Avianca files for bankruptcy protection; LifeMiles are safe as of now

On May 10, 2020, which is yesterday, Avianca, which has been flying for over 100 years and is the second-largest airline in Latin America, filed for bankruptcy protection in the United States after being unable to meet their obligations. The airline has not been able to operate a regularly scheduled operation since March 2020, given 88% of the markets Avianca operates into have had a total or partial air transport restrictions. Avianca has also not been able to secure aid from the Columbian government so far and had bond payments coming up on Monday, May 11, 2020, which it won’t be paying at the moment.

As per IATA, there has been a 90% decline in global passenger traffic and is expected to reduce industry revenues worldwide by USD 314 billion.

Avianca Chapter 11

Avianca will continue to operate and serve customers during this process. Throughout the court-supervised process, Avianca intends to:

  • Protect and preserve operations so Avianca can continue to operate as COVID-19 travel restrictions are gradually lifted;
  • Ensure connectivity and drive investment and tourism by continuing as Colombia’s flagship airline;
  • Preserve jobs in Colombia and other markets where the Company operates; and
  • Restructure the Company’s balance sheet and obligations to enable Avianca to navigate the effects of the COVID-19 pandemic as well as comprehensively address liabilities, leases, aircraft orders and other commitments.

Bankruptcy protection in the US is a vastly different exercise than how it is looked at in Asia and does not go towards liquidity of the airline. All major US airlines have gone through Chapter 11 bankruptcy proceedings, including Delta, United and American, more to reorganise their balance sheet. Chapter 11 does not mean you close the business, but in fact, it wants to give you another shot at making it work again.

Avianca attempts to make this point in a helpful infographic.

On this, the CEO of Avianca, Anko van der Werff had to say,

Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic. Despite the positive results yielded by our ‘Avianca 2021’ plan, we believe that in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges.

LifeMiles are safe, as per Avianca

“LifeMiles is administered by a separate company and is not a part of Avianca’s Chapter 11 filing, so customers will continue to accrue miles when they fly with Avianca, and can continue to redeem miles accrued through LifeMiles during this process,” reads the official release from Avianca.

The Company that owns LifeMiles has a robust financial position, and its assets are insulated from Avianca’s reorganisation process. Importantly, Avianca plans to continue honouring the LifeMiles loyalty programme and has extended its frequent flyers’ Elite status through January 2022. LifeMiles will not expire any miles between April 1, 2020, and December 31, 2020, and every accrual of new miles extends the validity of all miles in your account for at least 12 months more.

So, at the moment, there is no reason to panic about your LifeMiles. However, as the Jet Airways incident taught us if something happens to the airline and it ceases to exist, the miles won’t be redeemable on the Star Alliance network anymore since LifeMiles will not be a related to a Star Alliance member airline.

Bottomline

Chapter 11 is a balance sheet restructuring exercise, and I do hope Avianca comes out of this process stronger. However, at the moment, no reason to worry about your LifeMiles, which is a separately owned entity and controls all the miles issued.


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