Table of Contents
Exhibit 99.1
AVIANCA HOLDINGS S.A.
AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Financial Statements
As of September 30, 2019, and December 31, 2018 and
for the nine-months periods ended September 30, 2019 and 2018
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
2
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Financial Position
(In USD thousands)
Notes | September 30, 2019 | December 31, 2018 | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | 8 | $ | 211,933 | $ | 273,108 | |||||||
Restricted cash | 8 | — | 4,843 | |||||||||
Trade and other receivables, net of expected credit losses | 9 | 218,152 | 288,157 | |||||||||
Accounts receivables from related parties | 10 | 2,837 | 6,290 | |||||||||
Current tax assets | 21 | 218,031 | 231,914 | |||||||||
Expendable spare parts and supplies, net of provision for obsolescence | 92,434 | 90,395 | ||||||||||
Prepayments | 84,344 | 99,864 | ||||||||||
Deposits and other assets | 11 | 91,398 | 89,773 | |||||||||
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919,129 | 1,084,344 | |||||||||||
Assets held for sale | 13 | 207,117 | 31,580 | |||||||||
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Total current assets | 1,126,246 | 1,115,924 | ||||||||||
Non–current assets: | ||||||||||||
Deposits and other assets | 11 | 60,405 | 115,504 | |||||||||
Trade and other receivables, net of expected credit losses | 9 | 22,412 | 35,503 | |||||||||
Non-current taxes assets | 21 | — | 19 | |||||||||
Intangible assets and goodwill, net | 512,597 | 513,803 | ||||||||||
Deferred tax assets | 19,585 | 24,573 | ||||||||||
Property and equipment, net | 3, 12 | 5,715,620 | 5,313,317 | |||||||||
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Total non–current assets | 6,330,619 | 6,002,719 | ||||||||||
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Total assets | $ | 7,456,865 | $ | 7,118,643 | ||||||||
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See accompanying notes to unaudited condensed consolidated interim financial statements
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Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Financial Position
(In USD thousands)
Notes | September 30, 2019 | December 31, 2018 | ||||||||
Liabilities and equity | ||||||||||
Current liabilities: | ||||||||||
Short-term borrowings and current portion of long-term debt | 14 | $ | 3,727,783 | $ | 626,742 | |||||
Accounts payable | 590,188 | 664,272 | ||||||||
Accounts payable to related parties | 10 | 4,330 | 2,827 | |||||||
Accrued expenses | 116,320 | 108,712 | ||||||||
Current tax liabilities | 21 | 19,840 | 26,702 | |||||||
Provisions for legal claims | 22 | 16,479 | 7,809 | |||||||
Provisions for return conditions | 13,807 | 2,475 | ||||||||
Employee benefits | 137,898 | 125,147 | ||||||||
Air traffic liability | 371,625 | 424,579 | ||||||||
Frequent flyer deferred revenue | 180,610 | 186,378 | ||||||||
Other liabilities | 7,999 | 3,861 | ||||||||
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Total current liabilities | 5,186,879 | 2,179,504 | ||||||||
Non–current liabilities: | ||||||||||
Long–term debt | 14 | 1,320,055 | 3,380,838 | |||||||
Accounts payable | 5,478 | 7,127 | ||||||||
Provisions for return conditions | 141,605 | 127,685 | ||||||||
Employee benefits | 112,431 | 110,085 | ||||||||
Deferred tax liabilities | 17,682 | 18,437 | ||||||||
Frequent flyer deferred revenue | 227,789 | 234,260 | ||||||||
Other liabilities | 52,814 | 68,246 | ||||||||
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Total non–current liabilities | 1,877,854 | 3,946,678 | ||||||||
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Total liabilities | $ | 7,064,733 | $ | 6,126,182 | ||||||
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Equity: | ||||||||||
Common stock | 82,600 | 82,600 | ||||||||
Preferred stock | 42,023 | 42,023 | ||||||||
Additional paid–in capital on common stock | 234,567 | 234,567 | ||||||||
Additional paid–in capital on preferred stock | 469,273 | 469,273 | ||||||||
Retained earnings | (163,046 | ) | 386,087 | |||||||
Other comprehensive income | 16 | (74,834 | ) | (44,096 | ) | |||||
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Equity attributable to owners of the Company | 590,583 | 1,170,454 | ||||||||
Non–controlling interest | (198,451 | ) | (177,993 | ) | ||||||
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Total equity | 392,132 | 992,461 | ||||||||
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Total liabilities and equity | $ | 7,456,865 | $ | 7,118,643 | ||||||
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See accompanying notes to unaudited condensed consolidated interim financial statements
4
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Comprehensive Income
(In USD thousands, except per share data)
For the nine months ended September 30, | ||||||||||||||||||
Notes | Before special charges 2019 | Special charges (Note 27) | Total 2019 | Total 2018 | ||||||||||||||
Operating revenue: | ||||||||||||||||||
Passenger | $ | 2,944,559 | $ | — | $ | 2,944,559 | $ | 3,018,536 | ||||||||||
Cargo and other | 518,288 | 6,521 | 524,809 | 580,367 | ||||||||||||||
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Total operating revenue | 4 | 3,462,847 | 6,521 | 3,469,368 | 3,598,903 | |||||||||||||
Operating expenses: | ||||||||||||||||||
Flight operations | 65,472 | — | 65,472 | 104,088 | ||||||||||||||
Aircraft fuel | 914,003 | — | 914,003 | 889,966 | ||||||||||||||
Ground operations | 352,132 | — | 352,132 | 345,386 | ||||||||||||||
Other rentals | 3, 23 | 6,286 | — | 6,286 | 193,511 | |||||||||||||
Passenger services | 137,365 | — | 137,365 | 138,728 | ||||||||||||||
Maintenance and repairs | 192,576 | 8,022 | 200,598 | 158,820 | ||||||||||||||
Air traffic | 214,158 | — | 214,158 | 204,927 | ||||||||||||||
Selling expenses | 376,314 | — | 376,314 | 405,477 | ||||||||||||||
Salaries, wages and benefits | 525,445 | 5,151 | 530,596 | 590,433 | ||||||||||||||
Fees and other expenses | 193,689 | 65,329 | 259,018 | 156,640 | ||||||||||||||
Depreciation, amortization and impairment | 3, 12, 13 | 468,134 | 220,650 | 688,784 | 245,672 | |||||||||||||
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Total operating expenses | 3,445,574 | 299,152 | 3,744,726 | 3,433,648 | ||||||||||||||
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Operating (loss) profit | 17,273 | (292,631 | ) | (275,358 | ) | 165,255 | ||||||||||||
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Interest expense | (217,611 | ) | — | (217,611 | ) | (156,772 | ) | |||||||||||
Interest income | 8,112 | — | 8,112 | 7,031 | ||||||||||||||
Derivative instruments | (1,166 | ) | — | (1,166 | ) | 3,690 | ||||||||||||
Foreign exchange | 6 | (4,986 | ) | — | (4,986 | ) | (23,681 | ) | ||||||||||
Equity method profit | 1,044 | — | 1,044 | — | ||||||||||||||
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Loss before income tax | (197,334 | ) | (292,631 | ) | (489,965 | ) | (4,477 | ) | ||||||||||
Income tax expense – current | 21 | (20,438 | ) | — | (20,438 | ) | (19,120 | ) | ||||||||||
Income tax (expense) income – deferred | 21 | (5,661 | ) | — | (5,661 | ) | 5,673 | |||||||||||
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Total income tax expense | (26,099 | ) | — | (26,099 | ) | (13,447 | ) | |||||||||||
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Net loss for the period | $ | (223,433 | ) | $ | (292,631 | ) | $ | (516,064 | ) | $ | (17,924 | ) | ||||||
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Basic loss per share.Expressed in cents of USD | 15 | |||||||||||||||||
Common stock | $ | (0.24 | ) | $ | (0.54 | ) | $ | (0.04 | ) | |||||||||
Preferred stock | $ | (0.24 | ) | $ | (0.54 | ) | $ | (0.04 | ) |
See accompanying notes to unaudited condensed consolidated interim financial statements
5
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Comprehensive Income
(In USD thousands, except per share data)
For the nine months ended September 30, | ||||||||||||||||||
Notes | Before special charges 2019 | Special charges (Note 27) | Total 2019 | Total 2018 | ||||||||||||||
Net loss for the period | $ | (223,433 | ) | $ | (292,631 | ) | $ | (516,064 | ) | $ | (17,924 | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||||||
Items that will not be reclassified to profit or loss in future periods: | 16 | |||||||||||||||||
Remeasurements of defined benefit liability | (33,077 | ) | — | (33,077 | ) | 6,475 | ||||||||||||
Income tax | 373 | — | 373 | (207 | ) | |||||||||||||
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(32,704 | ) | — | (32,704 | ) | 6,268 | |||||||||||||
Items that will be reclassified to profit or loss in future periods: | 16 | |||||||||||||||||
Effective portion of changes in fair value of hedging instruments | 314 | — | 314 | 9,495 | ||||||||||||||
Net change in fair value of financial assets with changes in OCI | 1,222 | — | 1,222 | (530 | ) | |||||||||||||
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1,536 | — | 1,536 | 8,965 | |||||||||||||||
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Other comprehensive (loss) income, net of income tax | (31,168 | ) | — | (31,168 | ) | 15,233 | ||||||||||||
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Total comprehensive loss net of income tax | $ | (254,601 | ) | $ | (292,631 | ) | $ | (547,232 | ) | $ | (2,691 | ) | ||||||
Loss attributable to: | ||||||||||||||||||
Equity holders of the parent | (241,117 | ) | (292,631 | ) | (533,748 | ) | (37,908 | ) | ||||||||||
Non–controlling interest | 17,684 | — | 17,684 | 19,984 | ||||||||||||||
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Net loss | $ | (223,433 | ) | $ | (292,631 | ) | $ | (516,064 | ) | $ | (17,924 | ) | ||||||
Total comprehensive loss attributable to: | ||||||||||||||||||
Equity holders of the parent | (271,855 | ) | (292,631 | ) | (564,486 | ) | (23,090 | ) | ||||||||||
Non–controlling interest | 17,254 | — | 17,254 | 20,399 | ||||||||||||||
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Total comprehensive loss | $ | (254,601 | ) | $ | (292,631 | ) | $ | (547,232 | ) | $ | (2,691 | ) | ||||||
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See accompanying notes to unaudited condensed consolidated interim financial statements
6
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Comprehensive Income
(In USD thousands, except per share data)
For the three months between July 1 and September 30, | ||||||||||||||||
Before special charges 2019 | Special charges (Note 27) | Total 2019 | Total 2018 | |||||||||||||
Operating revenue: | ||||||||||||||||
Passenger | $ | 1,040,112 | $ | — | $ | 1,040,112 | $ | 1,054,129 | ||||||||
Cargo and other | 161,900 | 551 | 162,451 | 177,113 | ||||||||||||
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Total operating revenue | 1,202,012 | 551 | 1,202,563 | 1,231,242 | ||||||||||||
Operating expenses: | ||||||||||||||||
Flight operations | 7,133 | — | 7,133 | 7,412 | ||||||||||||
Aircraft fuel | 297,873 | — | 297,873 | 316,013 | ||||||||||||
Ground operations | 111,241 | — | 111,241 | 117,656 | ||||||||||||
Other rentals | 2,591 | — | 2,591 | 62,960 | ||||||||||||
Passenger services | 42,591 | — | 42,591 | 47,540 | ||||||||||||
Maintenance and repairs | 81,025 | 8,022 | 89,047 | 69,897 | ||||||||||||
Air traffic | 71,043 | — | 71,043 | 72,017 | ||||||||||||
Selling expenses | 130,908 | — | 130,908 | 134,553 | ||||||||||||
Salaries, wages and benefits | 167,358 | — | 167,358 | 201,672 | ||||||||||||
Fees and other expenses | 70,201 | 20,362 | 90,563 | 51,547 | ||||||||||||
Depreciation, amortization and impairment | 164,558 | — | 164,558 | 81,511 | ||||||||||||
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Total operating expenses | 1,146,522 | 28,384 | 1,174,906 | 1,162,778 | ||||||||||||
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Operating profit (loss) | 55,490 | (27,833 | ) | 27,657 | 68,464 | |||||||||||
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Interest expense | (70,186 | ) | — | (70,186 | ) | (49,769 | ) | |||||||||
Interest income | 2,276 | — | 2,276 | 2,557 | ||||||||||||
Derivative instruments | (1,803 | ) | — | (1,803 | ) | 4,159 | ||||||||||
Foreign exchange | 13,958 | — | 13,958 | (1,594 | ) | |||||||||||
Equity method profit | 311 | — | 311 | |||||||||||||
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(Loss) profit before income tax | 46 | (27,833 | ) | (27,787 | ) | 23,817 | ||||||||||
Income tax expense – current | (5,381 | ) | — | (5,381 | ) | (1,904 | ) | |||||||||
Income tax expense – deferred | (6,956 | ) | — | (6,956 | ) | (7,865 | ) | |||||||||
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Total income tax expense | (12,337 | ) | — | (12,337 | ) | (9,769 | ) | |||||||||
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Net (loss) profit for the period | $ | (12,291 | ) | $ | (27,833 | ) | $ | (40,124 | ) | $ | 14,048 | |||||
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Basic (loss) profit per shareExpressed in cents of USD | ||||||||||||||||
Common stock | $ | (0.03 | ) | $ | (0.05 | ) | $ | 0.02 | ||||||||
Preferred stock | $ | (0.03 | ) | $ | (0.05 | ) | $ | 0.02 |
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Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Comprehensive Income
(In USD thousands, except per share data)
For the three months between July 1 and September 30, | ||||||||||||||||
Before special charges 2019 | Special charges (Note 27) | Total 2019 | Total 2018 | |||||||||||||
Net (loss) for the period profit | $ | (12,291 | ) | $ | (27,833 | ) | $ | (40,124 | ) | $ | 14,048 | |||||
Other comprehensive income (loss): | ||||||||||||||||
Items that will not be reclassified to profit or loss in future periods: | ||||||||||||||||
Remeasurements of defined benefit liability | (22,358 | ) | — | (22,358 | ) | 5,447 | ||||||||||
Income tax | 170 | — | 170 | (201 | ) | |||||||||||
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(22,188 | ) | — | (22,188 | ) | 5,246 | |||||||||||
Items that will be reclassified to profit or loss in future periods: | ||||||||||||||||
Effective portion of changes in fair value of hedging instruments | 2,866 | — | 2,866 | (2,678 | ) | |||||||||||
Net change in fair value of financial assets with changes in OCI | 272 | — | 272 | 40 | ||||||||||||
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3,138 | — | 3,138 | (2,638 | ) | ||||||||||||
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Other comprehensive (loss) income, net of income tax | (19,050 | ) | — | (19,050 | ) | 2,608 | ||||||||||
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Total comprehensive loss net of income tax | $ | (31,341 | ) | $ | (27,833 | ) | $ | (59,174 | ) | $ | 16,656 | |||||
(Loss) profit attributable to: | ||||||||||||||||
Equity holders of the parent | (20,787 | ) | (27,833 | ) | (48,620 | ) | 4,643 | |||||||||
Non–controlling interest | 8,496 | — | 8,496 | 9,405 | ||||||||||||
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Net (loss) profit | $ | (12,291 | ) | $ | (27,833 | ) | $ | (40,124 | ) | $ | 14,048 | |||||
Total comprehensive (loss) profit attributable to: | ||||||||||||||||
Equity holders of the parent | (39,813 | ) | (27,833 | ) | (67,646 | ) | 6,836 | |||||||||
Non–controlling interest | 8,472 | — | 8,472 | 9,820 | ||||||||||||
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Total comprehensive (loss) profit | (31,341 | ) | $ | (27,833 | ) | $ | (59,174 | ) | $ | 16,656 | ||||||
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Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Changes in Equity
(In USD thousands)
For the nine months ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Additionalpaid-in capital | Other comprehensive income | Retained earnings | Equity attributable to owners of the Company | Non- controlling interest | Total equity | |||||||||||||||||||||||||||||||||||
Notes | Common Stock | Preferred Stock | OCI Reserves | Revaluation | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | $ | 82,600 | $ | 42,023 | $ | 234,567 | $ | 469,273 | $ | (82,030 | ) | $ | 37,934 | $ | 386,087 | $ | 1,170,454 | $ | (177,993 | ) | $ | 992,461 | ||||||||||||||||||||
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Net loss | — | — | — | — | — | — | (533,748 | ) | (533,748 | ) | 17,684 | (516,064 | ) | |||||||||||||||||||||||||||||
Other comprehensive income | 16 | — | — | — | — | (30,738 | ) | — | — | (30,738 | ) | (430 | ) | (31,168 | ) | |||||||||||||||||||||||||||
Sale of subsidiaries | 1 | — | — | — | — | — | — | — | — | (7,712 | ) | (7,712 | ) | |||||||||||||||||||||||||||||
Dividends decreed | 25 | — | — | — | — | — | — | (15,385 | ) | (15,385 | ) | (30,000 | ) | (45,385 | ) | |||||||||||||||||||||||||||
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Balance at September 30, 2019 | $ | 82,600 | $ | 42,023 | $ | 234,567 | $ | 469,273 | $ | (112,768 | ) | $ | 37,934 | $ | (163,046 | ) | $ | 590,583 | $ | (198,451 | ) | $ | 392,132 | |||||||||||||||||||
