Tuesday, November 05, 2013

Avianca's Comeback Trip: From Tragedy to NYSE -- Investor Germán Efromovich Aims to Continue Expansion


The Wall Street Journal

By Darcy Crowe and Sara Schaefer Muñoz

Nov. 5, 2013 8:10 p.m. ET

BOGOTÁ, Colombia—In the past 10 years, Germán Efromovich has turned Avianca Holdings SA  from an airline in bankruptcy court and beset by a drug-lord attack into one of Latin America's leading carriers. Along the way, the one-time quail farmer converted a $64 million bet into an estimated $1.5 billion.

The Colombian national airline caps its comeback story with a share offering on the New York Stock Exchange expected for Wednesday, in a sale slated to raise about $500 million that will be used to continue expansion plans, including the acquisition of new planes.

Today, Avianca boasts about 140 planes, a fast-growing number of customers and flights to more than 100 cities, including Madrid and Buenos Aires. Its turnaround follows an investment made nine years ago by Mr. Efromovich, now the airline's chairman, who built his fortune in the Brazilian oil industry and heads the conglomerate Synergy Group Corp.

The listing, Mr. Efromovich told reporters recently, "will give more visibility to the company and will make it easier to obtain loans and financing in more favorable conditions."

Little known outside of Latin America, Avianca is the region's oldest airline, tracing its lineage to a precursor carrier founded in 1920. Its fleet size is now second in the region only to Chile-based Latam Airlines Group SA.

Avianca's change in fortune mirrors that of Colombia. In 1989, drug lord Pablo Escobar ordered the bombing of one of the airline's jetliners, killing 107 people in an attempt to assassinate a presidential candidate who never made it on board. Avianca's brand took another blow in 1990, when one of its airplanes flying from Bogotá to New York City crashed in suburban Long Island, killing 73. By 2004, the carrier was in bankruptcy court in New York.

That is when Mr. Efromovich stepped in, putting down $64 million in cash and taking on $220 million in debt for a controlling stake.

The timing was perfect. Colombia, thanks to a successful U.S.-backed military campaign against communist guerrillas, became far safer, spurring economic growth that helped create a new middle class that increasingly shells out money for domestic trips or vacations to New York and Miami. This helped make Mr. Efromovich's bet an investment coup.

Avianca's fleet has more than tripled to roughly 140 planes with an average age of four years, from about 40 planes with an average age of 13 years in 2004. The company plans to invest as much as $5 billion during the next six years to further expand and upgrade the fleet, and the New York listing will help pay for that effort. In 2010, Avianca boosted its reach and streamlined costs through a merger with Taca, a Central American airline.

The airline's new planes, complimentary meals and individual entertainment screens, even in economy class, have made it popular with travelers. It carried 16.3 million passengers in the first eight months of this year, up 8.3% from the same period a year earlier.

Mr. Efromovich, 63 years old, can occasionally be spotted in the Bogotá airport, testing Avianca's new check-in stations and monitoring boarding operations. Avianca didn't respond to a request for an interview with him.

"The biggest challenge since the purchase has been to change the perception of the brand and to recover the loyalty of our customers," Avianca Chief Executive Fabio Villegas said in an interview.

Still, the company faces several hurdles, including the risk of currency fluctuations that can dent profits, incursions into its home turf by Chilean competitor LAN, and a Bogotá airport that analysts and Avianca executives say is too small.

For the second quarter of this year, Avianca posted a profit of $70.3 million, down 6.6% from $75.3 million for the prior three months. The peso weakened compared with the dollar amid expectations the U.S. Federal Reserve would start to end monetary easing, and that weakness deters Colombians and others in the region from buying flights for vacations in places such as the U.S. and Europe.

The airline's expansion plans also are hindered by problems at the new airport under way in Bogotá, which became a bottleneck for the carrier despite the recent opening of a new international terminal. Avianca already needs additional gates to serve all its flights; in some cases, the carrier must ferry some of its international travelers by bus to planes on the tarmac.

"It's a big challenge to connect passengers and an operational headache for airlines, and even when this airport is finished, it's already going to be too small for the demand," said Carlos Ozores, who works with international aviation consultancy ICF SH&E.

Mr. Villegas, Avianca's chief executive, acknowledged that the Bogota airport "was a very real problem" that placed the carrier at a disadvantage against regional rivals such as Latam and Copa Airlines Inc., which runs a hub in Panama. LAN, part of Latam, is mounting competition in the Colombian market, which has traditionally been controlled by Avianca.

Recently, Avianca also has been beset by pilot strikes, which led to September cancellations as the pilots demanded higher wages. The airline and the union representing the majority of the pilots reached an agreement last month.

Mr. Efromovich continues to press ahead with his expansion plans. Last year, through Syngery, he made a bid for Portugal's TAP Airlines that was eventually rejected by the Portuguese government. He recently said he continues to consider a European acquisition.

The Bolivian-born Mr. Efromovich entered the airline sector in an unusual manner 14 years ago, when a cash-strapped oil client paid him with a twin turboprop aircraft. The small King Air plane Mr. Efromovich received was the first of four aircraft that he deployed to create an airline for workers traveling to oil fields in Brazil. His business empire now spans nearly all of South America in areas such as oil services, agriculture, hotels, shipbuilding and power plants.

Born to Polish émigrés in Bolivia in the aftermath of World War II, Mr. Efromovich sold encyclopedias door-to-door in one of his earliest jobs. He later started and sold a quail farm and launched and taught at a for-profit academy in Brazil for working-class adults. Among the students was Luiz Inácio Lula da Silva, who years later would become Brazil's president.

Mr. Efromovich's energy ventures eventually led him to an oil field in Colombia in 2000, an investment that gave him a feel for the country that ultimately led to his bailout of Avianca.

"What I knew about Colombia before…was kidnappings and killings," Mr. Efromovich said at a recent conference on entrepreneurial leadership, where he promised to give away Avianca tickets to anyone in the audience who could correctly guess the lifting capacity for a crane in his shipbuilding yard.

Source:   http://online.wsj.com

1 comment:

  1. Love the rags to riches and ambition that these articles portray . Thank you for the opportunity of opening my eyes even wider than before :)