November 18, 2014

Small steps continue regarding Venezuelan repatriation of US$3.9bn to airlines

Back in May this year the Venezuelan government reached agreement with six major airlines to repay debt that had been accumulated as far back as 2012. The principal reason for this move was to ensure that airlines continued to maintain their routes to the South American country. Colombia’s Avianca Holdings SA will be paid for money accumulated by its Avianca and Taca airlines in 2012, Finance Minister Rodolfo Marco Torres indicated. An agreement had additionally been reached with Grupo Aeromexico SAB de CV, Curacao’s Insel Air, Ecuador’s Tame and Aruba Airlines for debt accumulated in 2013.
The International Air Transport Association claimed that Airlines had US$3.9bn trapped in bolivars as of April as they tried and failed to repatriate revenue from ticket sales. At least 11 carriers have reduced capacity, sales or routes the past year, with Air Canada becoming the first airline to stop flying to Caracas back in March. The major problem for Venezuela is the crippling rate of inflation, which reached 59% in March. The country is faced with little option but to devalue the bolivar, the Venezuelan unit of currency, but that not only affects money owed, but airline ticket prices being sold today. The country is having to adopt a new currency mechanism and exchange rate system, SICAD II.
Airlines owed money were advised back in May that, starting in July, airfares would be based on the weaker SICAD II rate of approximately 50 bolivars per dollar, as opposed to the official rate of 6.3, according to Humberto Figuera, president of the Venezuelan Airlines Association. In addition, Sea and Transport Minister Hebert Garcia Plaza stated that “We’ve worked with airlines to reduce the dollar price of tickets. We’ll work to place a realistic price on air tickets before they are moved to SICAD II.” Airline tickets were moved to a secondary rate of roughly 10 bolivars per dollar, known as SICAD I, in January this year.
This week further progress has been confirmed by Copa Airlines CEO, Pedro Heilbron, who said that Venezuela appeared to be moving slowly toward repatriating money owed to airlines. The situation is “not getting worse,” Heilbron stated at the Latin American and Caribbean Air Transport Association (ALTA) Airline Leaders Forum in Nassau, Bahamas.



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