Airline Avianca Brasil in Talks With Elliott for Cash Injection

(Bloomberg) -- Avianca Brasil is in talks with Elliott Management Corp. for a possible cash injection, according to people with knowledge of the matter.

The airline, also known as Oceanair, is in early talks with the New York hedge fund led by billionaire Paul Singer to get fresh cash as it struggles to keep operations going after filing for bankruptcy protection last month, the people said, asking not to be named because the information isn’t public.

A representative for Avianca Brasil declined to comment on the Elliott negotiations, but said the company discontinued direct flights departing from Guarulhos to Santiago de Chile, Miami and New York starting March 31 in order to adapt its operation to the current passenger demand.

"The company remains focused on ensuring the sustainability of the business and maintaining the excellence of the service," the representative said. Elliott spokesman Stephen Spruiell declined to comment on the possible financing.

Fleet Grounded

This week, a decision to ground part of Avianca Brasil’s fleet dealt a fresh blow to the already crippled airline. Brazil’s National Civil Aviation Agency, known as Anac, granted a request from GE Capital Aviation Services to ground 10 Airbus SE A320-family aircraft, about 20 percent of Avianca Brasil’s fleet. The decision, which would force Avianca Brasil to return the planes and was seen as potentially impacting operations, was reversed Friday, but raised questions on the next steps for the company.

“As a matter of company policy, we are unable to comment on any current or pending litigation,” a representative for GE Capital Aviation Services, General Electric Co.’s jet-leasing business, said in an email.

The firm “will need to downsize its operation to have its turnaround plan approved by creditors as part of the bankruptcy protection process,” Bradesco BBI analyst Victor Mizusaki, said in note from Jan. 18. He estimates the cut could reach 10 percent to 20 percent of the fleet.

Since filing for bankruptcy protection in December, the company already interrupted at least some international routes -- searches for flights between Sao Paulo and Santiago, Miami and New York for dates after March 31 yield no results. The decision to scrap the daily flights was part of a plan to keep focus on the company’s domestic operations, which are profitable, a person familiar with the matter said, asking not to be identified because the information isn’t public.

Salaries Paid

The airline has been late to pay salaries as credit dries up, and is in already in talks with labor unions about planned personnel cuts, the person said. Payments to suppliers have also been impacted, as have basic expenses -- from coffee and fruit at the office to refunds to employees on day to day activities like taxis, the person said.

The representative for Avianca Brasil said the company had “a punctual delay,” but the salaries for last month were fully paid.

Avianca Brasil had about 13 percent of market share in domestic flights in November, according to data from the regulator, making it the fourth biggest in the segment. It had 8 percent of the international market, also ranking fourth, behind Latam Airlines Group SA, Gol Linhas Aereas Inteligentes SA and Azul SA. Unlike its peers, Avianca Brasil isn’t traded, and has no outstanding bonds.

Colombia’s Avianca Holdings SA is forming a joint venture with United Continental Holdings Inc. and Panama-based Copa Holdings SA to share profits and coordinate fees and schedules. United will also lend $456 million to Avianca’s controlling shareholder. Elliott had provided earlier financing. The deal doesn’t include Avianca Brasil, which is controlled by Avianca’s main shareholder, Synergy Group, but is not part of Avianca Holdings portfolio.

--With assistance from Mary Schlangenstein, Pablo Gonzalez, Richard Clough, Rafael Mendes and Vinícius Andrade.

To contact the reporters on this story: Paula Sambo in Toronto at psambo@bloomberg.net;Fabiana Batista in Sao Paulo at fbatista6@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, ;Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, ;James Attwood at jattwood3@bloomberg.net, Julia Leite, Robert Jameson

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