Government loan to Avianca blocked by Colombian court
The saga surrounding the Colombian national airline continues as a legal order blocking the government loan to save the airline has been filed. Just two weeks ago, the Colombian government confirmed that it would grant Avianca Airlines a loan of $ 370 million. However, on Friday, the Cundinamarca Administrative Court in Bogata issued an emergency injunction temporarily blocking the loan. The move is the result of a citizen lawsuit, and we have all the details.
Avianca filed for bankruptcy under Chapter 11 in the US, something that made sense at the time, but now adds complications. This gave him the freedom to restructure financially by looking for ways to improve his income. No one was surprised when the Colombian government announced plans to grant loan to help keep the airline going while it completes the restructuring. After all, Avianca is South America’s second largest airline after LATAM.
However, it seems someone does not agree with the government’s decision. According to Finance Colombia, a citizen by the name of Jonathan Ruíz Tobon filed a complaint saying that the government loan was an irresponsible use of public resources. He also claims that the government is acting in haste by granting a loan to a company undergoing financial restructuring in another country. Filing in the United States suddenly causes problems.
Details of the trial
At the moment, very little is known about the person behind the lawsuit other than their name. What is known is that a panel of three judges saw enough evidence in the case to block the loan. In addition to the irresponsible use of public money, the lawsuit claims there may be a conflict of interest. The President of Colombia, Ivan Duque, who ordered the loan, happens to be the brother of Avianca’s senior vice president of strategic relations and customer experience.
The court said the loan was blocked but denied the conflict of interest. The court also stopped the request of the Ministry of Finance and Public Credit to provide information on the loan approval process. The lawsuit asked for more details on the process to prove due diligence before deciding to grant the loan. Mr. Tobon’s case claims this is impossible. The company hired to provide an independent loan consultation was hired the day before its announcement. If this is true, it is indeed prompt due diligence.
The problem this poses for Avianca is that he quickly runs out of money. The airline was in a financially difficult situation before the global slowdown. Now, with weak demand and international travel restrictions still prevalent, the airline will continue to struggle. Financial restructuring in the United States is underway, and technically Avianca is not bankrupt.
Avianca will now wait and see if the loan will be granted. As for what happens next, the airline, the Colombian government, or both will likely appeal the new decision. Even if the court ruling stands and Avianca does not get the loan, she will restructure anyway. He could still come out of it stronger than before.
What do you think of Avianca’s chances? Do you think the loan is crucial for the airline? Let us know your thoughts in the comments.