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See accompanying notes to unaudited condensed consolidated interim financial statements
9
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Changes in Equity
(In USD thousands)
For the nine months ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Additionalpaid-in capital | Other comprehensive income | Retained earnings | Equity attributable to owners of the Company | Non- controlling interest | Total equity | |||||||||||||||||||||||||||||||||||
Notes | Common Stock | Preferred Stock | OCI Reserves | Revaluation | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 82,600 | $ | 42,023 | $ | 234,567 | $ | 469,273 | $ | (59,184 | ) | $ | 58,382 | $ | 587,989 | $ | 1,415,650 | $ | (75,950 | ) | $ | 1,339,700 | ||||||||||||||||||||
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Adjustment on initial application of new standards | — | — | — | — | — | — | (141,591 | ) | (141,591 | ) | (57,958 | ) | (199,549 | ) | ||||||||||||||||||||||||||||
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Balance at January 1, 2018 | $ | 82,600 | $ | 42,023 | $ | 234,567 | $ | 469,273 | $ | (59,184 | ) | $ | 58,382 | $ | 446,398 | $ | 1,274,059 | $ | (133,908 | ) | $ | 1,140,151 | ||||||||||||||||||||
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Net Profit | — | — | — | — | — | — | (37,908 | ) | (37,908 | ) | 19,984 | (17,924 | ) | |||||||||||||||||||||||||||||
Other comprehensive income for the period | 16 | — | — | — | — | 14,818 | — | — | 14,818 | 415 | 15,233 | |||||||||||||||||||||||||||||||
Dividends decreed | 25 | — | — | — | — | — | — | (35,508 | ) | (35,508 | ) | (53,096 | ) | (88,604 | ) | |||||||||||||||||||||||||||
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Balance at September 30, 2018 | $ | 82,600 | $ | 42,023 | $ | 234,567 | $ | 469,273 | $ | (44,366 | ) | $ | 58,382 | $ | 372,982 | $ | 1,215,461 | $ | (166,605 | ) | $ | 1,048,856 | ||||||||||||||||||||
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See accompanying notes to unaudited condensed consolidated interim financial statements
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Cash Flows
(In USD thousands)
For the nine months ended September 30, | ||||||||||||
Notes | 2019 | 2018 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss for the year | $ | (516,064 | ) | $ | (17,924 | ) | ||||||
Adjustments for: | ||||||||||||
Provision net of expected credit losses | 9 | 47,352 | 2,226 | |||||||||
Provision for expandable spare parts and suppliers obsolescence | 1 | 871 | 130 | |||||||||
Provision (recovery) for return conditions, net | 22,465 | (22,872 | ) | |||||||||
Net provisions for legal claims | 22 | 10,906 | (2,066 | ) | ||||||||
Depreciation and amortization | 12 | 468,134 | 245,672 | |||||||||
Impairment assets | 12, 13 | 220,650 | — | |||||||||
Sale and leaseback transactions | 12 | (4,049 | ) | — | ||||||||
Gains on disposal of assets | 14,122 | (17,327 | ) | |||||||||
Loss on sale of subsidiary | 1 | 4,704 | — | |||||||||
Fair value adjustment of financial instruments | 1,166 | (4,165 | ) | |||||||||
Interest income | (8,112 | ) | (7,031 | ) | ||||||||
Interest expense | 217,611 | 156,772 | ||||||||||
Deferred tax | 21 | 5,661 | (5,673 | ) | ||||||||
Current tax | 21 | 20,438 | 19,120 | |||||||||
Unrealized foreign currency gains | (8,809 | ) | (15,484 | ) | ||||||||
Changes in: | ||||||||||||
Accounts receivable | 41,112 | (78,979 | ) | |||||||||
Expendable spare parts and supplies | (5,988 | ) | 2,475 | |||||||||
Prepayments | 15,044 | (9,360 | ) | |||||||||
Deposits and other assets | 42,739 | 68,680 | ||||||||||
Accounts payable and accrued expenses | 1,842 | 147,185 | ||||||||||
Air traffic liability | (52,469 | ) | 4,431 | |||||||||
Frequent flyer deferred revenue | (12,234 | ) | 32,234 | |||||||||
Provision for return conditions | (1,316 | ) | 1,080 | |||||||||
Employee benefits | (8,648 | ) | (11,827 | ) | ||||||||
Income tax paid | (36,614 | ) | (26,500 | ) | ||||||||
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Net cash provided by operating activities | 480,514 | 460,797 | ||||||||||
Cash flows from investing activities: |
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Restricted cash | 4,559 | (2,698 | ) |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Unaudited Condensed Consolidated Interim Statement of Cash Flows
(In USD thousands)
| For the nine months ended September 30, | |||||||||||
Notes | 2019 | 2018 | ||||||||||
Interest received | 8,073 | 7,303 | ||||||||||
Advance payments on aircraft purchase contracts | 12 | (18,701 | ) | (103,154 | ) | |||||||
Sale of advance on aircraft purchase contracts | 30,312 | — | ||||||||||
Acquisition of property and equipment | 12 | (198,114 | ) | (189,331 | ) | |||||||
Proceeds from sale of property and equipment | 57,134 | 103,734 | ||||||||||
Investment in certificates of bank deposits | — | (20,443 | ) | |||||||||
Redemption in certificates of bank deposits | 7,295 | — | ||||||||||
Acquisition of intangible assets | (27,325 | ) | (32,423 | ) | ||||||||
Proceeds sales of investments | 1 | 7,700 | — | |||||||||
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Net cash used in investing activities | (129,067 | ) | (237,012 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from loans and borrowings | 14 | 311,493 | 281,237 | |||||||||
Repayments of loans and borrowings | 14 | (478,254 | ) | (358,958 | ) | |||||||
Interest paid | 14 | (184,710 | ) | (144,972 | ) | |||||||
Dividends paid | 25 | (14,057 | ) | (33,416 | ) | |||||||
Dividends paid to minority shareholding | 25 | (30,000 | ) | (53,096 | ) | |||||||
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Net cash used in financing activities | (395,528 | ) | (309,205 | ) | ||||||||
Net decrease in cash and cash equivalents | (44,081 | ) | (85,420 | ) | ||||||||
Effect of movements in exchange rates on cash held | (5,339 | ) | (20,043 | ) | ||||||||
Cash on deconsolidation of subsidiary | 1 | (11,755 | ) | — | ||||||||
Cash and cash equivalents at beginning of year | 273,108 | 508,982 | ||||||||||
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Cash and cash equivalents at end of year | $ | 211,933 | $ | 403,519 | ||||||||
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See accompanying notes to unaudited condensed consolidated interim financial statements
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(1) | Reporting entity |
Avianca Holdings S.A. (the “Group” or “Avianca Holdings S.A.”), a Panamanian corporation whose registered address is at Calle Aquilino de la Guardia No. 8 IGRA Building, Panama City, Republic of Panama, was incorporated on October 5, 2009 under the name SK Holdings Limited in and under the laws of the Commonwealth of the Bahamas. Subsequently, the Company changed its corporate name as follows on March 10, 2010 to AviancaTaca Limited, on January 28, 2011 to AviancaTaca Holding, S.A and on March 3, 2011 changed its registered offices to Panama. In 2011 AviancaTaca listed its shares in the Bolsa de Valores de Colombia (“BVC”) and was listed as PFAVTA: CB. On March 21, 2013 the Company changed its legal name from AviancaTaca Holding S.A. to Avianca Holdings S.A. and its listing name to PFAVH: CB. On November 6, 2013, the Company listed its shares on the New York Stock Exchange (NYSE) and is listed as AVH.
Synergy Aerospace Corp currently has the majority of the Group’s shareholding through BRW Aviation LLC, which is our direct controller. Since May 24, 2019, Kingsland Holdings Limited, through its ownership of ordinary shares of Avianca Holdings and authority to vote the ordinary shares of Avianca Holdings S.A. owned by BRW Aviation LLC, has effective control of Avianca.
The following are the significant subsidiaries in the Group included within these condensed consolidated interim financial statements:
Name of Subsidiary | Country of | Ownership Interest% | ||||||||
2019 | 2018 | |||||||||
Avianca Ecuador S.A. | Ecuador | 99.62 | % | 99.62 | % | |||||
Aerovias del Continente Americano S.A. (Avianca) | Colombia | 99.98 | % | 99.98 | % | |||||
Avianca, Inc. | EE.UU. | 100 | % | 100 | % | |||||
Avianca Leasing, LLC | EE.UU. | 100 | % | 100 | % | |||||
Grupo Taca Holdings Limited | Bahamas | 100 | % | 100 | % | |||||
Latin Airways Corp. | Panama | 100 | % | 100 | % | |||||
LifeMiles Ltd. | Bermuda | 70 | % | 70 | % | |||||
Avianca Costa Rica S.A. | Costa Rica | 92.42 | % | 92.42 | % | |||||
Taca International Airlines, S.A. | El Salvador | 96.83 | % | 96.83 | % | |||||
Tampa Cargo Logistics, Inc. | EE.UU. | 100 | % | 100 | % | |||||
Tampa Cargo S.A.S. | Colombia | 100 | % | 100 | % | |||||
Technical and Training Services, S.A. de C.V. | El Salvador | 99 | % | 99 | % | |||||
Avianca Peru S.A. | Perú | 100 | % | 100 | % | |||||
Vu–Marsat S.A. | Costa Rica | 100 | % | 100 | % |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The Company through its subsidiaries is a provider of domestic and international, passenger and cargo air transportation, both in the domestic markets of Colombia, Ecuador, Costa Rica, Nicaragua and Peru and international routes serving North, Central and South America, Europe, and the Caribbean. The Company has entered into a number of bilateral code share alliances with other airlines (whereby selected seats on one carrier’s flights can be marketed under the brand name and commercial code of the other), expanding travel choices to customers worldwide. Marketing alliances typically include: joint frequent flyer program participation; coordination of reservations, ticketing, passenger check in and baggage handling; transfer of passenger and baggage at any point of connectivity, among others. The code-share agreements currently in place with other airlines include Air Canada, Aeromexico, United Airlines, Copa Airlines, Silver Airways, Iberia, Lufthansa, All Nippon Airways, Singapore Airlines, Eva Airways, Air China, Etihad Airways, Turkish Airlines and Air India. Avianca, Taca International (as well as Taca affiliates) and Avianca Ecuador are members of Star Alliance, which give customers access to destinations and services offered by Star Alliance network. Star Alliance members include several of the world’s most recognized airlines, including Lufthansa, United Airlines, Thai Airways, Air Canada, TAP, Singapore Airlines, among others, as well as smaller regional airlines.
Cargo operations are carried out by our subsidiaries and affiliates, including Tampa Cargo S.A.S. with headquarters in Colombia and Aerotransporte de Carga Union S.A. de C.V. The Group also undertakes cargo operations through the use of hold space on passenger flights and dedicated freight aircraft. In certain of the airport hubs, the Group performs ground operations for third-party airlines. Additionally, an important part of the cargo business is carried by the companies that operate passenger air transportation.
The Group owns and operates a coalition loyalty program called LifeMiles (the “Program”), which is also the frequent flyer Program for the airline subsidiaries of AVH. LifeMiles sells loyalty currency (“Miles”) to its commercial partners and Program members, including to AVH airlines and other airline partners from the Star Alliance network, and collects incentive, fees from partners and members of the Program for certain transactions. These partners in turn use Miles to reward their customers, increasing loyalty for their brands. For instance, partner airlines reward passengers with Miles whenever they fly, financial partners reward cardholders with Miles when they spend with their credit cards, and retail partners reward customers with Miles when they purchase merchandise or other goods and services. Miles earned can be exchanged for flights with Avianca, airline members of Star Alliance and other air partners, as well as for other commercial partners’ products and services such as hotel nights, car rentals and retail merchandise, among other rewards.
Sale of subsidiaries
On April 22, 2019, Grupo Taca Holdings Limited and Nicaragüense de Aviación S.A. Direct shareholders of Turboprop Leasing Company and Aerotaxis La Costeña S.A. they signed a contract of sale of shares of these companies incorporated in Bahamas and Nicaragua, respectively, to Regional Airlines Holding LLC, a company domiciled
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
in Delaware, United States of America, which did not have direct participation of the companies but its own shareholders owned a 32% stake in Turboprop Leasing Company Ltd. and 31.92% in Aerotaxis La Costeña S.A. in accordance with the terms of the contract, the companies and the buyer made the sale on May 31, 2019.
As a result of the transaction, the Group loss the control and ceased to consolidate the Financial Statements of Turboprop Leasing Company Ltd. and Aerotaxis La Costeña S.A. on May 31, 2019.
The following is the summary of the movements in the financial statements due to the sale and the corresponding loss of control of Turbo Leasing Company Ltda. and Aerotaxis La Costeña S.A.
Turboprop Leasing Company Ltd. | Aerotaxis La Costeña S.A. | Total deconsolidation | ||||||||||
Amount of cash in the company | $ | 8,866 | $ | 2,889 | $ | 11,755 | ||||||
Carrying amount of the company assets, without cash | 28,642 | 6,928 | 35,570 | |||||||||
Carrying amount of the company liabilities | (19,480 | ) | (3,729 | ) | (23,209 | ) | ||||||
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Net assets of the subsidiary | 18,028 | 6,088 | 24,116 | |||||||||
Non-controlling interest | (5,769 | ) | (1,943 | ) | (7,712 | ) | ||||||
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GTH / Nicaragüense de Aviación participation | $ | 12,259 | $ | 4,145 | $ | 16,404 | ||||||
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Received consideration: | ||||||||||||
Portion of the consideration consisting of cash | $ | 4,543 | $ | 3,157 | $ | 7,700 | ||||||
Portion of the consideration consisting of accounts receivables (1) | 2,360 | 1,640 | 4,000 | |||||||||
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Fair value of the received consideration | $ | 6,903 | $ | 4,797 | $ | 11,700 | ||||||
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Gains and loss on the sale of the subsidiaries | $ | (5,356) | $ | 652 | $ | (4,704) | ||||||
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(1) | This payment has a maximum term of 180 days after the sale of the companies to be received and depends on the sale of 2 aircraft. If the aircraft are sold for more than $ 4,000, the Group will receive only $4,000, but if they are sold for a lower value, the amount to be received will be for which the aircraft were sold. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
As of September 30, 2019, and December 31, 2018, Avianca Holdings S.A. had a total fleet consisting of:
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Aircraft | Owned/ Financial Lease | Operating Lease (1) | Total | Owned/ Financial Lease | Operating Lease | Total | ||||||||||||||||||
AirbusA-318 (2) | 9 | — | 9 | 10 | — | 10 | ||||||||||||||||||
AirbusA-319 | 23 | 4 | 27 | 23 | 4 | 27 | ||||||||||||||||||
AirbusA-320 (2) | 34 | 26 | 60 | 35 | 26 | 61 | ||||||||||||||||||
AirbusA-320 NEO | 3 | 5 | 8 | 3 | 4 | 7 | ||||||||||||||||||
AirbusA-321 | 7 | 6 | 13 | 7 | 6 | 13 | ||||||||||||||||||
AirbusA-321 NEO | — | 2 | 2 | — | 2 | 2 | ||||||||||||||||||
AirbusA-330 | 3 | 6 | 9 | 3 | 7 | 10 | ||||||||||||||||||
AirbusA-330F | 6 | — | 6 | 6 | — | 6 | ||||||||||||||||||
AirbusA-300F-B4F | 6 | — | 6 | 5 | — | 5 | ||||||||||||||||||
Boeing787-8 | 8 | 5 | 13 | 8 | 5 | 13 | ||||||||||||||||||
Boeing787-9 | — | 1 | 1 | — | — | — | ||||||||||||||||||
ATR-42 | — | — | — | 2 | — | 2 | ||||||||||||||||||
ATR-72 | 15 | — | 15 | 15 | — | 15 | ||||||||||||||||||
Boeing 767F | 2 | — | 2 | 2 | — | 2 | ||||||||||||||||||
Cessna Grand Caravan | — | — | — | 13 | — | 13 | ||||||||||||||||||
EmbraerE-190 (2) | 10 | — | 10 | 10 | — | 10 | ||||||||||||||||||
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126 | 55 | 181 | 142 | 54 | 196 | |||||||||||||||||||
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(1) | As of January 1, 2019, as a result of the adoption of IFRS 16, the leases that are legally denominated operative are recorded in the consolidated statement of financial position as part property and equipment, as well as the recognition of the related financial liability that represents the present value of the minimum payments of the lease contract. (see note 3). |
(2) | As of September 30, 2019, the Group has as assets available for sale 10 EmbraerE-190, 9 Airbus A318 and 3 Airbus A320. |
(2) | Basis of preparation of the condensed consolidated interim financial statements |
Applied Professional Accounting Standards
(a) | Statement of compliance |
The condensed consolidated interim financial statements as of and for the nine months period ended September 30, 2019 and 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board (“IASB”).
