United seeks to oust Avianca chairman after JV agreement

Bloomberg

United Continental Holdings Inc is seeking to oust Avianca Holdings SA’s chairman and largest shareholder, just six months after the two airlines agreed to form a joint venture. The Colombian carrier’s stock jumped the most in nearly three years.
The US airline took legal action in Bogota on a defaulted $456 million loan it made to Avianca Chairman German
Efromovich as part of the proposed partnership. United is looking to secure Efromovich’s majority stake in Avianca, which was collateral for the loan.
United’s filing sets up a battle for control of Latin America’s second-biggest airline. The Bogota-based carrier careened into crisis last month when its chief executive officer resigned and the airline revealed the loan breach by Efromovich’s BRW Aviation, the company through which the chairman holds his Avianca shares.
One complication for United: The company’s contract with its pilots gives the labor group veto power over any airline acquisition. But United plans to
hand control of Avianca to Kingsland Holdings, the Colombian carrier’s second-largest shareholder.
Avianca’s American depositary receipts surged 29 percent to $3.96 at the close in New York, the biggest gain on record. That more than erased this year’s 24 percent decline in the ADRs this year. United was little changed at $80.79.

‘Difficult Challenge’
“While Avianca will remain an independent company and continue to run their own airline, United strongly supports their companywide focus on transformation,” the Chicago-based carrier said in a statement. Its pilots union declined to comment.
Kingsland said that it “will continue working to ensure the success, stability and financial sustainability of Avianca Holdings in the long term.”
Turning around the airline will be a “difficult challenge,” said Kingsland owner Roberto Kriete, who was named chairman following a shareholder meeting.
“My role is not to be the hero of this drama,” he said in an interview with Colombian newspaper El Tiempo.
“My role is to assemble a world-class team and board who have the skills to really lead the transformation of Avianca.”
Efromovich couldn’t be reached. His partner and brother, Jose Efromovich, declined to comment.
Avianca said Kingsland was given control of BRW’s voting rights. “German and Jose Efromvich still have indirect ownership of BRW and its subsidiaries, but not the right to vote,” the airline said.
Avianca Chief Executive Hernan Rincon resigned in April, and the company announced the BRW loan breach. That prompted S&P Global Ratings to cut the company’s debt further into junk territory. Avianca also posted its biggest quarterly loss since 2015.
United and Kingsland are prepared to provide Avianca as much as $250 million in additional financing if needed, and if certain conditions are met by financial stakeholders. United would contribute $150 million of the amount, the airline said.

United’s Role
United would have no management role or involvement in the carrier’s daily activities, to meet the terms of its agreement with the Air Line Pilots Association, people familiar with the situation said.
With its proposed partnership with Avianca and Panama’s Copa Holdings, United is seeking to bolster its competitive position in the growing Latin American travel market, where rival American Airlines Group Inc dominates and a number of ultra-low-cost airlines have created pricing challenges.
United also owns an 8 percent stake in Azul SA, the Brazilian airline established by JetBlue Airways Corp founder David Neeleman.
Azul isn’t part of the joint business agreement for which United, Avianca and Copa will seek regulatory approval.
Efromovich has clashed periodically with Kingsland, which is controlled by investor Kriete. Kingsland owned El Salvador-based Grupo Taca Holdings and merged it with Avianca in 2010.
Avianca’s first flight was in 1920, the year after KLM Royal Dutch Airlines took to the skies.