in Panama

As an example of the other way, Sir Richard Branson could only own 49% of Virgin America.

EWR764

Of course... it depends on the law of the state of the entity over which control is sought. Copa acquired a majority interest in AeroRepublica 10 or 15 years ago and mostly absorbed that operation into Copa, so I believe Colombian law permits full foreign ownership. Moreover, I don't think foreign ownership has been raised as a barrier to this transaction; presumably the legality of the provision would have been considered at the time the transaction was negotiated.

As to your example, I think CO owned 51% of Copa at its peak, before it started to divest at a considerable profit... much-needed cash in the mid-2000s that, in combination with some other transactions and employee concessions, kept CO out of a third bankruptcy.