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements as of and for the year ended December 31, 2018. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements.
The condensed consolidated interim financial statements of the group as of and for the nine months period ended September 30, 2019 were prepared and submitted by Management and authorized for issuing by the Board of Directors on November 13, 2019.
(b) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for, certain land and buildings (classified as property), derivative financial instruments and plan assets, have been measured at fair value. The carrying values of recognized assets and liabilities that are designated as hedged items in cash flow for changes in fair value that would otherwise be carried at amortized cost are adjusted to recognize changes in the fair values attributable to the risks that are being hedged in effective hedge relationships.
(c) Functional and presentation currency
The Group’s consolidated financial statements are presented in US Dollars, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.
(d) Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
In preparing these Condensed Consolidated Interim Financial Statements, significant judgments were made by Management when applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2018.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The following are critical judgments used in applying accounting policies that may have the most significant effect on the amounts recognized in the Consolidated financial statements:
• | The Group operates certain aircraft under a financing structure which involves the creation of structured entities that acquire aircraft with bank and third–party financing. This relates to 99 aircraft from the A319, A320, A321, A330, A330F, ATR72 and B787 families. The Group has determined, based on the terms and conditions of the arrangements, that the Company controls these special purpose entities (“SPE”) and therefore, SPEs are consolidated by the Group and these aircraft are shown in the consolidated statement of financial position as part of Property and Equipment with the corresponding debt shown as a liability. |
The following assumptions and estimation uncertainties may have the most significant effect on the amounts recognized in the Consolidated financial statements within the next financial year:
The Group periodically evaluates Air traffic liability and any significant adjustment is recorded in the consolidated statements of comprehensive income. These adjustments are mainly due to differences between actual events and circumstances such as historical sales rates and customer travel patterns that may result in refunds, changes or expiration of tickets that differ substantially from the estimates. The Group evaluates its estimates and adjusts deferred revenue for unearned transportation and revenue for passenger transport when necessary.
• | The Group believes that the tax positions taken are reasonable. However, tax authorities by audits proceedings may challenge the positions taken resulting in additional liabilities for taxes and interest that may become payable in future years. Tax positions involve careful judgment on the part of management and are reviewed and adjusted to account for changes in circumstances, such as lapse of applicable statutes of limitations, conclusions of tax audits, additional exposures derived from new legal issues or court decisions on a particular tax. The Group establishes provisions, based on their estimation on feasibility of a negative decision derived from an audit proceeding by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and different interpretations of tax regulations by the taxable entity and the responsible tax authority. Actual results could differ from estimates. |
• | Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized and the tax rates used, based upon the likely timing and the level of future taxable profits together with future tax planning strategies, and the enacted tax rates in the jurisdictions in which the entity operates. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
• | The Group measures administrative land and buildings primarily in Bogota, Medellin, San Jose, and San Salvador at revalued amounts with changes in fair value being recognized in other comprehensive income. The Group engaged independent valuation specialists to assists management in determine the fair value of these assets as of December 31, 2018. The valuation techniques used by these specialists require estimates about market conditions at the time of the report. |
• | The Group estimates useful lives and residual values of property and equipment, including fleet assets based on network plans and recoverable value. Useful lives and residual values area revaluated annually considering the latest fleet plans and business plan information. In the note 12 provides more information about the net book value of the property and equipment and their respective depreciation charges. |
• | The Group evaluates the carrying value of long-lived assets subject to amortization or depreciation whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized when the asset’s carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair market value. |
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. Goodwill and indefinite-lived assets are reviewed for impairment on an annual basis, or on an interim basis whenever a triggering event occurs.
• | The cost of defined benefit pension plans and other post–employment medical benefits and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long–term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. |
For determines the discount rate of the pension plans in Colombia, the management takes as a reference the local market rate.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The mortality rate is based on publicly available mortality tables in Colombia. Future salary increases and pension increases are based on expected future inflation rates in Colombia.
• | The Group estimated the breakage of miles, supported by a third valuation specialist to assist management in this process. The Group considers the behavior of the members based on a segmentation into statistically homogeneous groups of members to be able to project future behaviors, and therefore is considered to be more robust in predicting redemption rates by segment and breakage estimates of the Program. |
• | The Group recognizes a provision in the balance sheet when a third-party account has a legal or implicit obligation as a result of a past event, and it is probable that an exit of liquidity benefits to the obligation is required. In relation to provisions for litigation, the main source of uncertainty is the time of the outcome of the process. |
• | Aircraft lease contracts establish certain conditions in which aircraft shall be returned to the lessor at the end of the contracts. To comply with return conditions, the Group incurs costs such as the payment to the lessor of a rate in accordance with the use of components through the term of the lease contract, payment of maintenance deposits to the lessor, or overhaul costs of components. In certain contracts, if the asset is returned in a better maintenance condition than the condition at which the asset was originally delivered, the Group is entitled to receive compensation from the lessor. The Group accrues a provision to comply with return conditions at the time the asset does not meet the return condition criteria based on the conditions of each lease contract. The recognition of return conditions require management to make estimates of the costs with third parties of return conditions and use inputs such as hours or cycles flown of major components, estimated hours or cycles at redelivery of major components, projected overhaul costs and overhaul dates of major components. At redelivery of aircraft, any difference between the provision recorded and actual costs is recognized in the result of the period. |
(e) Reclassifications
Reclassification have been made to the prior year consolidated financial statements to conform to the current period presentation:
• | “Accounts payable” in the amount of $68,302 in the consolidated statements financial position and “Accrued expenses” in the amount of $12,182 were reclassified into “Employee benefits” at December 31, 2018 to reflect the short term obligation directly related to the employees in the corresponding item, these include salaries, vacations, bonuses and other contributions. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(f) Going Concern
On November 29, 2018, BRW Aviation LLC, our directly controlling holding (“BRW Aviation”), as borrower, and BRW Aviation Holding LLC (“BRW”), as guarantor, entered into a loan agreement (the “United Loan Agreement”), with United Airlines, Inc. (“United”), as lender, and Wilmington Trust, National Association, as administrative and collateral agent (“Wilmington”). Neither Avianca Holdings nor any of its subsidiaries are party to the United Loan Agreement and they are not obligors thereunder.
Under the terms of the United Loan Agreement, BRW pledged to Wilmington, as collateral agent for the benefit of United, all of the common shares that it owns in Avianca Holdings (representing 78.1% of our common shares), among other assets, as security for BRW’s obligations under the United Loan Agreement.
On April 10, 2019, BRW and United informed Avianca Holdings that BRW was in default with the collateral coverage ratio covenant under the United Loan Agreement and that no waiver was granted. Upon such default and pursuant to the terms of the United Loan Agreement.
On May 24, 2019, United initiated and filed an enforcement action against BRW and BRW Holding to enforce the share pledge and seeking to take control of the 78.1% of Avianca Holding’s common shares. Likewise, United appointed Kingsland Holdings Limited (“Kingsland”) as BRW’s manager and, as a result, BRW Holding lost the right to direct the manner in which BRW votes the shares subject to the pledge. Through its ownership of our common shares and its authority as manager of BRW (with the right to direct the voting of the pledged shares), Kingsland assumed voting control over Avianca Holdings. Because Kingsland is a “permitted holder”, as defined under the Company’s main financing agreements, the Company does not believe a change of control has occurred under such financing agreements as a consequence of Kingsland’s appointment as independent third party.
If United, or its collateral agent, were to prevail on the enforcement action on the share pledge, and such action entails a change of ownership of our shares that ultimately constitutes a change of control on Avianca Holdings, it could adversely affect our financial and operational performance and affect our ability to continue as a going concern.
In April 2019, Avianca Holdings received reservation of rights letters from two facility agents in its Export Credit Agencies (“ECA”) financings. These reservation of rights letters are related to the acquisition of certain ATR turboprop aircraft by Synergy Aerospace Corp. (“Synergy”), which are not operated by Avianca.The facility agentsargue that Synergy failed tocomply with certain obligations under othertransactions that are supported by the ECAs. Likewise, certain of our ECA counterparties notified us that an event of default occurred under their respective facilities due to the prior transfer of Avianca Holding’s common shares from Synergy to BRW in November 2018. Certain ECA counterparties have also notified us that we are in default under the ECA, and related lease agreements, because of our payment suspension under certain of our debt instruments and the negotiations held with our creditors for the rescheduling or profiling of certain indebtedness. However, such ECA counterparties have indicated that they will refrain, at this time, from taking any further actions.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Our or Synergy’snon-compliance of its ECA obligations could cause a potential default under Avianca Holdings’ ECA contracts. The aggregate principal amount of our indebtedness in relation to ECA contracts that could be affected by thisnon-compliance potential default provisions is $841.0 million as of September 30, 2019.
The above referenced default of Synergy and ratings downgrade have prevented us from consummating certain anticipated transactions that we expected would have resulted in a significant improvement in our liquidity. Additionally, the foregoing events severely impacted our efforts to refinance near-term maturities of existing debt and our ability to finance capital expenditures. Consequently, our board of directors adopted a transformation plan, which we refer to as the “Avianca 2021” strategic plan, designed to improve operational efficiencies, and reprofile our financial obligations. As part of the “Avianca 2021” strategic plan, on 25, 2019, we unilaterally suspended payments under certain aircraft operating lease agreements as well as debt amortization payments as we seek to obtain deferrals from creditors holding approximately, as of such date, $2,876 billion in debt of which $2,365 billion represented long term debt, under various debt, lease and other agreements, including (i) unsecured revolving lines of credit, (ii) letters of credit, (iii) loans owed to aircraft, (iv) secured loansowed tonon-aircraft secured lenders, (v) unsecured loans owed tonon-aircraft unsecured lenders, and (vi) payments owed to aircraft manufacturers and other vendors. The amount of operating leases payments deferred to date amount $59.3 million. The aggregate amount of payment deferrals we are currently seeking totals approximately $270 million.
Further, the majority of our financing arrangements and aircraft leases, subleases and their
complementary agreements contain covenants and restrictions including limits on our ability and our subsidiaries’ ability to incur additional debt, créate liens and make certain investments (See note 26). Some of these covenants require that we comply with specified financial ratios, including an EBITDAR coverage ratio of not less than 1.5 to 1.00, a capitalization ratio of not more than 0.86 to 1.00, and a minimum liquidity level of $350 million, in addition to other negative and affirmative covenants. As ofSeptember 30, 2019, our EBITDAR coverage ratio was 1.99 to 1.00, our capitalization ratio was 0.92 to 1.00, our EBITDA margin was 13.1% and our liquidity level was $272 million., as of September 30, 2019, we were in default ofthe capitalization ratio, coverage ratio and the liquidity covenants under certain of these financing arrangements and aircraft leases, subleases and complementary agreements.
The above referenced defaults could result in the acceleration of our other indebtedness and in the execution against any collateral securing such indebtedness which would affect our financial and operational performance and affect our ability to continue as a going concern. The aggregate principal amount of our indebtedness in payment default, covenant default or cross default as of September 30, 2019, was $2,876 billion, of which $2,874 billion was secured indebtedness.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Other actions taken by the management of Avianca Holdings under the “Avianca 2021” strategic plan include:
• | Avianca Holdings has executed amendments to some of its more significant financing agreements, and is currently negotiating with respect to some others, in order to include United and its subsidiaries, the collateral agent and the independent third party, each pursuant to the United Loan Agreement, as permitted holders under such financing agreements in order that enforcement actions, such as the voting of the shares of Avianca Holdings by United, such collateral agent or such independent third party, would not constitute a change of control under any such financing agreements. |
• | In particular, Avianca Holdings has negotiated and executed: (i) an amendment to the loan and guaranty agreement entered with Banco de Bogota S.A., New York Agency, as sole lead arranger and bookrunner, on December 31, 2018, as well as an acknowledgment by Banco de Bogota S.A., New York Agency thereunder, which waived and leave without effect the noncompliance and default Company under this loan and guaranty agreement, and (ii) an amendment to the loan agreement entered by USAVFLOW, as borrower, Avianca Holdings, Taca International Airlines, S.A., Avianca Costa Rica S.A., and Avianca Peru S.A., as guarantors, and Citibank N.A., as administrative agent, On December 12, 2017, as well an acknowledgment by Deutsche Bank AG, London Branch thereunder, to waive and leave without effect the noncompliance and default of the Company under this loan agreement. |
• | The abovementioned amendments, and others we are currently negotiating, permitted and would permit United to enforce the share pledge in connection with the United Loan Agreement and take ownership of the common shares of Avianca Holdings without causing a change of control under any of these financing agreements of Avianca Holdings. |
• | Avianca Holdings’ board of directors appointed a new executive management team led by Mr. Anko van der Werff, as Chief Executive Officer, and Mr. Adrian Neuhauser, as Chief Financial Officer. Our board of directors also modified our strategy to focus on Bogotá as our primary strategic hub, as well as to focus on our overall profitability and cost-efficiency, deleveraging our balance sheet and revising our aircraft fleet plans. |
• | Our management took the decisión to sell 24 aircraft from Avianca Holdings Fleet, 10 Embraer E190, 10 Airbus A318 and 4 Airbus 3 A320. We estimate that the sale of such Aircraft will generate approximately $226 million of additional liquidity and reduce total long -term debt by approximately $113 million. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
• | The management has also implemented a plan tore-profile the Company’s capital structure, aimed to improve our liquidity and financial position. As part of thisre-profiling plan, we are currently negotiating deferrals or other consents or waivers from creditors, including lease payment obligations, under various debt, lease and other agreements, including (i) unsecured revolving lines of credit, (ii) letters of credit, (iii) aircraft operating leases, (iv) loans owed in connection with the financing of aircraft, (v) secured loans owed tonon-aircraft secured lenders, (vi) unsecured loans owed tonon-aircraft unsecured lenders, and (vii) payments owed to aircraft manufacturers and other vendors. The aggregate amount of the deferrals we are currently seeking totals approximately $270 million. |
• | On August 14, 2019, Avianca Holdings announced its offer to exchange any and all $550,000 of its existing 8.375% Senior Notes due May 2020 on a par for par basis for up to $550,000 of new 8.375% Senior Secured Notes due May,2020 (the “Secured Notes”), aligned with the Company’sre-profiling program. On November 1, 2019, Avianca Holdings announced the expiration and final results with respect to the offer Exchange previously mentioned, with $484.4 million or 88.1% aggregate principal amount of existing notes validly tendered for Exchange and not validly withdrawn. The Secured Notes provide for automatic conversion into an equivalent principal amount of new 9.00% Secured Notes due May 2023, upon successfully achieving the reprofiling program. |
• | On October 4, 2019, United and Kingsland (collectively , the “Lenders”) delivered to Avianca Holdings a commitment (the “Commitment”) to provide the Company at least a $250 million senior secured convertible loan (the “Convertible Loan”). Under the Commitment, the Lenders would together provide not less than $200 million of the Convertible Loan, and they and the Company have agreed that one or more additional third-party lenders may also participate in the Convertible Loan in respect of the additional $50 million. In addition, the Lenders and the Company have agreed to terms and conditions under which The Company expects to seek to raise an additional $125 million from the Company’s preferred shareholders (the “Preferred Holders”) in the form of senior secured convertible bonds, currently contemplated to be structured as a subscription rights offering to the Preferred Holders proportionate to each Preferred Holder’s interest in the Company. |
Avianca Holdings is not aware and has not been informed of any enforcement action in conjunction with the share pledge under the Loan Agreement entered by BRW and United Airlines, nor any enforcement action taken by the ECAs nor any acceleration of our current indebtedness. As such, the management of Avianca Holdings has assessed the risks described above and considers that it has the ability to continue as a going concern, which is the basis for the preparation of these financial statements.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(3) | New and amended standards and interpretations |
3.1 Amendments to IFRSs that are mandatorily effective for the current year
The Group has applied for the first time some standards and modifications to the standards, which were effective for the periods beginning on January 1, 2019. The Group has not applied any standard, interpretation or modification that has been issued but is not yet effective.
IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases, IFRIC 4 which determines whether an Agreement contains a Lease,SIC-15 Operating Leases—Incentives andSIC-27 that evaluates the substance of transactions that involve the legal form of a lease. The standard establishes the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to consider most of the leases in a single model, recognized in the Statement of Financial Position.
The lessor’s accounting under IFRS 16 remains substantially unchanged from IAS 17. Lessors will continue to classify leases as operating or financial leases using principles similar to those in IAS 17.
The Group has applied IFRS 16 using the modified retrospective approach, according to which the cumulative effect of the initial application realizes the retained earnings as of January 1, 2019. In this case, the comparative information for 2018 has not been restated.
The Group also chose to use the recognition exemptions for lease agreements, which on the start date, have a term of 12 months or less and do not contain a purchase option (short-term leases), and leases for which the underlying asset is of low value (low value assets).
Nature of the effects of adoption of IFRS 16
In January 2016, the IASB issued IFRS 16, which establishes a comprehensive model for the identification of lease agreements and their treatment in the financial statements of both lessees and lessors.
IFRS 16, Leases, must be applied as of January 1, 2019. The new standard requires that lessees recognize an asset and liability for use right in the balance sheet for all contracts that qualify as leases (with the exception of short-term leases for which the underlying asset is of low value) start date of the lease and recognize expenses in the income statement.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The lease liability is measured at the present value of the outstanding lease payments. Lease payments will include fixed payments, variable payments based on an index or rate, reasonably secure purchase options, termination fines, fees paid by the lessee to the owners of a special purpose entity for the restructuring of the transaction, and probable. The amounts that the lease will owe under a residual value guarantee. The lease payment does not include the payment of a variable lease other than those that depend on an index or rate, no guarantee on the part of the lessee of the lessor’s debt, or any amount assigned to the components without a lease.
The Group initially measures the value of theright-of-use assets by the value of the lease liability and includes the value of the payments made before the start of the lease, any initial direct costs incurred by the lessee.
The Group completed its assessment of the impacts of the adoption of IFRS 16 in its consolidated financial statements. The evaluation included the following activities:
Aircraft leases
As of January 1, 2019, the Group had 54 aircraft under operating leases, and the Group registered such aircraft as assets and liabilities of the Group’s right of use with the requirement of the new standard.
The assets by right of use will be accounted for in accordance with IAS 16, Property, Plant and Equipment. Aircraft registered as a right of use will be depreciated over the term of the lease and any qualifying maintenance event will be capitalized and depreciated over the expected lease term and the expected maintenance life.
Real estate leases
The Group has leases related to the operations space of the airport terminal and other real estate. For leases related to the terminal’s operations space, there are usually effective replacement rights in the hands of the lessor and, therefore, these are not considered the lease requirements according to the standard. Airport terminal contracts with variable lease payments are also excluded, and variable lease payments, other than those based on an index or rate, are related to the measurement of the lease liability. Leases of properties that were recorded asright-of-use assets and lease liabilities according to the new standard that relates to the Group’s offices.
Other leases
Other leases related to vehicles, machinery, technology. They have been evaluated, discarding short-term contracts andlow-value assets, and contracts associated with vehicles are mainly recognized as assets with right of use.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Sale and Leaseback transactions
Prior to the adoption of the New Lease Standard, the gains on sale and leaseback transactions of finance lease were deferred and recognized in the income statement over the term of the lease. Profits from sale and leaseback transactions that result in an operating lease are recognized immediately in the income statement without being deferred. Under the New Standard, gains on sale and leaseback transactions with retroactive lease (subject to adjustments fornon-market terms) are recognized immediately if they comply with the requirements of IFRS 15.
At December, 31, 2018 the Group had a deferred gain for $49,242 for previous sale and lease back transactions that subsequent lease was accounted for as a sale and a finance lease applying IAS 17, the group choose not evaluate the sale transactions with the subsequent lease made prior to determine whether the transfer of the asset meets the requirements of IFRS 15 shall be accounted for as a sale, because we choose account for the subsequent lease in the same way as to account for any other financial lease that exists on the date of initial application; and we will continue to amortize any gain on the sale over the term of the lease.
Impacts due to the adoption of the standard (January 1, 2019)
The effects of the adoption of the standard in the Group’s Statement of Financial Position were as follows:
Reported 2018 | Application of the new standard (1)(2) | Adjusted Balances | ||||||||||
Total Assets | 7,118,643 | 1,079,733 | 8,198,376 | |||||||||
Total Liabilities | 6,126,182 | 1,079,733 | 7,205,915 | |||||||||
Total Equity | 992,461 | — | 992,461 |
(1) | The adjustment corresponds to $1,010,200 recognized as assets and liabilities for the right to use aircraft leases, which are presented as Property and Equipment as flight equipment. |
(2) | The adjustment corresponds to $69,533 recognized as assets and liabilities for the right to use leases onnon-aeronautical assets, which are presented into other property. |
(3) | The adjustment has not impact in deferred tax. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Impacts for the nine-months period ended September 30, 2019
The effects of adopting the standard in the consolidated comprehensive income statement were as follows:
Balances as of September 30, 2019 without IFRS 16 | Application adjustment of the new standard | Balances as of September 30, 2019 | ||||||||||
Operating revenue | $ | 3,469,368 | $ | — | $ | 3,469,368 | ||||||
Operational expenses: | ||||||||||||
Ground operations | 359,748 | (7,616 | ) | 352,132 | ||||||||
Aircraft rentals | 193,212 | (186,926 | ) | 6,286 | ||||||||
Depreciation (1) | 519,493 | 169,291 | 688,784 | |||||||||
Other operating expenses | 2,697,524 | — | 2,697,524 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 3,769,977 | (25,251 | ) | 3,744,726 | ||||||||
|
|
|
|
|
| |||||||
Operating (loss) profit | (300,609 | ) | 25,251 | (275,358 | ) | |||||||
Interest expense | (184,759 | ) | (32,852 | ) | (217,611 | ) | ||||||
Foreign exchange | (10,640 | ) | 5,654 | (4,986 | ) | |||||||
Other income andnon-operating expenses | 7,990 | — | 7,990 | |||||||||
|
|
|
|
|
| |||||||
Loss before taxes | (488,018 | ) | (1,947 | ) | (489,965 | ) | ||||||
Income tax expense | (26,099 | ) | — | (26,099 | ) | |||||||
|
|
|
|
|
| |||||||
Net loss for the year | $ | (514,117 | ) | $ | (1,947 | ) | $ | (516,064 | ) | |||
|
|
|
|
|
|
(1) | The accumulated depreciation expense of 2019 related to the rights of use according with IFRS 16, corresponds to the first quarter of 2019 of $59,103, second quarter 2019 of $55,293, third quarter 2019 of $54,895 for an accumulated of $169,291. |
The effects of the adoption of the standard in the State of cash flows were the following:
Balances as of September 30, 2019 | ||||
Net cash provided by operating activities | $ | 196,489 | ||
Net cash used in financing activities | $ | (194,542 | ) |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Summary of the new accounting policy
The following is a summary of the Group’s new accounting policies after the adoption of IFRS 16:
Assets by right of use
The Group recognizes the assets for right of use on the start date of the lease (that is, the date on which the underlying asset is available for use). Theright-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and are adjusted for any new measurement of lease liabilities. The cost of the assets with the right to use includes the amount of the recognized lease liabilities, the initial direct costs incurred, and the lease payments made on or before the start date, less the lease incentives received. The assets recognized by right of use are depreciated in a straight line during the shortest period of their estimated useful life and the term of the lease. The assets by right of use are subject to deterioration.
Lease liabilities
On the start date of the lease, the Group recognizes the lease liabilities measured at the present value of the lease payments that will be made during the term of the lease. Lease payments include fixed payments and variable lease payments that depend on an index or a rate.
Lease payments also include the price of a purchase option that the Group can reasonably exercise and penalty payments for terminating a lease.
Variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the payment occurs.
IFRIC23- Uncertainty over Income Tax Treatments
The interpretation refers to income tax accounting in cases in which the tax treatment includes uncertainties that affect the application of IAS 12 and does not apply to taxes that are outside the scope of this standard, nor does it include specific requirements related to it. with interests and penalties associated with uncertain tax treatments. The interpretation establishes the following:
• | Whether the Group considers uncertain tax treatments separately |
• | The assumptions made by the entity about the examination of tax treatments by the corresponding authorities. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
• | The manner in which the entity determines the fiscal profit (or fiscal loss), fiscal bases, unused fiscal losses or credits, and fiscal rates. |
• | The manner in which the entity considers changes in events and circumstances. |
The Group determined there aren´t impacts are in the application of this standard.
(4) | Segment information |
The Group reports information by segments as established in IFRS 8 “Operating segments”. The Group has two reportable segments, as follows:
• | Air transportation: Corresponds to passenger and cargo operating revenues on scheduled flights and freight transport, respectively. |
• | Loyalty: Corresponds to the coalition loyalty program, the frequent flyer program for the airline subsidiaries of Avianca Holdings S.A. |
The Board of Directors is the Chief Operating Decision Maker (CODM) and monitors the operating results of its reportable segment separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on statement of comprehensive income and is measured consistently with the Group´s consolidated financial statements.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The Group’s operational information by reportable segment for the nine months ended September 30, 2019 are as follows:
For the nine-month period ended September 30, 2019 | ||||||||||||||||
Air transportation | Loyalty (1) | Eliminations | Consolidated | |||||||||||||
Operating revenue: | ||||||||||||||||
External customers | $ | 3,218,685 | $ | 250,683 | $ | — | $ | 3,469,368 | ||||||||
Inter-segment | 108,480 | 858 | (109,338 | ) | — | |||||||||||
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|
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| |||||||||
Total operating revenue | 3,327,165 | 251,541 | (109,338 | ) | 3,469,368 | |||||||||||
Operating expenses | 3,022,040 | 143,240 | (109,338 | ) | 3,055,942 | |||||||||||
Depreciation, amortization and impairment | 679,850 | 8,934 | — | 688,784 | ||||||||||||
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|
|
|
|
|
| |||||||||
Operating (loss) profit | (374,725 | ) | 99,367 | — | (275,358 | ) | ||||||||||
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|
|
|
|
|
| |||||||||
Interest expense | (189,053 | ) | (28,558 | ) | — | (217,611 | ) | |||||||||
Interest income | 6,561 | 1,551 | — | 8,112 | ||||||||||||
Derivative instruments | (1,166 | ) | — | — | (1,166 | ) | ||||||||||
Foreign exchange | (4,877 | ) | (109 | ) | — | (4,986 | ) | |||||||||
Equity method | 1,044 | — | — | 1,044 | ||||||||||||
Income tax expense | (26,143 | ) | 44 | — | (26,099 | ) | ||||||||||
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| |||||||||
Net (loss) profit for the period | $ | (588,359 | ) | $ | 72,295 | $ | — | $ | (516,064) | |||||||
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| |||||||||
Total Assets | $ | 7,413,052 | $ | 257,674 | $ | (213,861 | ) | $ | 7,456,865 | |||||||
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| |||||||||
Total Liabilities | $ | 6,321,137 | $ | 900,164 | $ | (156,568 | ) | $ | 7,064,733 | |||||||
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The Group’s operational information by reportable segment for the nine months ended September 30, 2018 are as follows:
For the nine-month period ended September 30, 2018 | ||||||||||||||||
Air transportation | Loyalty (1) | Eliminations | Consolidated | |||||||||||||
Revenue (2) | ||||||||||||||||
External customers | $ | 3,365,716 | $ | 233,187 | $ | — | $ | 3,598,903 | ||||||||
Inter-segment | 113,176 | 1,459 | (114,635 | ) | — | |||||||||||
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|
|
|
|
|
|
| |||||||||
Total revenue | 3,478,892 | 234,646 | (114,635 | ) | 3,598,903 | |||||||||||
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|
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|
|
|
| |||||||||
Cost of loyalty rewards | 54,951 | 122,750 | (107,350 | ) | 70,351 | |||||||||||
Operating expenses | 3,102,052 | 22,992 | (7,419 | ) | 3,117,625 | |||||||||||
Depreciation and Amortization | 245,356 | 9,899 | (9,583 | ) | 245,672 | |||||||||||
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|
|
|
|
|
|
| |||||||||
Operating expenses | 3,402,359 | 155,641 | (124,352 | ) | 3,433,648 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating profit | 76,533 | 79,005 | 9,717 | 165,255 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Interest expense | (134,588 | ) | (22,184 | ) | — | (156,772 | ) | |||||||||
Interest income | 5,405 | 1,626 | — | 7,031 | ||||||||||||
Derivative instruments | 3,690 | — | — | 3,690 | ||||||||||||
Foreign exchange | (23,669 | ) | (12 | ) | — | (23,681 | ) | |||||||||
Income tax expense | (13,447 | ) | — | — | (13,447 | ) | ||||||||||
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|
|
|
|
| |||||||||
Net segment profit (loss) for the period | $ | (86,076 | ) | $ | 58,435 | $ | 9,717 | $ | (17,924) | |||||||
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| |||||||||
Segment Assets – December 31, 2018 | $ | 7,098,272 | $ | 248,937 | $ | (228,566 | ) | $ | 7,118,643 | |||||||
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| |||||||||
Segment Liabilities – December 31, 2018 | $ | 5,426,718 | $ | 862,834 | $ | (163,370 | ) | $ | 6,126,182 | |||||||
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|
|
(1) | The results, assets and liabilities allocated to the loyalty segment reportable correspond to those attributable directly to the subsidiary LifeMiles Corp., and exclude assets, liabilities, income and expenses of the loyalty program recognized by the Group’s Subsidiaries. |
Inter-segment revenues are eliminated upon consolidation and reflected in the “Eliminations” column.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The Group’s revenues by geographic area for the nine and three months ended September 30, 2019, and 2018 are as follows:
For the nine months ended September 30, | For the three months between July 1 and September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
United States of America | $ | 362,922 | $ | 462,050 | $ | 139,847 | $ | 173,117 | ||||||||
Central America and the Caribbean | 384,484 | 450,423 | 118,659 | 154,292 | ||||||||||||
Colombia | 1,669,501 | 1,643,884 | 589,551 | 538,274 | ||||||||||||
South America (excluding Colombia) | 529,130 | 729,848 | 178,082 | 243,989 | ||||||||||||
Other | 523,331 | 312,698 | 176,424 | 121,570 | ||||||||||||
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|
|
| |||||||||
Total operating revenue | $ | 3,469,368 | $ | 3,598,903 | $ | 1,202,563 | $ | 1,231,242 | ||||||||
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|
|
|
|
|
|
The Group allocates revenues by geographic area based on the point of origin of the flight.Non-current assets are composed primarily of aircraft and aeronautical equipment, which are used throughout different countries and are therefore not assignable to any particular geographic area. Within the aggregations there are no significant countries individually.
(5) | Seasonality |
The results of operations for any interim period are not necessarily indicative of those for the entire year because the business is subject to seasonal fluctuations. These fluctuations are the result of high vacation and leisure demand occurring during the northern hemisphere’s summer season in the third quarter (principally in July and August) and again during the fourth quarter (principally in December). In addition, January is typically a month in which heavy air passenger demand occurs. The lowest levels of passenger traffic are concentrated in February, March and May. Given the proportion of fixed costs, the Company and its subsidiaries expect that quarterly operating results to continue to fluctuate from quarter to quarter. This information is provided to allow for a better understanding of the results; however, management has concluded that this does not constitute “highly seasonal” as defined by IAS 34.
(6) | Foreign exchange |
For the nine-months period ended September 30, 2019, the Group recognized a net loss of $4,986, mainly as a result of the devaluation of the Colombian peso against the US dollar of 6.1%, compared to the exchange rate as of December 31, 2018. For the nine-months period ended September 30, 2018, the Group recognized a net loss of $23,681, mainly as a result of the revaluation of the Colombian peso against the US dollar of 0.3%, compared to the exchange rate as of December 31, 2018.
(7) | Employee benefits |
The Group sponsors defined benefit pension plans, which require contributions to be made to separately administered funds. The Group has also agreed to provide certain additional post-employment benefits. These benefits are unfunded as of December 31, 2018. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit cost method. Actuarial gains and losses for defined benefit plans are recognized in full in the period in which they occur in other comprehensive income.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The defined benefit liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds of the country where each benefit plan is established), less the fair value of plan assets out of which the obligations are to be settled. Plan assets are assets that are held by CAXDAC. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value is based on market price information and in the case of quoted securities on the published bid price. The value of any defined benefit asset recognized is restricted to the sum of any past service costs and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.
