Dow Jones Business News
Colombian Airline/Liquidated: 749 Employees Cut
Wednesday August 20, 6:52 pm ET
BOGOTA (Dow Jones)--Shareholders in Aerolineas Centrales de Colombia, or ACES, the second-largest Colombian airline, Wednesday decided in an unusual meeting to liquidate the company rather than seek to revive it through a government bankruptcy process.
According to a statement released by Alianza Summa, comprising Avianca , ACES and SAM airlines, Avianca will initially cover the routes operated by ACES, honoring the tickets and miles accumulated by ACES passengers.
"Evidently, the circumstances of the world aviation crisis were too serious," said Juan Emilio Posada, the president of Alianza Summa. "Although everything was done to remedy the effects, the reality of the situation overwhelmed us."
Posada said Alianza would retain 33% of ACES' workforce, or 523 people. But 749 employees will be let go.
Alianza Summa promised that the employees would be taken care of "under the conditions indicated by the law."
According to El Tiempo, Colombia's most prominent newspaper, Colombia's Federation of Coffee Growers, or Fedecafe, which owned 50% of the airline, was unwilling to bail it out. Fedecafe is enduring its own economic hardships because of low coffee prices around the world.
A release from Fedecafe and conglomerate Valores Bavaria , which owned the other half of ACES, said that it was impossible for the airline to take refuge in Colombia's "Law 550," or bankruptcy, proceedings because most of its debtors were in other countries.
Pending the decision by shareholders meeting in Medellin today, the Colombian Civil Aviation Authority grounded the airline from flying Wednesday morning. ACES flies domestic and international routes, including to Miami and Fort Lauderdale, Fla., Santo Domingo, Dominican Republic, and Lima, Peru.
Alianza Summa was created 18 months ago as a way of dealing with the financial problems due to world aviation troubles. Avianca has since filed for Chapter 11 bankruptcy protection in the U.S., an option unavailable to ACES.
One source confirmed that Alianza Summa would continue flying "normally" regardless of ACES' dissolution as the partnership is in name only.
Juan Camilo Restrepo, an ACES shareholder and member of Fedecafe, called investing in ACES a "bad negotiation," according to El Tiempo.
"Looking back, it was hit hard by all the episodes from Sept. 11, the decline in air traffic, the increase in the cost of gas, a series of phenomenon," Restrepo said.
Restrepo added that it was "absolutely impossible" for the coffee sector to invest "another single peso" in the failing airline.
The airline was $30 million in debt, which severely impacted its ability to continue renting its fleet of Airbus320 jets. The same source, who requested anonymity, said they would now be returned to the company.
In order to cut debt, ACES had already reduced its planes from 21 in May 2002 to five that operated until Tuesday.
But that simply wasn't enough to save the airline from being dissolved.
-By Rachel Van Dongen, Dow Jones Newswires; 571-600-1980;
colombia@dowjones.com