Latin American airlines must restructure dramatically to survive the crisis in commercial aviation despite not being as badly hit by the Iraq war and the SARS outbreak as carriers in other parts of the world, concluded experts and airline chief executives speaking at last week's Latin American Aviation CEO conference in Miami.

Thomas Salerno, chairman of the reorganisation practice group of law firm Squire, Sanders & Dempsey, said a foreign carrier can take advantage of company-friendly US bankruptcy laws by filing for Chapter 11 protection through a US subsidiary, as Colombia's Avianca has done.

"The ability to improve short- term cash flow, reject burdensome leases or modify retiree benefits programmes under a predictable legal environment can become essential for the survival of an airline in times of crisis," he said.

Juan Emilio Posada, president of Alianza Summa, the corporate umbrella of Colombian airlines Avianca, Aces and Sam, agreed: "We did not want Avianca to go into Chapter 11, but the combination of the upcoming Iraq war, high fuel prices and a weak US economy in the first quarter had created the need to find dynamic ways to reduce costs. As an example, we are paying for some of our aircraft leases 70% higher than market average. We need deep changes to contracts to be able to survive and Chapter 11 can help accomplish this."

Richard Hollowell, corporate restructuring specialist at Rachlin, Cohen & Holz, said: "Avianca's filing for Chapter 11 in the USA is a major breakthrough for a Latin American company. I think this is a brilliant move which will be closely monitored by other foreign carriers as it gives the chance to deeply reorganise operations and fix overleveraged balance sheets."

Source: Flight International