The discount rate indexed by Colombian Government bonds was 6.26 % and 7.32% as of September 30, 2019 and December 31, 2018, respectively
(8) | Cash and cash equivalents and restricted cash |
Cash and cash equivalents and restricted cash as of September 30, 2019, December 31, 2018 and September 30, 2018 are as follows:
September 30, 2019 | December 31, 2018 | September 30, 2018 | ||||||||||
Cash on hand and bank deposits | $ | 204,400 | $ | 264,565 | $ | 379,437 | ||||||
Demand and term deposits (1) | 7,533 | 8,543 | 24,082 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents | 211,933 | 273,108 | 403,519 | |||||||||
Restricted cash | — | 4,843 | 8,163 | |||||||||
|
|
|
|
|
| |||||||
Cash, cash equivalents and restricted cash | $ | 211,933 | $ | 277,951 | $ | 411,682 | ||||||
|
|
|
|
|
|
(1) | As of September 30, 2019, and December 31, 2018, within the cash equivalents, there are demand and term deposits that amounted to $7,533 and $ 8,543, respectively. The use of term deposits depends on the cash requirements of the Group. As of September 30, 2019, term deposits accrue annual interest rates between 3.35% and 7.09% in Colombian pesos and between 2.02% and 5.38% in dollars. As of December 31, 2018, term deposits accrue annual interest rates between 2.61% and 4.85% in Colombian pesos and between 2.05% and 4.59% in dollars. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(9) | Trade and other receivables |
Trade and other receivables as of September 30, 2019 and 2018 are as follows:
September 30, 2019 | December 31, 2018 | |||||||
Trade | $ | 224,193 | $ | 258,186 | ||||
Employee advances | 2,637 | 4,848 | ||||||
Other (1) | 59,320 | 73,056 | ||||||
|
|
|
| |||||
$ | 286,150 | $ | 336,090 | |||||
Less Allowance for expected credit losses | (45,586 | ) | (12,430 | ) | ||||
|
|
|
| |||||
Total | $ | 240,564 | $ | 323,660 | ||||
|
|
|
| |||||
Net current | $ | 218,152 | $ | 288,157 | ||||
Net non-current | 22,412 | 35,503 | ||||||
|
|
|
| |||||
Total | $ | 240,564 | $ | 323,660 | ||||
|
|
|
|
(1) | As of September 30, 2019, corresponds mainly to accounts receivable to Chelsea Securities S.A. for $34,980. As of December 31, 2019, corresponds mainly to amounts charged to Rolls Royce to contractual rights acquired in connection with failures in Trent 100 engines. As of September 30, 2019, the amount of this account receivable of $0. |
Changes during the year in the allowance as follows:
September 30, 2019 | December 31, 2018 | September 30, 2018 | ||||||||||
Balance at beginning of year | $ | 12,430 | $ | 13,180 | $ | 13,180 | ||||||
Adjustment implementation IFRS 9 | — | (216 | ) | — | ||||||||
Bad debt expense (1) | 47,352 | 4,526 | 2,226 | |||||||||
Reversion against the allowance | (14,196 | ) | (5,060 | ) | (2,846 | ) | ||||||
|
|
|
|
|
| |||||||
Total | $ | 45,586 | $ | 12,430 | $ | 12,560 | ||||||
|
|
|
|
|
|
(1) | As September 30, 2019, includes impairment of the account receivable assigned by Grupo Aeromar SA of CV to Chelsea Securities, S.A., originated in a potential investment of the AVH Group in the Mexican market, a decision that was not approved ($34,980). |
35
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(10) | Balances and transactions with related parties |
The following is a summary of the balances and related party transactions for the periods ended September 30, 2019, 2018 and December 31, 2018:
Company | Country | September 30, 2019 | December 31, 2018 | September 30, 2018 | ||||||||||||||||||||||||||||||||
Receivables | Payables | Revenues | Expenses | Receivables | Payables | Revenues | Expenses | |||||||||||||||||||||||||||||
SP SYN Participações S.A. | Brazil | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 585 | $ | — | |||||||||||||||||||
OceanAir Linhas Aéreas, S.A. | Brazil | 2,772 | 2,819 | 7,412 | 27,626 | 6,199 | 1,078 | 14,522 | 22,355 | |||||||||||||||||||||||||||
Transportadora del Meta S.A.S. | Colombia | 4 | 499 | 10 | 3,191 | 13 | 569 | 10 | 3,536 | |||||||||||||||||||||||||||
Empresariales S.A.S. | Colombia | — | 325 | — | 1,982 | — | 364 | 5 | 2,709 | |||||||||||||||||||||||||||
Global Operadora Hotelera S.A.S | Colombia | 4 | 509 | 5 | 2,334 | 9 | 532 | 5 | 540 | |||||||||||||||||||||||||||
Corp. Hotelera Internac S.A. | | El Salvador | | — | 166 | — | 632 | — | 203 | — | 546 | |||||||||||||||||||||||||
Other | 57 | 12 | 3 | 58 | 69 | 81 | 5 | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Subtotal | $ | 2,837 | $ | 4,330 | $ | 7,430 | $ | 35,823 | $ | 6,290 | $ | 2,827 | $ | 15,132 | $ | 29,686 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Receivables | Payables | Receivables | Payables | |||||||||||||||||||||||||||||||||
Short–term | $ | 2,837 | $ | 4,330 | $ | 6,290 | $ | 2,827 |
36
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The Group in September 2019 recognized a provision for doubtful accounts in relation with OceanAir Linhas Aéreas, S.A account receivable for $6,488, that corresponds mainly to aircraft rentals and interlineo charges during 2019.
On September 25, 2019, Kingsland Holdings Limited made a loan to Avianca Holdings S.A for a value of $25,000, to interest rate of 5%.
The following is a description of the nature of services provided by and to related parties. These transactions include:
Related party | Nature of Services | |
Corporación Hotelera Internacional S.A. Global Operadora Hotelera S.A.S. | Accommodation services for crews and employees of the Group. | |
Empresariales S.A.S. | Transportation services for employees of Avianca, S.A. | |
OceanAir Linhas Aéreas, S.A. – in judicial reorganization (recuperação judicial) | On December 10, 2018, Oceanair Linhas Aéreas SA, a Brazilian airline that licenses the “Avianca” brand, together with AVB Holding SA, its parent entity, filed a petition for judicial restructuring before the First Bankruptcy Court of the Central District Court of the District of State of Sao Paulo, Brazil. The judicial recovery plan was approved at a general meeting of creditors on April 5, 2019. • On April 12, 2019, judicial recovery was granted and the judge ratified the judicial recovery plan; • Swissport, one of the creditors, filed an interlocutory appeal against the decision that ratified the judicial recovery plan and requested a court order to suspend the auction of isolated productive units (UPI); • The São Paulo State Court granted the mandate of Swissport and suspended the UPI auction until a final resolution on the appeal is pending; • Oceanair and AVB appealed against the suspension of the auction and the São Paulo State Court granted the appeal to allow Oceanair and AVB to proceed with the auction of seven UPIs, which contain airport spaces and the “Amigo Program”; • On July 10, 2019, Oceanair and AVB sold five of their seven UPIs at auction. Gol acquired 3 UPI and Latam 2 UPI; • The ruling on the appeal regarding the approval of the judicial recovery plan was scheduled for July 29, 2019, where there was no unanimous decision and • The appeal ruling will continue August 27, 2019.
To date, the group has signed contracts with Oceanair for logistics, marketing, advertising, maintenance and training services. The Group has signed a license agreement with Oceanair for the use of the Avianca brand in Brazil. In addition, the Group leases aircraft to Oceanair (See Note 23). On November 4, 2014, Tampa Cargo S.A signed a capacity reservation agreement with Oceanair Linhas Aéreas S.A obtaining priority rights and a minimum cargo transport capacity guaranteed on certain flights of the airline. These contracts to date are valid, however, due to the current situation of Oceanair, they are mostly not being executed. | |
Transportadora del meta S.A.S. | It provides Avianca, S.A. ground transportation services for cargo / courier shipments. |
37
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Key management personnel compensation expense
During the nine months periods ended September 30, 2019 and 2018 the short-term employee benefits for key management personnel are $17,871 and $21,682. The Group does not have any long-term benefits including post-employment benefits, defined contribution plan, termination benefits or other long-term benefits for the key management personnel.
Following the detail for short-term compensation:
September 30, 2019 | September 30, 2018 | |||||||
Salaries | $ | 9,706 | $ | 10,647 | ||||
Bonuses | 6,031 | 8,278 | ||||||
Social benefits | 1,968 | 2,283 | ||||||
Loans | — | 429 | ||||||
Compensation | 164 | 40 | ||||||
Others | 2 | 5 | ||||||
|
|
|
| |||||
Total | $ | 17,871 | $ | 21,682 | ||||
|
|
|
|
38
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(11) | Deposits and other assets |
Deposits and other assets as of September 30, 2019 and December 31, 2018 are as follows:
Notes | September 30, 2019 | December 31, 2018 | ||||||||||
Short term: | ||||||||||||
Deposits with lessors (1) | $ | 12,869 | $ | 15,535 | ||||||||
Short term investments (2) | 60,011 | 59,847 | ||||||||||
Guarantee deposits (3) | 2,969 | 2,283 | ||||||||||
Others (4) | 14,422 | 9,542 | ||||||||||
|
|
|
| |||||||||
Subtotal | 90,271 | 87,207 | ||||||||||
Fair value of derivative instruments | 17 | 1,127 | 2,566 | |||||||||
|
|
|
| |||||||||
Total | $ | 91,398 | $ | 89,773 | ||||||||
|
|
|
| |||||||||
Long term: | ||||||||||||
Deposits with lessors (1) | $ | 30,752 | $ | 73,569 | ||||||||
Long term investments – restricted (2) | — | 7,459 | ||||||||||
Guarantee deposits (3) | 9,809 | 14,715 | ||||||||||
Others (4) | 19,841 | 14,983 | ||||||||||
|
|
|
| |||||||||
Subtotal | 60,402 | 110,726 | ||||||||||
Fair value of derivative instruments | 17 | 3 | 4,778 | |||||||||
|
|
|
| |||||||||
Total | $ | 60,405 | $ | 115,504 | ||||||||
|
|
|
|
(1) | Corresponds mainly to maintenance deposits in connection with leased aircraft. These deposits are applied to future maintenance event costs and are calculated on the basis of a performance measure, such as flight hours or cycles. They are specifically intended to guarantee maintenance events on leased aircraft. |
Maintenance deposits paid do not transfer the obligation to maintain aircraft or the costs associated with maintenance activities.
Maintenance deposits are reimbursable to the Group upon completion of the maintenance event in an amount equal to the lesser of (a) the amount of the maintenance deposits held by the lessor associated with the specific maintenance event or (b) the qualifying costs related to the specific maintenance event.
The variation corresponds to the change of guarantee on the debt since now the Group constitutes letters of credit with the same lessor in order to ensure the payments.
(2) | Short term classification corresponds to funds invested that will expire within one year. All treasury cash surpluses are invested as defined and outlined in the Group´s Investment Policy. Otherwise, they are classified as long-term. The restricted investments correspond to CDT’s and bonds constituted by the Trusts held by the Group. |
39
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(3) | Corresponds mainly to amounts paid to suppliers in connections with leasehold of airport facilities, among other service agreements. |
(4) | It mainly corresponds to guarantee deposits pending return with Airbus for delivery of aircraft and funds to guarantee 15% of the outstanding amount of the debt with the bondholders. |
(12) | Property and equipment, net |
The main additions correspond to:
• | Flight equipment: During the nine months ended September 30, 2019, the Group acquired one Airbus A320N aircraft for $33,500, one Boeing787-9 aircraft for $77,673 under lease and one Airbus A300F aircraft, for $14.495. During the nine months ended September 30, 2018, the Group acquired two aircraftA-330-300, two aircraftA-321-200, one aircraftB787-8 and one aircraft A320 under financial leases for $427.751. |
• | Capitalized maintenance: Additions reported for the nine months ended September 30, 2019 and 2018 correspond mainly to major repairs of the fuselage for $16,658 and $10,350, respectively, and major engine repairs for $142,514 and $94,238, respectively. |
• | Reimbursement of predelivery payments (PDP’s): In the item of aircraft advances, as of 30, 2019 September and 2018, the Group capitalized loan costs of $8,778 at an average interest rate of 7.01% and $11,921 at an interest rate average of 7.21%, respectively. |
During the nine months ended September 30, 2019, the Group signed an Aircraft Purchase Agreement Assignment, assigning 3 Boeing787-9 aircraft to Valderrama Aviation Limited, therefore, $90,312 related to this event were disposal.
• | Others: During the nine months ended September 30, 2019 the following capitalizations can be highlighted: |
• | Aircraft tools: $5,188 |
• | BFE process-assembly: $5,087 |
• | Security equipment: $953 |
• | Improvement property $2,017 |
• | On board service equipment: $682 |
• | Rights of use IFRS16- premises and offices: $6,013 |
• | Hangar: $1,892 |
• | Ramp machinery and equipment: $1.670 |
• | Furniture and office equipment $280 |
• | Communication and computer equipment $175 |
40
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Impairment
Impairment of property administrative located in Venezuela $14,867, taking into consideration the significantly high levels of inflation that exist in Venezuela and the volatility of foreign currency exchange rates resulting from continued political instability, we recorded impairment charges of our five offices in Venezuela. As a result of these impairment charges the remaining carrying value of these administrative property is zero.
Sale and Leaseback transactions
See changes with application under IFRS16-Lease Agreements (see note 3)
During the nine months ended at September 30, 2019, the group have not executed lease back transactions.
