Form 6-K Avianca Holdings S.A. For: Jun 16

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June 16, 2020 7:31 AM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20546

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE U.S. SECURITIES EXCHANGE ACT OF 1934

For the month of June 2020

Commission File Number: 001-36142

Avianca Holdings S.A.

(Name of registrant)

Edificio P.H. ARIFA, Pisos 9 y 10, Boulevard Oeste

Santa María Business District

Panama City, Republic of Panama

(+507) 205-7000

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Bogota D.C., June 16, 2020

MATERIAL INFORMATION

Avianca Holdings S.A. informs that it has published on its website www.aviancaholdings.com its consolidated financial statements as of March 31, 2020 and December 31, 2019 and for the three month periods ended March 31, 2020 and 2019.

Enclosures:

Exhibit 99.1 – Consolidated financial statements as of March 31, 2020 and December 31, 2019 and for the three month periods ended March 31, 2020 and 2019.

About Avianca Holdings S.A. (NYSE: AVH) (BVC: PFAVH)

Avianca is the trademark for the group of passenger airlines and cargo airlines under the holding company Avianca Holdings S.A. Avianca has been flying continuously for 100 years. With a fleet of 158 aircraft, Avianca serves 76 destinations in 27 countries within the Americas and Europe. With more than 21,000 employees, the Company earned $ 4.6 million in 2019 and carried 30.5 million passengers

Contacts

Investor Contact

Avianca:

Luca Pfeifer, Head of Investor Relations

[email protected]

(571) (5877700)

SIGNATURES

Pursuant to the requirements of the U.S. Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: June 16, 2020


AVIANCA HOLDINGS S.A.

By:		/s/ Richard Galindo
Name:		Richard Galindo
Title:		General Secretary

Exhibit 99.1

AVIANCA HOLDINGS S.A.

AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Financial Statements

As of March 31, 2020, and December 31, 2019 and

for the three-months periods ended March 31, 2020 and 2019

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Index


Unaudited Condensed Consolidated Interim Statement of Financial Position			3
Unaudited Condensed Consolidated Interim Statement of Comprehensive Income			5
Unaudited Condensed Consolidated Interim Statement of Changes in Equity			7
Unaudited Condensed Consolidated Interim Statement of Cash Flows			9
Notes to the Condensed Consolidated Interim Financial Statements			11

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Financial Position

(In USD thousands)


	Notes		March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents		8	$	423,917	$	342,472
Restricted cash		8		1		1
Short term investments		11		49,690		55,440
Trade and other receivables, net of expected credit losses		9		186,255		233,722
Accounts receivables from related parties		10		2,638		3,348
Current tax assets		22		193,668		198,719
Expendable spare parts and supplies, net of provision for obsolescence				88,735		88,334
Prepayments				67,506		69,012
Deposits and other assets		11		39,865		39,175

				1,052,275		1,030,223
Assets held for sale		14		893		681,053

Total current assets				1,053,168		1,711,276
Non–current assets:
Deposits and other assets		11		59,826		54,074
Trade and other receivables, net of expected credit losses		9		18,850		22,569
Non-current taxes assets		22		2		1
Intangible assets and goodwill, net		13		514,508		505,507
Deferred tax assets				15,960		27,166
Property and equipment, net		12		5,342,813		4,953,317

Total non–current assets				5,951,959		5,562,634

Total assets			$	7,005,127	$	7,273,910

See accompanying notes to unaudited condensed consolidated interim financial statements

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Financial Position

(In USD thousands)


	Notes		March 31, 2020			December 31, 2019
Liabilities and equity
Current liabilities:
Short-term borrowings and current portion of long-term debt		15	$	3,410,115		$	872,044
Accounts payable				472,240			530,615
Accounts payable to related parties		10		2,628			3,713
Accrued expenses				71,048			87,610
Current tax liabilities		22		22,261			26,421
Provisions for legal claims		23		18,145			20,244
Provisions for return conditions				28,758			21,963
Employee benefits				120,401			148,678
Air traffic liability				327,169			337,363
Frequent flyer deferred revenue				195,044			187,931
Other liabilities				22,005			5,110

				4,689,814			2,241,692
Liabilities associated with the assets held for sale		14		—			490,458

Total current liabilities				4,689,814			2,732,150
Non–current liabilities:
Long–term debt		15		1,946,766			3,984,279
Accounts payable				13,288			11,931
Provisions for return conditions				119,951			122,425
Employee benefits				101,723			118,337
Deferred tax liabilities				16,849			18,471
Frequent flyer deferred revenue				202,084			229,701
Other liabilities				47,367			51,449

Total non–current liabilities				2,448,028			4,536,593

Total liabilities			$	7,137,842		$	7,268,743

(Equity deficit) equity:
Common stock				82,600			82,600
Preferred stock				42,023			42,023
Additional paid–in capital on common stock				234,567			234,567
Additional paid–in capital on preferred stock				469,273			469,273
Retained (losses) earnings				(669,174	)		(543,010	)
Other comprehensive income / (loss)		17		(93,452	)		(78,120	)

