Court Blocks Colombia’s $370 Million Loan To Avianca

This isn’t good news for Avianca…

Bankrupt Avianca was supposed to get a government loan

Like so many airlines around the world, Avianca is in a tough financial position. Back in May, Avianca filed for Chapter 11 bankruptcy in the US, as the airline was no longer able to cover its obligations. This doesn’t mean that the airline will go out of business, but rather the airline is attempting to restructure.

Fortunately in late August, the Colombian government confirmed it would offer Avianca a $370 million loan, to allow it to continue flying. This was great news, since it meant Avianca would have enough funding to stay in business for at least a while longer.

Well, there’s some bad news on that front.

Court blocks Colombia’s loan to Avianca

Finance Colombia reports that this past Friday, a three-judge panel in the Cundinamarca Administrative Court issued an order blocking the Colombian government’s loan to Avianca. Ultimately this loan is only blocked for now, and it’s possible that this could still be overturned.

This court decision came after a lawsuit was filed by a Colombian citizen, urging the loan to be blocked. Several reasons were given for why the loan should be blocked, including:

• It presented a threat to public resources, as bankruptcy proceedings taking place in a foreign country doesn’t provide sufficient guarantees to safeguard public assets
• There were concerns about a conflict of interest, as Colombia’s president ordered the loan, while his sister is a senior executive at Avianca
• There were concerns about whether due diligence had been done with the loan, after it was revealed that the firm hired to conduct such studies on behalf of the government was hired the night before the financing was announced
• The lawsuit alleged that since Avianca was already in financial trouble before the current pandemic, coronavirus shouldn’t be used to justify this financing, especially with Avianca being given preferential treatment over other airlines in financial trouble (like Viva Air, EasyFly, and LATAM Colombia)

None of this means that Avianca couldn’t eventually get a loan. An appeal from the Colombian government and/or Avianca could be the next step. This court ruling isn’t saying that the Colombian government can’t ever give Avianca a loan, but rather it’s saying that more justification is needed.

What does this mean for the LifeMiles program?

Even if you’re not a frequent Avianca flyer, you may still be familiar with the LifeMiles program, which is one of the best frequent flyer programs for booking Star Alliance awards. LifeMiles often has promotions on purchased miles, and is even right now offering a 200% bonus on purchased miles.

It’s worth noting that LifeMiles is a spun off frequent flyer program, so it’s not owned directly by Avianca. This means that the frequent flyer program isn’t in bankruptcy, and this doesn’t impact LifeMiles directly. However, this does potentially impact LifeMiles indirectly.

I’ve written in the past about what happens to airline miles if an airline goes bankrupt, so as it applies here:

• For now it should be business as usual for earning and redeeming LifeMiles
• In the event that Avianca didn’t emerge from bankruptcy, it’s possible that the LifeMiles program would still live on in Latin America, given how popular it is, and given that it’s spun off
• However, if that were to happen, don’t expect that LifeMiles would still have access to Star Alliance award space, since the program would no longer be associated with a Star Alliance airline

I’m sure we’ll learn more soon about Avianca’s loan, as I suspect an appeal will get started shortly.

Bottom line

A $370 million loan to Avianca from Colombia’s government has been blocked for the time being. Unfortunately this means there’s once again a bit more uncertainty surrounding Avianca’s future.

I imagine an appeal will happen soon, so we should find out more eventually. While this doesn’t directly impact LifeMiles one way or another (since it’s a separate company), it does indirectly impact the program, since LifeMiles’ access to Star Alliance award space is through Avianca.