A third attempt to auction bankrupt Avianca Brasil will go ahead on July 10, barring yet another last-minute restraining order.

In April, Brazil’s third-largest carrier, Azul, sought to assume about half Avianca’s operations, taking on personnel, proposing the assumption of aircraft leases, and gaining Avianca Brasil’s landing rights at São Paulo’s Congonhas Airport, along with paired slots including participation in the lucrative Rio de Janeiro shuttle. A creditors’ assembly approved a plan dividing the airline into seven parts for auction in June, with Latam and Gol promising each to bid $70 million for a slice, and also capping payments to unsecured creditors at about $2,600. A suit by Swissport, owed $4.4 million, derailed that auction.

Avianca Brasil’s operations shrunk as lessors took back aircraft until, down to four airplanes, Brazilian civil aviation authority ANAC suspended the airline’s operations on May 24. A bankruptcy court rejected a sweetened $145 million offer by Azul, and on June 24 ANAC canceled Avianca Brasil’s passenger and freight certificates and announced it would immediately redistribute the slots, in accordance with legislation. While Azul holds a small number of slots at Congonhas, it won classification as a new entrant to the airport, gaining the right to more slots. Smaller regional airlines also showed interest, but the bankruptcy court on June 28 prohibited ANAC from redistributing the slots, pending the July 10 auction.

The dispute has led to Azul’s withdrawal from airline association ABEAR, leaving it to Gol, Latam, the moribund Avianca Brasil, and minor regional lines. Increasingly aggressive advertising has touted Azul as offering the most destinations in the country, about a third of domestic flights, and as «the most Brazilian of airlines,» flying E-Jets produced by Embraer. Fares have risen in markets left underserved after losing Avianca Brasil flights, leaving some passengers and vacation packaging agencies to turn to intercity buses.

Elsewhere on the continent, new management took control at Colombia’s Avianca when the carrier defaulted on a $456 million loan made six months ago by United Airlines. Argentina’s Avianca has also suspended operations, although those amounted to just two ATRs operating two routes. Bloomberg reported that German Efromovich, who bought Colombia’s Avianca out of bankruptcy in 2004 and still owns the majority stake, is interested in buying 30 percent of troubled Alitalia and taking on the CEO role.

Even if the July 10 slot auction occurs, the final outcome remains unclear. Gol, Latam, and Azul have each advanced up to $35 million to keep Avianca Brasil operating and can use that money as part of a bid, getting slots as a way of extracting their money. But if, as Azul claims, its larger competitors seek to keep it out of Congonhas, as long as the Avianca slots situation remains unresolved, that goal is accomplished. The smaller regional airlines might not control the resources to buy the slots at auction as an Avianca asset, but they could hope to win them in a redistribution by ANAC.

If history serves as any guide, the appeals process could drag on. After Varig ceased operations, its check-in counters at Guarulhos airport sat empty for months despite extreme overcrowding at the airport. When VASP ceased operations, operational Boeing jets sat parked at Congonhas for a decade until creditors finally shredded them for their value as aluminum. Brazilian court cases can take effectively forever on a business timeline. The auction will be valid if no one objects, but plenty of actors have something to gain by challenging it, such as the regional candidates for free slots, and plenty with little to lose, such as unsecured creditors who would get next to nothing in the proposed distribution of the proceeds.


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