LATAM and Avianca continue balance sheet clean up as shareholder strife clouds Avianca-United tie up

A two year economic downturn in Latin America has forced the region's airlines to put even more emphasis on improving their balance sheets through improved leverage, debt reduction and decreasing capital commitments. Two of the region's largest airline groups - LATAM Airlines Group and Avianca Holdings - have worked to strengthen their balance sheets employing a variety of methods, including renegotiating aircraft delivery schedules to defray capital costs.

Avianca Holdings is taking delivery of six aircraft in 2017, whereas LATAM's total fleet is shrinking 5.5% year-on-year during 2017 as it slashes its capex commitments by USD2 billion during a two year period.

LATAM is enjoying a boost in its liquidity after receiving an equity infusion by Qatar Airlines in late 2016, and the investment by Qatar helped boost LATAM's liquidity to trailing 12M revenues by 5.5ppt year-on-year at the end of 2016. Avianca has been searching for an equity provider and strategic partner since mid 2016; but its selection of United has stirred controversy between its two largest shareholders, with lawsuits and counter lawsuits overshadowing the potential commercial benefits of the tie up.