Colombia’s Avianca, which filed for bankruptcy protection in a New York court in May, has appealed an injunction preventing disbursement of a major loan needed to keep the company afloat.

In a filing with the Securities and Exchange Commission on 16 September, Avianca argues that without the up-to-$370 million loan it secured from the Colombian government in August, up to 123,000 jobs could be at risk. That loan was suspended by a Colombian administrative court last week.

Avianca A320. Avianca

Source: Avianca

Avianca appeals injunction against $370 million loan

If … the Colombian government is barred from disbursing the loan once it has been approved by the bankruptcy court (which is expected to occur within the next two to three weeks), Avianca’s entire proposed [debtor-in-possession] financing structure would be affected,” the Bogota-based airline says. “Without new financial resources, Avianca would suffer further reductions in its liquidity levels, making its operations unsustainable.”

The pending investment, made by Colombia through a broader coronavirus relief fund, follows repeated calls from Latin American’s aerospace industry for government help. Groups like IATA have repeatedly criticised Latin American governments for not providing support comparable to that provided by governments in other regions.

On 13 August, Avianca disclosed it had secured $1.2 billion in new financing as part of a $2 billion deal that includes “roll ups of existing debt”. It said at the time that the funds “will allow the company to finance its operations during” a bankruptcy reorganisation.

The government’s $370 million commitment equates to about 19% of the $2 billion.

Should the injunction to prevent the loan from being paid out be upheld, the negative consequences for the Colombian economy would be disastrous, Avianca says.

“Among other effects, an estimated 3.19 percentage points of the country’s GDP would be at risk, 123,000 direct and indirect annual jobs would be lost over the next five years, and direct and indirect tax revenues would decline by $1.3 billion over the same period,” Avianca writes.

“If Avianca should cease to operate, Colombia’s economic recovery would be significantly impacted, and sectors that have already suffered significantly – such as country’s tourism industry – would be particularly affected,” it adds in the filing.