Equity attributable to owners of the Company				65,837			207,333
Non–controlling interest				(198,552	)		(202,166	)

Total (equity deficit) equity				(132,715	)		5,167

Total liabilities and (equity deficit) equity			$	7,005,127		$	7,273,910

See accompanying notes to unaudited condensed consolidated interim financial statements

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Comprehensive Income

(In USD thousands) except basic loss per share


			For the three months ended March 31,
	Notes		2020			2019
Operating revenue:
Passenger			$	778,097		$	970,400
Cargo and other				165,823			180,353

Total operating revenue		4		943,920			1,150,753
Operating expenses:
Flight operations				17,724			30,132
Aircraft fuel				228,056			304,064
Ground operations				103,306			120,013
Rentals		24		4,731			—
Passenger services				33,299			49,880
Maintenance and repairs				39,837			48,106
Air traffic				49,662			76,350
Selling expenses				110,173			107,763
Salaries, wages and benefits				156,864			179,322
Fees and other expenses				57,066			65,470
Depreciation and amortization		12, 13		139,421			151,200

Total operating expenses				940,139			1,132,300

Operating profit				3,781			18,453

Interest expense				(113,691	)		(68,616	)
Interest income				1,975			4,454
Derivative instruments				(312	)		495
Foreign exchange, net		6		850			(11,749	)
Equity method profit				—			245

Loss before income tax				(107,397	)		(56,718	)
Income tax expense – current		22		(6,695	)		(8,464	)
Income tax income – deferred		22		(7,103	)		(2,730	)

Total income tax expense				(13,798	)		(11,194	)

Net loss for the year			$	(121,195	)	$	(67,912	)

Basic loss per share. Expressed in dollars		16
Common stock			$	(0.13	)	$	(0.075	)
Preferred stock			$	(0.13	)	$	(0.075	)

See accompanying notes to unaudited condensed consolidated interim financial statements

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Comprehensive Income

(In USD thousands) except basic loss per share


			For the three months ended March 31,
	Notes		2020			2019
Net loss for the year			$	(121,195	)	$	(67,912	)
Other comprehensive income (loss):
Items that will not be reclassified to profit or loss in future periods:		17
Remeasurements of defined benefit liability				(14,354	)		(1,335	)
Income tax				3,037			194

				(11,317	)		(1,141	)
Items that will be reclassified to profit or loss in future periods:		17
Effective portion of changes in fair value of hedging instruments				(5,158	)		1,702
Net change in fair value of financial assets with changes in OCI				(212	)		627

				(5,370	)		2,329

Other comprehensive (loss) profit, net of income tax				(16,687	)		1,188

Total comprehensive loss net of income tax			$	(137,882	)	$	(66,724	)
(Loss) profit attributable to:
Equity holders of the parent			$	(126,164	)	$	(74,975	)
Non–controlling interest				4,969			7,063

Net loss			$	(121,195	)	$	(67,912	)
Total comprehensive (loss) profit attributable to:
Equity holders of the parent			$	(141,496	)	$	(73,826	)
Non–controlling interest				3,614			7,102

Total comprehensive loss			$	(137,882	)	$	(66,724	)

See accompanying notes to unaudited condensed consolidated interim financial statements

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Changes in Equity

(In USD thousands)


			For the three months ended March 31, 2020
			Common Stock		Preferred Stock		Additional paid-in capital				Other comprehensive income					Retained losses			Equity attributable to owners of the Company			Non- controlling interest			Total (equity deficit) equity
	Notes		Common Stock		Preferred Stock		Common Stock		Preferred Stock		OCI Reserves			Revaluation		Retained losses			Equity attributable to owners of the Company			Non- controlling interest			Total (equity deficit) equity
Balance at December 31, 2019			$	82,600	$	42,023	$	234,567	$	469,273	$	(118,815	)	$	40,695	$	(543,010	)	$	207,333		$	(202,166	)	$	5,167

Net loss				—		—		—		—		—			—		(126,164	)		(126,164	)		4,969			(121,195	)
Other comprehensive income		17		—		—		—		—		(15,332	)		—		—			(15,332	)		(1,355	)		(16,687	)

Balance at March 31, 2020			$	82,600	$	42,023	$	234,567	$	469,273	$	(134,147	)	$	40,695	$	(669,174	)	$	65,837		$	(198,552	)	$	(132,715	)

See accompanying notes unaudited condensed consolidated interim financial statements

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Changes in Equity

(In USD thousands)


			For the three months ended March 31, 2019
			Common Stock		Preferred Stock		Additional paid-in capital				Other comprehensive income					Retained earnings			Equity attributable to owners of the Company			Non- controlling interest			Total equity
	Notes		Common Stock		Preferred Stock		Common Stock		Preferred Stock		OCI Reserves			Revaluation		Retained earnings			Equity attributable to owners of the Company			Non- controlling interest			Total equity
Balance at December 31, 2018			$	82,600	$	42,023	$	234,567	$	469,273	$	(82,030	)	$	37,934	$	386,087		$	1,170,454		$	(177,993	)	$	992,461