During the year ended December 31, 2018, the Group obtained a gain of $70,070 related to sale and leaseback transactions:
• | Transaction results in a financial lease: $53,990 was recognized as financial leasing and it has been deferred and will be amortized over the term of financing, $4,049 and $3,513 were recognized in the consolidated statement of comprehensive income, as amortization in September 2019 and 2018, respectively. |
41
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Flight equipment, property and other equipment as of September 30, 2019 and December 31, 2018 is as follows:
Flight Equipment | Capitalized Maintenance | Rotable Spare parts | Reimbursement of predelivery payments | Administrative property | Others | Total | ||||||||||||||||||||||
Gross: | ||||||||||||||||||||||||||||
December 31, 2018 | $ | 5,244,160 | $ | 791,004 | $ | 225,841 | $ | 260,000 | $ | 135,838 | $ | 263,433 | $ | 6,920,276 | ||||||||||||||
Adoption IFRS 16 (see note 3) | 1,010,200 | — | — | — | — | 69,533 | 1,079,733 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
January 1, 2019 | $ | 6,254,360 | $ | 791,004 | $ | 225,841 | $ | 260,000 | $ | 135,838 | $ | 332,966 | $ | 8,000,009 | ||||||||||||||
Additions | 160,136 | 159,172 | 12,183 | 18,701 | — | 28,740 | 378,932 | |||||||||||||||||||||
Disposals | (51,263 | ) | (114,011 | ) | (36,608 | ) | (91,730 | ) | — | (22,635 | ) | (316,247 | ) | |||||||||||||||
Transfers | 6,730 | (2,595 | ) | 9 | (4,149 | ) | — | 5 | — | |||||||||||||||||||
Sale of subsidiaries | (31,270 | ) | (5,424 | ) | (198 | ) | — | — | (2,739 | ) | (39,631 | ) | ||||||||||||||||
Transfers to assets held for sale | (549,000 | ) | (193,859 | ) | (20,086 | ) | — | — | (2,398 | ) | (765,343 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2019 | $ | 5,789,693 | $ | 634,287 | $ | 181,141 | $ | 182,822 | $ | 135,838 | $ | 333,939 | $ | 7,257,720 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||||||
December 31, 2018 | $ | 1,028,191 | $ | 364,976 | $ | 57,238 | $ | — | $ | 10,789 | $ | 145,765 | $ | 1,606,959 | ||||||||||||||
Additions | 283,487 | 109,742 | 17,848 | — | 1,781 | 21,945 | 434,803 | |||||||||||||||||||||
Impairment | 205,783 | — | — | — | 14,867 | — | 220,650 | |||||||||||||||||||||
Disposals | (35,559 | ) | (108,810 | ) | (11,256 | ) | — | (317 | ) | (8,543 | ) | (164,485 | ) | |||||||||||||||
Transfers | 3,939 | (3,939 | ) | 2 | — | — | (2 | ) | — | |||||||||||||||||||
Sale of subsidiaries | (11,560 | ) | (3,597 | ) | (34 | ) | — | — | (1,742 | ) | (16,933 | ) | ||||||||||||||||
Transfers to assets held for sale | (384,998 | ) | (135,127 | ) | (16,377 | ) | — | — | (2,392 | ) | (538,894 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2019 | $ | 1,089,283 | $ | 223,245 | $ | 47,421 | $ | — | $ | 27,120 | $ | 155,031 | $ | 1,542,100 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net: | ||||||||||||||||||||||||||||
December 31, 2018 | $ | 4,215,969 | $ | 426,028 | $ | 168,603 | $ | 260,000 | $ | 125,049 | $ | 117,668 | $ | 5,313,317 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2019 | $ | 4,700,410 | $ | 411,042 | $ | 133,720 | $ | 182,822 | $ | 108,718 | $ | 178,908 | $ | 5,715,620 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Flight equipment, property and other equipment as of September 30, 2018 and December 31, 2017 is as follows:
Flight Equipment | Capitalized Maintenance | Rotable Spare parts | Reimbursement of predelivery payments | Administrative property | Others | Total | ||||||||||||||||||||||
Gross: | ||||||||||||||||||||||||||||
December 31, 2017 | $ | 4,808,885 | $ | 555,619 | $ | 219,067 | $ | 159,303 | $ | 158,217 | $ | 294,306 | $ | 6,195,397 | ||||||||||||||
Additions | 451,145 | 116,021 | 20,241 | 103,154 | 13 | 29,663 | 720,237 | |||||||||||||||||||||
Disposals/Transfers | (15,272 | ) | 6,750 | (10,489 | ) | (11,013 | ) | (262 | ) | (6,968 | ) | (37,254 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2018 | $ | 5,244,758 | $ | 678,390 | $ | 228,819 | $ | 251,444 | $ | 157,968 | $ | 317,001 | $ | 6,878,380 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||||||
December 31, 2017 | $ | 824,774 | $ | 270,780 | $ | 67,560 | $ | — | $ | 10,554 | $ | 140,713 | $ | 1,314,381 | ||||||||||||||
Additions | 139,129 | 61,595 | 8,162 | — | 1,776 | 17,458 | 228,120 | |||||||||||||||||||||
Disposals/Transfers | (13,491 | ) | (1,075 | ) | (9,996 | ) | — | (423 | ) | (1,080 | ) | (26,065 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2018 | $ | 950,412 | $ | 331,300 | $ | 65,726 | $ | — | $ | 11,907 | $ | 157,091 | $ | 1,516,436 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net: | ||||||||||||||||||||||||||||
December 31, 2017 | $ | 3,984,111 | $ | 284,839 | $ | 151,507 | $ | 159,303 | $ | 147,663 | $ | 153,593 | $ | 4,881,016 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2018 | $ | 4,294,346 | $ | 347,090 | $ | 163,093 | $ | 251,444 | $ | 146,061 | $ | 159,910 | $ | 5,361,944 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(13) | Assets held for sale |
Assets held for sale as of September 30, 2019 and December 31, 2018 consisted of the following assets:
September 30, 2019 | December 31, 2018 | |||||||
Flight Simulators (1) | $ | — | $ | 31,580 | ||||
Airbus aircraft (2, 3) | 143,790 | — | ||||||
E-190 aircraft (2, 3) | 63,327 | — | ||||||
|
|
|
| |||||
Total assets held for sale | $ | 207,117 | $ | 31,580 | ||||
|
|
|
|
(1) | The Group signed a sale agreement on January 30, 2019 with CAE International Holdings Ltd., agreeing to sell (10) ten flight simulators belonging to the Group. As of September 30, 2019, the flight simulators were sold, and this operation generated a gain on sale of $5,970. |
(2) | The Group decided to begin the process of selling 10 Airbus 318, 4 Airbus 320 and 10 Embraer 190 in accordance with the business transformation plan where greater efficiency of the operated fleet is sought. This sales process will be progressive and will begin in August 2019 and will be subject to customary closing conditions. As of September 30, 2019, one A320 was sold by $9,150 and one A318 was sold by $10,733, this operation generated a gain on sale of $551. |
(3) | An impairment loss of $205,783 has been recognized under the heading “Depreciation, amortization and impairment”, related to the comparison of the carrying amount of the aircraft indicated in the preceding paragraph to the lowest value between their carrying amount and the fair value less selling costs. |
(4) | The assets classified as held for sale belong to the operating segment ofair transportation. |
44
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(14) | Long–term debt |
Loans and borrowings, measured at amortized cost, as of September 30, 2019 and December 31, 2018 are summarized as follows:
Notes | September 30, 2019 | December 31, 2018 | ||||||||||
Current: | ||||||||||||
Short–term borrowings and current portion of long–term debt | $ | 3,061,336 | $ | 589,366 | ||||||||
Current portion-bonds | 567,881 | 37,376 | ||||||||||
Short-term aircraft rentals - right of use (1) | 89,667 | — | ||||||||||
Short-term other rentals - right of use (1) | 8,899 | — | ||||||||||
|
|
|
| |||||||||
$ | 3,727,783 | $ | 626,742 | |||||||||
|
|
|
| |||||||||
Noncurrent: | ||||||||||||
Long–term debt | $ | 363,198 | $ | 2,830,922 | ||||||||
Noncurrent portion-bonds | — | 549,916 | ||||||||||
Long-term aircraft rentals (1) | 901,840 | — | ||||||||||
Long-term other rentals (1) | 55,017 | — | ||||||||||
|
|
|
| |||||||||
$ | 1,320,055 | $ | 3,380,838 | |||||||||
|
|
|
|
(1) | As of January 1, 2019, as a result of the adoption of IFRS 16, the group recognize leases liabilities in connection with the right of use of assets recognize (see note 3). |
Non-compliance debt
As of September 30, 2019, we have reclassified our long-term short-term debt for $2,365,446 originated in the situations described in note 2(f).
As such, on June 25th we unilaterally suspended debt amortization payments for $101,863 that represents a total debt amount of $2,255 million.
Additionally, the amount of operating leases without payment to date amount to $59.3 million. The debt related to these leases; its long-term portion is not reclassified as its accelerated payment by the lessors is not required.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Terms and conditions of the Group’s outstanding obligations for periods ended September 30, 2019 and December 31, 2018, without consider the reclassification currently presented for thenon-compliance events described in note 2 (f), are as follows:
September 30, 2019 | ||||||||||||||||
Due through | Weighted average interest rate | Face Value | Carrying Amount | |||||||||||||
Short–term borrowings | 2020 | 6.20 | % | $ | 152,960 | $ | 144,280 | |||||||||
Long–term debt | 2029 | 4.67 | % | 5,164,278 | 3,280,254 | |||||||||||
Bonds–Colombia | 2019 | 9.87 | % | — | — | |||||||||||
Bonds– Luxembourg | 2020 | 7.95 | % | 550,000 | 567,881 | |||||||||||
Aircraft rentals | 2029 | 4.83 | % | 1,101,440 | 991,507 | |||||||||||
Other rentals | 2037 | 7.37 | % | 82,172 | 63,916 | |||||||||||
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Total |
| $ | 7,050,850 | $ | 5,047,838 | |||||||||||
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December 31, 2018 | ||||||||||||||||
Due through | Weighted average interest rate | Face Value | Carrying Amount | |||||||||||||
Short–term borrowings | 2019 | 5.81 | % | $ | 130,858 | $ | 119,866 | |||||||||
Long–term debt | 2029 | 4.76 | % | 5,249,987 | 3,300,422 | |||||||||||
Bonds–Colombia | 2019 | 9.87 | % | 81,966 | 28,147 | |||||||||||
Bonds– Luxembourg | 2020 | 7.95 | % | 550,000 | 559,145 | |||||||||||
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Total |
| $ | 6,012,811 | $ | 4,007,580 | |||||||||||
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Bellow we present the detail of the debt balance by type of loan:
September 30, 2019 | December 31, 2018 | |||||||
Aircraft | $ | 2,391,879 | $ | 2,396,748 | ||||
Corporate | 1,032,655 | 1,023,540 | ||||||
Bonds | 567,881 | 587,292 | ||||||
Use rights IFRS 16 | 1,055,423 | — | ||||||
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$ | 5,047,838 | $ | 4,007,580 | |||||
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The majority of interests bearing liabilities are denominated in US dollars except for bonds and certain financing liabilities for working capital which are denominated in Colombian Pesos, and some aircraft debts denominated in Euros.
The main additions for the nine months ended at September 30, 2019 and 2018 corresponds to:
• | Loans (financial leasing) to finance the purchase of aircraft: |
• | During 2019, the Group obtained $161,033 under loans in order to refinance three A319 and nine A320 aircraft. |
• | During 2018, the Group obtained $427,51 in loans to finance the purchase of one B787, one A320, two A321 and two A330 aircraft. |
• | Loans for general purposes of: |
• | During 2019, the Group also obtained $159,460 for general working purposes. Mainly these loans are acquired by LifeMiles, $100,000 at a rate Libor + 5.5 for a term of 3 years, with the purpose of paying dividends. In addition, $25,000 at a 5% rate for a period of 6 months provided by Kingsland Holdings Limited. |
• | During 2018, the Group also obtained $303,640 for general purposes working capital. Mainly these loans are acquired by LifeMiles, $95,000 at a rate Libor + 5.5 for a term of 4 years, with the purpose of paying dividends. |
Senior bonds
As of September 30, 2019, and December 31, 2018 the Senior Notes outstanding, and the corresponding balances are as follows:
Issuing entities | Original currency | Total placed in original currency | Balance as of | |||||||||||||
September 30, | December 31, | |||||||||||||||
2019 | 2018 | |||||||||||||||
Avianca Holdings S.A., Avianca Leasing LLC and Grupo Taca Holdings Limited | USD | 550,000 | $ | 567,881 | $ | 559,145 | ||||||||||
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Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Issuers: | Avianca Holdings S.A., Avianca Leasing, LLC, and Grupo Taca Holdings Limited | |
Guarantors: | Avianca Costa Rica, S.A., Avianca Perú S.A., and Taca International Airlines, S.A. fully and unconditionally guarantee the total Notes. Aerovías del Continente Americano – Avianca, S.A. unconditionally guarantee the obligations of Avianca Leasing, LLC under the Senior Notes in an amount equal to $367 million. | |
Notes offered: | $550,000 aggregate principal amount of 8.375% Senior Notes due 2020. | |
Initial Issue Price: | 98.706% | |
Initial Issue Date: | May 10, 2013 | |
Issue Amount: | $300 million | |
Interest: | The Senior Notes will bear interest at a fixed rate of 8.375% per year. The first issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on November 10, 2013. Interest will accrue from May 10, 2013. The second issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on May 10, 2014. | |
Second Issue Price: | 104.50% | |
Second Issue Date: | April 8, 2014 | |
Maturity Date: | The Senior Notes will mature on May 10, 2020. |
Local bonds
As of September 30, 2019, and December 31 2018, bonds issued and the corresponding balances are as follows:
Issuing entity | Issue | Total placed in original currency (1) | Balance as of | |||||||||||||||||||||
September 30, | December 31 | |||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Original currency (1) | In US Dollars | Original currency (1) | In US Dollars | |||||||||||||||||||||
Avianca | Series A | 75,000 | — | — | — | — | ||||||||||||||||||
Avianca | Series B | 158,630 | — | — | — | — | ||||||||||||||||||
Avianca | Series C | 266,370 | — | — | 90,566 | 28,147 | ||||||||||||||||||
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Total | $ | — | $ | 28,147 | ||||||||||||||||||||
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(1) | Presentation of original currency in millions of Colombian pesos |
On August 25, 2009 a bond issue was completed on the Colombian stock exchange, which is collateralized by Credibanco and Visa credit cards ticket sales in Colombia.
On August 26, 2019, these bonds were redeemed by $23,207.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The specific conditions of the 2009 bond issue in Colombia are as follows:
Representative of bondholders: | Helm Trust, S.A. | |
Amount of issue: | $500,000 million Colombian Pesos | |
Managing agent: | Fiduciaria Bogota, S.A. | |
Series: | Series A: Authorized issue $100,000 million Colombian Pesos Series B: Authorized issue $200,000 million Colombian Pesos Series C: Authorized issue $300,000 million Colombian Pesos | |
Coupon: | Series A: Indexed to Colombian consumer price index Series B: Indexed to Colombian consumer price index Series C: Indexed to Colombian consumer price index Interest is payable at quarter–end | |
Term: | Series A: 5 years Series B: 7 years Series C: 10 years | |
Repayment of capital: | Series A: At the end of 5 years Series B: 50% after 6 years and 50% after 7 years Series C: 33% after 8 years, 33% after 9 years and 34% after 10 years |
As of September 30, 2019, and December 31, 2018, the Group had unsecured revolving lines of credit with different financial institutions in the aggregate amounts of $259,148, and $423,880, respectively. As of September 30, 2019, and December 31, 2018, there were $20,638, and $109,059 unused credit line balances, respectively, under these facilities. These revolving lines of credit are preapproved by the financial institutions and the Group may withdraw funds if it has working capital requirements.
Future payments on long–term debt
Future payments including interests on long–term debt for the periods ended September 30, 2019 and December 31, 2018:
Years | ||||||||||||||||||||||||
One | Two | Three | Four | Five and thereafter | Total | |||||||||||||||||||
September 30, 2019 | $ | 3,065,881 | $ | 77,350 | $ | 327,335 | $ | 404 | $ | 2,044 | $ | 3,473,014 | ||||||||||||
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December 31, 2018 | $ | 469,500 | $ | 457,737 | $ | 529,125 | $ | 608,026 | $ | 1,236,034 | $ | 3,300,422 | ||||||||||||
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Future payments including interests on bonds for the periods ended September 30, 2019 are as follows:
Years | ||||||||||||||||||||||||
One | Two | Three | Four | Five and thereafter | Total | |||||||||||||||||||
September 30, 2019 | $ | 595,919 | $ | — | $ | — | $ | — | $ | — | $ | 595,919 | ||||||||||||
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December 31, 2018 | $ | 37,376 | $ | 549,916 | $ | — | $ | — | $ | — | $ | 587,292 | ||||||||||||
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Future payments on including interests 54 aircraft leasing NIIF 16 for the periods ended September 30, 2019 are as follows:
Years | ||||||||||||||||||||||||
One | Two | Three | Four | Five and thereafter | Total | |||||||||||||||||||
September 30, 2019 | $ | 288,132 | $ | 256,180 | $ | 214,390 | $ | 166,934 | $ | 219,477 | $ | 1,145,113 | ||||||||||||
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Future payments on including interests other leasing NIIF 16 for the periods ended September 30, 2019 are as follows:
Years | ||||||||||||||||||||||||
One | Two | Three | Four | Five and thereafter | Total | |||||||||||||||||||
September 30, 2019 | $ | 8,576 | $ | 8,519 | $ | 8,745 | $ | 8,988 | $ | 31,586 | $ | 66,414 | ||||||||||||
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50
Table of Contents
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Changes in liabilities derived from financing activities at September 30, 2019
January 1, 2019 | Adoption IFRS 16 | New acquisitions (2) | New Leases (1) | Financial Cost | Payments | Interest Payments | Foreign exchange movement / Others | Reclassification (3) | September 30, 2019 | |||||||||||||||||||||||||||||||
Current interest-bearing loans and borrowings (excluding items listed below) | $ | 119,866 | $ | — | $ | 50,460 | $ | — | $ | 5,226 | $ | (25,342 | ) | $ | (4,650 | ) | $ | (1,280 | ) | $ | — | $ | 144,280 | |||||||||||||||||
Current portion of long-term credits (excluding items listed below) | 469,500 | — | 62,238 | — | 108,652 | (270,557 | ) | (118,994 | ) | (9,302 | ) | 2,675,519 | 2,917,056 | |||||||||||||||||||||||||||
Current Bonds | 587,292 | — | — | — | 36,222 | (26,879 | ) | (25,087 | ) | (3,667 | ) | — | 567,881 | |||||||||||||||||||||||||||
Noncurrent portion of long term debt | 2,830,922 | — | 207,795 | — | — | — | — | — | (2,675,519 | ) | 363,198 | |||||||||||||||||||||||||||||
Aircraft rentals | — | 1,010,200 | — | 132,598 | 32,548 | (151,291 | ) | (32,548 | ) | — | — | 991,507 | ||||||||||||||||||||||||||||
Other rentals | — | 69,533 | — | 4,222 | 3,431 | (4,185 | ) | (3,431 | ) | (5,654 | ) | — | 63,916 | |||||||||||||||||||||||||||
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Total liabilities from financing activities | $ | 4,007,580 | $ | 1,079,733 | $ | 320,493 | $ | 136,820 | $ | 186,079 | $ | (478,254 | ) | $ | (184,710 | ) | $ | (19,903 | ) | $ | — | $ | 5,047,838 | |||||||||||||||||
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(1) | Goods and equipment acquired during the period under finance and operative lease; these movements have no effect on the statement of cash flows. |
(2) | The value indicated in the cash flow is $311,493, the difference of $9,000 corresponds to a loan acquired by Aerounion for the acquisition of the Airbus A330 aircraft with Scotiabank Bank, a movement that is not shown because it is related to property and equipment. |
(3) | A reclassification of long-term short-term debt of $2,365,446 has been made for purposes ofnon-compliance in some terms and conditions of our debts, which are currently being negotiated. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Changes in liabilities derived from financing activities at September 30, 2018
January 1, 2018 | Payments | Interest Payments | Foreign exchange movement | New acquisitions | New Leasings (1) | Financials Costs (2) | Other | September 30, 2018 | ||||||||||||||||||||||||||||
Current interest-bearing loans and borrowings (excluding itmes listed below) | $ | 79,263 | $ | (15,525 | ) | $ | (2,994 | ) | $ | (153 | ) | $ | 66,931 | $ | — | $ | 10,350 | $ | (4,994 | ) | $ | 130,878 | ||||||||||||||
Current portion of long-term credits (excluding items listed below) | 463,351 | (82,560 | ) | (41,641 | ) | (670 | ) | — | — | 146,443 | 4,522 | 489,445 | ||||||||||||||||||||||||
Bonds current | 29,458 | — | (27,608 | ) | 683 | — | — | 45,931 | — | 48,464 | ||||||||||||||||||||||||||
Non-current obligations under financial lease agreements and purchase agreements | 2,600,450 | (229,471 | ) | (72,729 | ) | 2,079 | 214,306 | 427,751 | (23,062 | ) | (4,857 | ) | 2,914,467 | |||||||||||||||||||||||
Bonds | 579,591 | (29,402 | ) | — | (332 | ) | — | — | — | — | 549,857 | |||||||||||||||||||||||||
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Total liabilities from financing activities | $ | 3,752,113 | $ | (358,958 | ) | $ | (144,972 | ) | $ | 1,607 | $ | 281,237 | $ | 427,751 | $ | 179,662 | $ | (5,329 | ) | $ | 4,133,111 | |||||||||||||||
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(1) | Goods and equipment acquired during the period under finance lease; these movements have no effect on the statement of cash flows. |
(2) | This column contains the value of the interest caused by the nine months to September 30, 2018 for $158,644 and the initial balance of interest payable related to the financial obligations of $21,018. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(15) | Loss per share |
The calculation of basic loss per share at September 30, 2019 and 2018 is as follows:
Before special charges September 30, 2019 | Total September 30, 2019 | Total September 30, 2018 | ||||||||||
Net loss attributable to Avianca Holdings S,A, | $ | (241,117 | ) | $ | (533,748 | ) | $ | (37,908 | ) | |||
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Weighted average number of shares | ||||||||||||
(in thousands of shares) | ||||||||||||
Common stock | 660,800 | 660,800 | 660,800 | |||||||||
Preferred stock | 336,187 | 336,187 | 336,187 | |||||||||
Earnings per share (1) | ||||||||||||
Common stock | $ | (0.24 | ) | $ | (0.54 | ) | $ | (0.04 | ) | |||
Preferred stock | $ | (0.24 | ) | $ | (0.54 | ) | $ | (0.04 | ) |
(1) | Expressed in cents. |
There aren’t interest on convertible preference shares.
