Virus Crisis Halts Recovery from Lean Years in Latin America

Latin America

The coronavirus crisis has aborted Latin American airlines’ burgeoning recovery, evidenced most prominently perhaps by a cut in passenger flights by 90 percent in Brazil and by 100 percent at the region’s oldest and second-largest airline, Colombia’s Avianca. As Brazil started emerging from the country’s longest modern recession months ago, the three surviving major airlines—Latam, Gol, and Azul—fought for shares of the recovering market, quarreled for coveted slots, and bought smaller competitors to extend service to new markets.

By March 2, São Paulo’s Guarulhos International Airport (GRU) along with air traffic control organ DECEA announced reduced separation minimums to increase airport capacity to meet surging demand; a month later one terminal had closed as Azul cut its GRU flights, and the most positive news came with the arrival of 500,000 surgical masks, first of a purchase of 5 million, on an Emirates freight flight from China.

Organizers of Chile’s biennial FIDAE international air show, scheduled to open March 31, canceled the fair for the first time in its 40-year history, as the country and its neighbors closed airports and land borders to foreigners. 

Government Eases Demands, Promises Aid

Brazilian civil aviation agency ANAC has eased regulations, suspending slot requirements, extending pilots’ licenses and other periodic document renewals, and allowing flight schools to teach theory classes via the internet. The three federally owned banks will lend money to airlines, and development bank BNDES will announce emergency plans in two weeks, which could include capital investments in the airlines, whose stock prices fell as much as 80 percent before starting to recover. A presidential decree has given airlines twelve months to refund tickets bought for canceled flights.

Latin American airline association ALTA pleaded for relaxing non-safety regulations, permission to postpone mandated but currently superfluous investments, and for direct help. “Increased industry-government collaboration is required, not only through the remainder of this crisis but also throughout its recovery phase,” it said in a statement. “If the foundation of this industry does not survive the Covid-19 outbreak, the socio-economic recovery from this crisis across the region will be severely hampered.”

A special case is Colombia’s Avianca, where a downward spiral of debt and confusion that led to the demise of its sister company in Brazil last year halted with a change in control. New management focused on operations, selling aircraft, cutting unprofitable routes, and operating those that remained on time, while winning extensions from creditors with a detailed turnaround plan for 2021. Colombia’s quarantine restrictions have forced Avianca to cancel all passenger flights at least through April 12, but it continues to use its aircraft and personnel to fly cargo, including a passenger 787-800 carrying medical freight to New York’s John. F. Kennedy Airport (JFK), and it has reportedly offered to perform repatriation flights for governments around the world. It has furloughed 12,000 of its 20,000 employees.

Minimum Routes

ANAC has determined a “minimum network,” cutting 91.61 percent of regular flights and leaving connections to only 46 Brazilian cities, with layovers lasting up to 24 hours. Azul, for example, has cut the cities it serves from 116 to only 25. All three airlines have announced free passage for health professionals traveling for the coronavirus crisis, and Azul transported an air force field hospital for readiness at its Campinas hub.

Labor Sharing Burdens

Labor unions have accepted proposals by Gol and Latam for salary cuts from April through June of up to 80 percent, but with a guaranteed minimum and with a guarantee of no layoffs for the period. The reduction in flights has also severely affected ground-handling firms, which reached an agreement with unions representing their 40,000 workers for cuts of up to 25 percent in hours and pay and the possibility of use of vacation, with delayed pay, and up to 45 days of furlough, with enhanced benefits but no salary.

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