There aren’t diluted shares because the company has no preferred shares or other convertible bonds.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(16) | Other Comprehensive Income (“OCI”) Reserves |
The movement of the other comprehensive income as of December 31 2018, to September 30, 2019, is as follows:
Attributable to owners of the Company | ||||||||||||||||||||||||||||||||||||
Income tax reserves relating to (4) | ||||||||||||||||||||||||||||||||||||
Hedging reserves (1) | Fair value reserves (2) | Reserves relating to actuarial gains and losses (3) | Fair value reserves | Reserves relating to actuarial gains and losses | Revaluation of administrative property (5) | Total | NCI | Total OCI | ||||||||||||||||||||||||||||
As of December 31, 2018 | $ | (7,194 | ) | $ | (748 | ) | $ | (74,177 | ) | $ | 3 | $ | 86 | $ | 37,934 | $ | (44,096 | ) | $ | 194 | $ | (43,902 | ) | |||||||||||||
Other comprehensive Income (loss) for the Period | 511 | 1,222 | (32,844 | ) | — | 373 | — | (30,738 | ) | (430 | ) | (31,168 | ) | |||||||||||||||||||||||
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As of September 30, 2019 | $ | (6,683 | ) | $ | 474 | $ | (107,021 | ) | $ | 3 3 | $ | 459 | $ | 37,934 | $ | (74,834 | ) | $ | (236 | ) | $ | (75,070 | ) | |||||||||||||
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The movement of the other comprehensive income as of December 31 2018, to September 30, 2018, is as follows:
Attributable to owners of the Company | ||||||||||||||||||||||||||||||||||||
Income tax reserves relating to (4) | ||||||||||||||||||||||||||||||||||||
Hedging reserves (1) | Fair value reserves (2) | Reserves relating to actuarial gains and losses (3) | Fair value reserves | Reserves relating to actuarial gains and losses | Revaluation of administrative property (5) | Total | NCI | Total OCI | ||||||||||||||||||||||||||||
As of December 31, 2017 | $ | 6,507 | $ | (681 | ) | $ | (65,138 | ) | $ | 3 | $ | 125 | $ | 58,382 | $ | (802 | ) | $ | 455 | $ | (347 | ) | ||||||||||||||
Other comprehensive Income (loss) for the Period | 9,495 | (530 | ) | 6,060 | — | (207 | ) | — | 14,818 | 415 | 15,233 | |||||||||||||||||||||||||
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As of September 30, 2018 | $ | 16,002 | $ | (1,211 | ) | $ | (59,078 | ) | $ | 3 | $ | (82 | ) | $ | 58,382 | $ | 14,016 | $ | 870 | $ | 14,886 | |||||||||||||||
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(1) | Hedging Reserves |
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash flows (See Note 17).
(2) | Fair value reserves |
The fair value reserve comprises the cumulative net change in the fair value of available–for–sale financial assets until the assets are derecognized or impaired.
(3) | Reserve relating to actuarial gains and losses |
It comprises actuarial gains or losses on defined benefit plans and post–retirement medical benefits recognized in other comprehensive income.
(4) | Income tax on other comprehensive income |
Whenever an item of other comprehensive income gives rise to a temporary difference, a deferred income tax asset or liability is recognized directly in other comprehensive income
(5) | Revaluation of administrative property |
Revaluation of administrative property is related to the revaluation of administrative buildings and property in Colombia, Costa Rica, and El Salvador. The revaluation reserve is adjusted for increases or decreases in fair values of such property.
The following provides an analysis of items presented net in the statement of consolidated statement of comprehensive income which have been subject to reclassification, without considering items remaining in OCI which are never reclassified to profit of loss:
September 30, | ||||||||
2019 | 2018 | |||||||
Cash flow hedges: | ||||||||
Reclassification during the year to profit or loss | $ | (7,532 | ) | $ | (3,690 | ) | ||
Effective valuation of cash flow hedged | 7,846 | 13,185 | ||||||
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$ | 314 | $ | 9,495 | |||||
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Fair value reserves: | ||||||||
Valuations of investments in fair value with changes in OCI | $ | 1,222 | $ | (530 | ) | |||
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$ | 1,222 | $ | (530 | ) | ||||
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(17) | Derivatives recognized as hedging instruments |
Financial instruments recognized as hedging instruments at fair value though other comprehensive income as of September 30, 2019 and December 31, 2018, are the following:
September 30, 2019 | December 31, 2018 | |||||||||||
Cash flow hedges - assets | ||||||||||||
Fuel price | 11 | $ | 1,127 | $ | 2,566 | |||||||
Interest rate | 11 | 3 | 4,890 | |||||||||
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Total | $ | 1,130 | $ | 7,456 | ||||||||
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Cash flow hedges - liabilities | ||||||||||||
Interest rate | $ | 2,608 | $ | — | ||||||||
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Total | $ | 2,608 | $ | — | ||||||||
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The notional value of derivatives recognized as hedging instruments for the year ended September 30, 2019 and December 31, 2018 is equivalent to 21,286,500 and 92,560,000, respectively, gallons of jet fuel for aircraft.
Financial assets and liabilities at fair value through other comprehensive income reflect the change in fair value of fuel price derivative contracts designated as cash flow hedges. Hedged items are designated future purchases deemed as highly probable forecast transactions.
Cash flow hedges liabilities are recognized within Other Liabilities in the consolidated statement of financial position.
The Group purchases jet fuel on an ongoing basis as its operating activities require a continuous supply of this commodity. The increased volatility in jet fuel prices has led the Group to the decision to enter into commodity contracts. These contracts are expected to reduce the volatility attributable to fluctuations in jet fuel prices for highly probable forecast jet fuel purchases, in accordance with the risk management strategy outlined by the Board of Directors. The contracts are intended to hedge the volatility of the jet fuel prices for a period between three and twelve months based on existing purchase agreements.
The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur, and the fair values of the related hedging instruments to September 30, 2019 and December 31, 2018:
September 30, 2019 | Fair Value | 1–12 months | 12–24 months | |||||||||
Fuel price | ||||||||||||
Assets | $ | 1,127 | $ | 1,127 | $ | — | ||||||
Interest rate | ||||||||||||
Assets | $ | 3 | $ | — | $ | 3 | ||||||
Liabilities | $ | 2,608 | $ | — | $ | 2,608 |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
December 31, 2018 | Fair Value | 1–12 months | 12–24 months | |||||||||
Fuel price | ||||||||||||
Assets | $ | 2,566 | $ | 2,566 | $ | — | ||||||
Interest rate | ||||||||||||
Assets | $ | 4,890 | $ | 112 | $ | 4,778 |
The terms of the cash flow hedging contracts have been negotiated for the expected highly probable forecast transactions to which hedge accounting has been applied. As of September 30, 2019, and 2018, a net (loss)/gain relating to the hedging instruments of $314 and $9,495 respectively is included in other comprehensive income (see Note 16).
(18) | Derivative financial instruments |
Derivative financial instruments at fair value through profit or loss as of September 30, 2019 and December 31, 2018 are the following:
September 30, 2019 | December 31, 2018 | |||||||
Derivatives not designated as hedges – liabilities Derivative contracts of interest rate | $ | 65 | $ | (17 | ) | |||
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|
|
| |||||
Total | $ | 65 | $ | (17 | ) | |||
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|
|
Financial instruments through profit or loss are derivative contracts not designated as hedges for accounting purposes that are intended to reduce the levels of risk of foreign currency and interest rates.
Liabilities on derivatives not designated as hedges are recognized within Other Liabilities in the consolidated statement of financial position.
Foreign currency risk
Certain foreign currency forward contracts are measured at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The foreign currency forward contract balances vary with the level of expected foreign currency sales and purchases and changes in foreign currency forward rates.
Interest rate risk
The Group incurs interest rate risk primarily on financial obligations to banks and aircraft lessors. Certain financial derivative instruments are recognized at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The interest rate contracts vary according to the level of expected interest payable and changes in interest rates of financial obligations. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps and options. Under these agreements, the Group pays a fixed rate and receives a variable rate.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(19) | Offsetting of Financial Instruments |
The Group has derivative instruments that could meet the offsetting criteria in paragraph 42 of IAS 32 given that the Group has signed with its counterparties enforceable master netting arrangements. Consequently, when derivatives signed with the same counterparty and for the same type of notional result in gross assets and liabilities, the positions are set off resulting in the presentation of a net derivative. As of September 30, 2019, and December 31, 2018, the Group has not set off derivative instruments because it has not had gross assets and liabilities with the same counterparty for the same type of notional.
(20) | Fair value measurements |
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities as of September 30, 2019:
Quantitative disclosures of fair value measurement hierarchy for assets:
Fair value measurement using | ||||||||||||||||
Assets measured at fair value | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Derivative financial assets (Note 17 and 18) | ||||||||||||||||
Aircraft fuel hedges | $ | — | $ | 1,127 | $ | — | $ | 1,127 | ||||||||
Interest rate derivatives | — | 3 | — | 3 | ||||||||||||
Investments | — | 60,011 | — | 60,011 | ||||||||||||
Assets plan | — | 183,233 | — | 183,233 | ||||||||||||
Revalued administrative property (Note 12) | $ | — | $ | — | $ | 108,718 | $ | 108,718 |
Quantitative disclosures of fair value measurement hierarchy for liabilities:
Fair value measurement using | ||||||||||||||||
Liabilities measured at fair value | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Interest rate derivatives | $ | — | $ | 2,673 | $ | — | $ | 2,673 | ||||||||
Liabilities for which fair values are disclosed | ||||||||||||||||
Short–term borrowings and long–term debt | $ | — | $ | 5,176,027 | $ | — | $ | 5,176,027 |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities as of December 31, 2018:
Quantitative disclosures of fair value measurement hierarchy for assets:
Fair value measurement using | ||||||||||||||||
Assets measured at fair value | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Derivative financial assets (Note 17 and 18) | ||||||||||||||||
Aircraft fuel hedges | $ | — | $ | 2,566 | $ | — | $ | 2,566 | ||||||||
Interest rate derivatives | — | 4,890 | — | 4,890 | ||||||||||||
Investments | — | 67,306 | — | 67,306 | ||||||||||||
Assets plan | — | 178,594 | — | 178,594 | ||||||||||||
Revalued administrative property (Note 12) | $ | — | $ | — | $ | 125,049 | $ | 125,049 |
Quantitative disclosures of fair value measurement hierarchy for liabilities:
Fair value measurement using | ||||||||||||||||
Liabilities measured at fair value | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Foreign currency derivatives | $ | — | $ | (17 | ) | $ | — | $ | (17 | ) | ||||||
Liabilities for which fair values are disclosed | ||||||||||||||||
Short–term borrowings and long–term debt | $ | — | $ | 4,022,707 | $ | — | $ | 4,022,707 |
Fair values hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows:
Level 1 | Observable inputs such as quoted prices in active markets | |
Level 2 | inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or | |
Level 3 | inputs are unobservable inputs for the asset or liability. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re–assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Fair values have been determined for measurement and/or disclosure purposes based on the following methods.
(a) | The fair value of financial assets which changes in OCI is determined by reference to the present value of future principal and interest cash flows, discounted at a market based interest rate at the reporting date. |
(b) | The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate contracts, foreign currency forward contracts and commodity contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign currency spot and forward rates, interest rate curves and forward rate curves of the underlying commodity. |
(c) | The fair value of short–term borrowings and long–term debt, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at a market-based interest rate at the reporting date.For finance leases, the market rate is determined by reference to similar lease agreements. |
(d) | The Group uses the revaluation model to measure its land and buildings which are composed of administrative properties. Management determined that this constitutes one class of asset under IAS 16, based on the nature, characteristics and risks of the property. The fair values of the properties were determined by using market comparable methods. This means that valuations performed by the appraisals are based on active market prices, adjusted for difference in the nature, location or condition of the specific property. The Group engaged accredited independent appraisals, to determine the fair value of its land and buildings. |
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(21) | Income tax expense |
Assets and liabilities for taxes as of September 30, 2019 and December 31, 2018 are as follows:
September 30, 2019 | December 31, 2018 | |||||||
Current income tax – assets | 116,722 | $ | 152,601 | |||||
Other current taxes | ||||||||
Current VAT – assets | 94,779 | 72,857 | ||||||
Other taxes current | 6,530 | 6,456 | ||||||
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| |||||
Total other current taxes | 101,309 | 79,313 | ||||||
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| |||||
Total current tax – assets | $ | 218,031 | $ | 231,914 | ||||
Non-current income tax – assets | — | 19 | ||||||
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| |||||
Total tax – assets | $ | 218,031 | $ | 231,933 | ||||
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| |||||
Current income tax – liabilities | $ | (19,840 | ) | $ | (26,702 | ) | ||
|
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|
|
The major components of income tax expense for the nine-months ended September 30, 2019, and 2018 are:
Consolidated statement of comprehensive income
September 30, 2019 | September 30, 2018 | |||||||
Current income tax: | ||||||||
Current income tax charge | $ | (20,438 | ) | $ | (19,120 | ) | ||
Deferred tax expense: | ||||||||
Relating to origination and reversal of temporary differences | (5,661 | ) | 5,673 | |||||
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|
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| |||||
Income tax expense reported in the income statement | $ | (26,099 | ) | $ | (13,477 | ) | ||
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|
Consolidated statement of other comprehensive income
September 30, 2019 | September 30, 2018 | |||||||
Reserves relating to actuarial gains and losses | $ | 373 | $ | (207 | ) | |||
Income tax expense charged directly to other comprehensive income | $ | 373 | $ | (207 | ) | |||
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The Group files tax returns in many jurisdictions around the world. Tax returns contain issues that are potentially subject to different interpretations of tax laws and regulations, which may lead to inquiries and legal claims with tax authorities. The resolution of these consultations and legal claims may take several years, but the Group does not currently expect that resolution to have any significant impact on the consolidated financial position or results of operations. The extent to which there are open consultations and legal claims will depend on the jurisdiction and the issue in question.
Income tax expense is recognized based on management’s estimate of the weighted average effective annual income tax rate expected for the full financial year for each component. As of September 30, 2019, there is no effective tax rate, considering that although some of the components are taxed based on their individual profit, a loss is presented in the consolidated statements of comprehensive income. As of September 30, 2018, the estimated annual effective rate was 28%, due to the increase in the current tax mainly for Avianca Ecuador, and a decrease in the deferred tax.
(22) | Provisions for legal claims |
As of September 30, 2019, and December 31, 2018 the Group is involved in different lawsuits and legal actions that arise in the development of commercial activities.
The changes in provisions for litigation as of September 30, 2019 and December 31, 2018 are as follows:
September 30, 2019 | December 31, 2018 | September 30, 2018 | ||||||||||
Balances at the beginning of the period | $ | 7,809 | $ | 11,720 | $ | 11,720 | ||||||
Provisions constituted | 16,890 | 2,034 | 1,153 | |||||||||
Provisions reverse | (5,984 | ) | (5,007 | ) | (3,219 | ) | ||||||
Provisions used | (2,236 | ) | (938 | ) | (348 | ) | ||||||
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| |||||||
Balances at the end of the period | $ | 16,479 | $ | 7,809 | $ | 9,306 | ||||||
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|
|
Among the provisions for litigation are those related to labor processes (September 30, 2019: $4,954, December 2018: $3,695), consumer protection processes (September 30, 2019: $2,083, December 2018: $1,133) and civil processes (September 30, 2019: $816, December 2018: $795).
Certain processes are considered possible obligations. Based on the plaintiffs’ claims as of September 30, 2019 and December 31, 2018, these contingencies total $197,811 and $123,216, respectively. Certain losses that may arise from such litigation will be covered by the insurance companies or with funds provided by third parties. Legal claims resolved with the aforementioned forms of payment are estimated at $24,289 as of September 30, 2019 and $ 56,210 as of December 31, 2018.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
In accordance with IAS 37, the legal claims that the Group considers representing a remote risk are not contemplated in the consolidated financial statements.
Current Situation with Oceanair Linhas Aereas S.A.
On December 10th, 2018 Oceanair Linhas Aereas S.A. (See Note10-Balances and transactions with related parties) and AVB Holdings S.A., both separate related companies not integrated with the Group, filed for a judicial recovery request before the 1st Judicial Recovery and bankruptcy court of Sao Paulo, Brazil.
Derived from this event, the Group is currently assessing the potential impacts related to all commercial agreements executed between certain companies of the Group and Oceanair Linhas Aereas S.A., including a sublease agreement of 1 aircraft A319.
The Group has formally requested the termination and redelivery of three aircraft in compliance with the terms and conditions set forth in each of the sublease agreements.
The parties agreed to finish three subleased aircraft Sublease Agreements (1 A330, 1A330F and 1 A319) in February 2019 the first two and in August 2019 the third one, and were already redelivered to Avianca in February, March and August 2019 respectively, and we are currently negotiating the redelivery of the remaining aircraft A319.
In regard to the redelivery of the subleased aircraft, the Group is evaluating the process of reincorporating these aircraft into the Group operation or eventually its sale to third parties.
Internal investigation to determine whether we may have violated the U.S. Foreign Corrupt Practices Act and other laws
Through its internal processes, Avianca Holdings discovered a business practice whereby company employees, which may include members of senior management, as well as certain members of the board of directors, provided things of value, which as of today Avianca Holdings believes to have been limited to free and discounted airline tickets and upgrades, to government employees in certain countries. Avianca Holdings commenced an internal investigation and retained outside counsel and a forensic investigatory firm to determine whether this practice may have violated the U.S. Foreign Corrupt Practices Act (“FCPA”) or other potentially applicable U.S. andnon-U.S. anti-corruption laws. Additionally, Avianca Holdings implemented policies designed to prevent such practice from occurring in the future. On August 13, 2019, Avianca Holdings voluntarily disclosed this investigation to both the U.S. Department of Justice and the SEC, and Avianca Holdings is cooperating with both agencies. On the same date, Avianca Holdings voluntarily disclosed this investigation to the Colombian Financial Superintendence through the National Registry of Securities and Issuers.
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
At this time, the investigation continues and it is not possible to determine in the event of default the amount of the sanctions of the regulatory entities.
(23) | Future aircraft leases payments |
The Group has 111 aircraft that are under financial leasing. The following is the summary of future financial lease commitments:
Aircraft | ||||
Less than one year | $ | 395,771 | ||
Between one and five years | 1,221,427 | |||
More than five years | 779,806 | |||
|
| |||
$ | 2,397,004 | |||
|
|
The Group has 55 aircraft that are under operating leases with an average lease term of 50 months. Operating leases can be renewed, in accordance with the Administration’s business plan. The following is the summary of the future commitments of operating leases:
Aircraft | ||||
Less than one year | $ | 240,254 | ||
Between one and five years | 697,471 | |||
More than five years | 230,841 | |||
|
| |||
$ | 1,168,566 | |||
|
|
(1) | As of January 1, 2019, as a result of the adoption of IFRS 16, the leases that are legally denominated operative are recorded in the consolidated statement of financial position as part of ownership of plant and equipment-flight equipment as well as the recognition of the related financial liability that represents the present value of the minimum payments of the lease contract. (see note 3). |
The Group has 10 engines under an operating lease contract for its aircraft fleet of the E190 and A320 families. The following is the summary of the future commitments of operating leases:
Engines | ||||
Less than one year | $ | 9,512 | ||
Between one and five years | 24,909 | |||
More than five years | 4,663 | |||
|
| |||
$ | 39,084 | |||
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AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
As of September 30, 2019, the Group had one Airbus A319, under operating lease to OceanAir Linhas Aereas, S.A. (See note 22) and twoE-190 to Aerolitoral, S.A. de C.V. Future minimum income from these lease agreements is as follows:
Aircraft | ||||
Less than one year | $ | 6,166 | ||
Between one and five years | — | |||
More than five years | — | |||
|
| |||
$ | 6,166 | |||
|
|
During the nine months ended by September 30, 2019, Avianca Holdings S.A. extended two A320 operating leases, signed a A320N Operative Lease Agreement and sold one financial A318 and one owned A320.
The amount of recognized payments has expenses during the nine-months ended September 30, 2019 and 2018 are as follows:
September 30, 2019 | September 30, 2018 | |||||||
Leases minimum payments | $ | 6,286 | $ | 193,511 |
(24) | Acquisition of aircraft |
In accordance with the agreements in effect, future commitments related to the acquisition of aircraft and engines are as follows:
Order | Delivery | |||||||
Airbus (family A320) (1) | 107 | 2019-2028 | ||||||
Boeing787-8/9 (2) | — | 2019-2021 | ||||||
Engines (3) | 3 | 2020-2023 |
(1) | On December 2017, the Group signed two Assignment, Assumption and Release Agreement, one assigning 5A-320 family aircraft to Muisca Aviation Limited and other assigning 4A-320 family aircraft to Tejo Aviation Limited. On March 2019 the Group negotiated cancellation of 17 aircraft and a significant reduction of its scheduled aircraft deliveries in 2019, 2020, 2021 and 2022 and changed some aircraft type both, upgrades and downgrades with Airbus SAS with deliveries scheduled between 2019 and 2028. |
Under the terms of these agreements to acquire Airbus aircraft, the Group must makepre-delivery payments to Airbus on predetermined dates. This cancellation with airbus does not have any impact in the financial statements.
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(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(2) | On September 2017, the Group signed an amendment to convert three787-8 into787-9 with deliveries scheduled in 2019. On February 2019, the Group negotiated changes in deliveries scheduled between 2019 and 2021. Additionally, on the same date the Group signed an Aircraft Purchase Agreement Assignment, assigning 3787-9 aircraft to Valderrama Aviation Limited. |
(3) | On July 2019, the Group signed an amendment with CFM changing delivery dates of 3LEAP-1A spare engines. The new delivery dates are scheduled between 2020 and 2023. |
On March 2019, the Group signed one Deed of Agreement to Relinquish the Rights Over an Aircraft Purchase Option, between EasyFly Express Ltd. and Avianca, for 1 A300F aircraft with delivery date on April 2019.
The value of the final purchase orders is based on the aircraft price list (excluding discounts and contractual credits granted by the manufacturers) and including estimated incremental costs. As of September 30, 2019, commitments acquired with manufacturers for the purchase of aircraft and advance payments are summarized below. Advance payments are subsequently applied to aircraft acquisition commitments.
Year one | Year two | Year three | Year four | Thereafter | Total | |||||||||||||||||||
Advance payments | $ | 62,449 | $ | 71,013 | $ | 234,025 | $ | 223,087 | $ | 586,347 | $ | 1,176,921 | ||||||||||||
Aircraft acquisition Commitments | $ | 482,024 | $ | 529,790 | $ | 563,333 | $ | 2,505,530 | $ | 9,025,461 | $ | 13,106,138 |
The Group plans to finance the acquisition of the commitments acquired with the resources generated by the Group and the financial operations that can be formalized with financial entities and aircraft leasing companies.
(25) | Dividends |
The Group decreed dividends during the nine months ended September 30, 2019, based on the retained earnings as of December 31, 2018, and dividends were decreed by the Group during the nine months ended September 30, 2018, based on retained earnings as of December 31, 2017:
September 30, 2019 | September 30, 2018 | |||||||
Dividends decreed | ||||||||
Dividend - Ordinary shared | $ | 9,862 | $ | 23,433 | ||||
Dividend - Preferred shared | 5,523 | 12,075 | ||||||
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| |||||
Total | $ | 15,385 | $ | 35,508 | ||||
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|
|
The General Shareholders Meeting of Avianca Holdings S.A. at an ordinary session on March 22, 2019, agreed distribution of profits for the year 2018 as dividend to the shareholders preferent and ordinary of the Group that will be paid the amount of COP$50 (Preferred shared) and COP$46 (Ordinary shared) per share, respectively. The dividends decreed were paid on May 24, 2019 by the amount ofCOP$16 and COP$3 per share, August 23, 2019 COP$16 and COP$3 per share and September 20, 2019 COP$18 and COP$40 per share, respectively.
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(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
The decree of dividends was made with a TRM of COP $3,082.45. The payment of the dividends was made to the corresponding TRM on the date on which the transaction was made.
The General Shareholders Meeting of Avianca Holdings S.A. at an ordinary session on March 16, 2018, agreed the project for the distribution of profits for the year 2017 as dividend to the shareholders of the Group that were paid the amount of COP$98.6 per share. The dividends declared were paid in four equal installments of COP$24.65 per share, on June 29, July 31, August 31 and September 28, 2018.
Dividends declared and paid to minority shareholding
During the nine months ended on September 30, 2019 and, 2018, the subsidiaries with minority interest, declared and paid dividends as follows:
September 30, 2019 | September 30, 2018 | |||||||||||||||||||||||
Subsidiaries | Minority Interest | AVH Participation | Total Dividends | Minority Interest | AVH Participation | Total Dividends | ||||||||||||||||||
LifeMiles Ltd (1) | $ | 30,000 | $ | 70,000 | $ | 100,000 | $ | 52,500 | $ | 122,500 | $ | 175,000 | ||||||||||||
Turbo Prop Leasing Corp | — | — | — | 596 | 1,265 | 1,861 | ||||||||||||||||||
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|
|
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|
|
|
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|
| |||||||||||||
Total | $ | 30,000 | $ | 70,000 | $ | 100,000 | $ | 53,096 | $ | 123,765 | $ | 176,861 | ||||||||||||
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|
(1) | The dividends received for AVH are eliminated in consolidation process. |
(26) | Debt covenants |
As of September 30, 2019, and 2018, the Group did not comply with certain debt covenants. (See note 2(f)).
As of September 30, 2019, the most significant commitments related to financial ratios assumed by the Company and its subsidiaries are as a follow:
Avianca Holdings S.A.
The consolidated financial statements of Avianca Holdings must comply with the following financial covenants:
• | EBITDAR Coverage Ratio: Should be not less than 1.5 to 1.0. For the period the result was 1.99, for this it’s in compliance. |
• | Capitalization Ratio: Should not be greater than 0.86 to 1.00 at the end of September 30, 2019, and the reporting periods are the quarters ending in March, June, September and December. For the period the result was 0.92 , for those it’s not compliance. |
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(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
• | Cash reserves held or controlled or otherwise available to the guarantor or its subsidiaries should be at least $350 million at all times until the relevant testing date in respect of the period ending September 30, 2019. Relevant testing date means the date on which the Avianca Holdings S.A. and subsidiaries audited financial statements prepared in accordance with IFRS are delivered to the Security Trustee, no later than 180 days of the end of the financial period. For the period the result was $272, for those it’s not compliance. |
• | EBITDA Margin: At the end of each period the EBITDA margin shall not be less than 0%. The reporting periods are the quarters ending in March, June, September and December. For the period the result was 13.1% , for this it’s in compliance. |
Lifemiles Ltd. & Subsidiaries
Covenants as of September 30, 2019 include maintenance of a Total Leverage Ratio (as defined in the Credit Agreement) below 4.50:1.00 for the first year and 4.00:1.00 thereafter, certain restrictions on distribution of dividends and incurrence of certain types of investments, among others.
(27) | Special charges |
Special charges include expenses associated with the organizational transformation plan, called “Avianca 2021”, which seeks to strengthen the company’s competitiveness and accelerate the financial adjustments necessary to ensure its sustainability.
The fundamental pillars of the transformation plan are:
• | Operating efficiency. Since November 2018, the company began a systematic effort to improve punctuality indicators, which today show a remarkable improvement. Changes will continue to be made in itineraries, routes, schedules and frequencies and, working with the aeronautical authority, to achieve a simpler operation and provide a better service to its customers. |
• | Fleet plan adjustment: Renegotiation of the agreement with the Airbus manufacturer was achieved, which consists in the cancellation of 17 aircraft and the postponement of the incorporation of 35 units, generating a reduction of $ 2.6 billion in financial commitments and a protection of resources $ 350 million cash. |
• | Divestment ofnon-strategic assets: It seeks to focus the efforts of the holding company on passengers, cargo and loyalty; therefore it has been decided to divest certain assets, among which are: |
• | Sale of flight simulators to CAE (see note 13), |
• | Sale of participation in Aerotaxis La Costeña and Turboprop Leasing (see note 1), |
• | Sales plan fleet, ten Embraer, ten Airbus A318, four Airbus A320. (See note 13). |
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(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
Special charges in the consolidated statement of income consisted of the following for the nine months ended September 30, 2019:
September 30, 2019 | ||||
Aircraft impairment (1) | $ | 213,254 | ||
Loss on sale of subsidiaries (2) | 39,684 | |||
Impairment of Venezuela assets (6) | 14,867 | |||
Fees and others (3) | 25,645 | |||
Staff Settlement agreement (4) | 5,151 | |||
Gain in sale of simulators (5) | (5,970 | ) | ||
|
| |||
Total | $ | 292,631 | ||
|
|
(1) | Corresponds to the value of the impairment loss recognized at the moment of reclassify the aircraft that have been determined as available for sale ($205,783) 10 E190, 10 A318 and 4 A320, given that the net book value of said aircraft compared to the value expected sale less sale cost, was lower. (See note 13). Additional $8,022 for maintenance on aircraft for delivery and gain on sale of A318 and A320 aircraft, made in September 2019 by $551. (See note 13). |
(2) | Corresponds to the value of the loss recognized by the share sale of AVH in Aerotaxis la Costeña and Turboprop Leasing. ($4,704) (See note 1). Additionally, impairment of the account receivable assigned by Grupo Aeromar S.A. de CV to Chelsea Securities, S.A., originated in a potential investment of the AVH Group in the Mexican market, a decision that was not approved ($34,980). |
(3) | Includes expenses of financial and legal advice for structuring the transformation plan. |
(4) | Includes the values related to compensation to employees that have been removed, as a result of the organizational restructuring plan “Avianca 2021”. |
(5) | Corresponds to the value of the gain on sale of simulators to CAE International, made in January 2019 by $5,970. |
(6) | The Group decided to end operations in Venezuela due to political-economic situation, therefore recognizes the deterioration in book value of the offices located in that country ($14,867). |
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(Republic of Panama)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(In USD thousands)
(28) | Subsequent Events |
On November 1, 2019, Avianca Holdings announced the expiration and final results with respect to the offer Exchange launched on August 14, with $484.4 million or 88.1% aggregate principal amount of existing notes validly tendered for Exchange and not validly withdrawn. The Secured Notes provide for automatic conversion into an equivalent principal amount of new 9.00% Secured Notes due May 2023, upon successfully achieving the reprofiling program and completion of loan of $250.000 from United and Kingsland Holdings.
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