Net (loss) profit				—		—		—		—		—			—		(74,975	)		(74,975	)		7,063			(67,912	)
Other comprehensive income		17		—		—		—		—		1,149			—		—			1,149			39			1,188
Dividends decreed		26		—		—		—		—		—			—		(15,385	)		(15,385	)		(30,000	)		(45,385	)

Balance at March 31, 2019			$	82,600	$	42,023	$	234,567	$	469,273	$	(80,881	)	$	37,934	$	295,727		$	1,081,243		$	(200,891	)	$	880,352

See accompanying notes unaudited condensed consolidated interim financial statements

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Cash Flows

(In USD thousands)


			For the three months ended March 31,
	Notes		2020			2019
Cash flows from operating activities:
Net loss for the period			$	(121,195	)	$	(67,912	)
Adjustments for:
Provision (recovery) net of expected credit losses		9		(612	)		917
Provision (recovery) for expandable spare parts and supplies obsolescence				(323	)		105
Provision (recovery) for return conditions, net				(3,375	)		5,390
Provisions (recovery) for legal claims, net		23		(2,099	)		2,397
Depreciation and amortization				139,421			151,200
Sale and leaseback transactions amortization				(6,749	)		—
Gains on disposal of assets				(3,684	)		(8,618	)
Fair value adjustment of financial instruments				312			(495	)
Interest income				(1,975	)		(4,454	)
Interest expense				113,691			68,616
Deferred tax		22		7,103			2,730
Current tax		22		6,695			8,464
Unrealized foreign currency loss				5,392			2,389
Changes in:
Accounts receivable				16,140			(15,052	)
Expendable spare parts and supplies				(78	)		(2,638	)
Prepayments				1,325			(3,228	)
Net current tax				2,594			—
Deposits and other assets				(13,696	)		22,182
Accounts payable and accrued expenses				(65,409	)		23,036
Air traffic liability				(21,807	)		(3,915	)
Frequent flyer deferred revenue				(20,504	)		(4	)
Provision for return conditions				(886	)		(217	)
Employee benefits				(21,830	)		1,152
Income tax paid				(6,142	)		(12,906	)

Net cash provided by operating activities			$	2,309		$	169,139
Cash flows from investing activities:
Restricted cash				—			4,846
Interest received				2,164			4,437
Advance payments on aircraft purchase contracts		12		—			(6,365	)
Sale of advance on aircraft purchase contracts				50,000			—
Acquisition of property and equipment		12		(26,303	)		(49,439	)

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Unaudited Condensed Consolidated Interim Statement of Cash Flows

(In USD thousands)


			For the three months ended March 31,
	Notes		2020			2019
Proceeds from sale of property and equipment				329,587			35,403
Investment in certificates of bank deposits				—			(3,847	)
Redemption in certificates of bank deposits				5,750			—
Acquisition of intangible assets				(13,732	)		(595	)

Net cash provided (used) in investing activities			$	347,466		$	(15,560	)
Cash flows from financing activities:
Proceeds from loans and borrowings		15		77,917			150,403
Repayments of loans and borrowings		15		(279,294	)		(207,535	)
Interest paid		15		(55,972	)		(45,919	)
Dividends paid to minority shareholding		26		—			(30,000	)

Net cash used in financing activities			$	(257,349	)	$	(133,051	)
Net increase in cash and cash equivalents				92,426			20,528
Effect of movements in exchange rates on cash held				(10,981	)		(2,718	)
Cash and cash equivalents at beginning of year				342,472			273,108

Cash and cash equivalents at end of year		9	$	423,917		$	290,918

See accompanying notes unaudited condensed consolidated interim financial statements

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(1) Reporting entity

Avianca Holdings S.A. (the “Group” or “Avianca Holdings S.A.”), a Panamanian corporation whose registered address is at Calle Aquilino de la Guardia No. 8 IGRA Building, Panama City, Republic of Panama, was incorporated on October 5, 2009 under the name SK Holdings Limited in and under the laws of the Commonwealth of the Bahamas. Subsequently, the Company changed its corporate name as follows on March 10, 2010 to AviancaTaca Limited, on January 28, 2011 to AviancaTaca Holding, S.A and on March 3, 2011 changed its registered offices to Panama. In 2011, AviancaTaca listed its shares in the Bolsa de Valores de Colombia (“BVC”) and was listed as PFAVTA: CB. On March 21, 2013, the Company changed its legal name from AviancaTaca Holding S.A. to Avianca Holdings S.A. and its listing name to PFAVH: CB. On November 6, 2013, the Company listed its shares on the New York Stock Exchange (NYSE) and is listed as AVH.

Synergy Aerospace Corp currently has the majority of the Group’s shareholding through BRW Aviation LLC, which is the Group’s direct controller. Since May 24, 2019, Kingsland Holdings Limited, through its ownership of ordinary shares of Avianca Holdings and authority to vote the ordinary shares of Avianca Holdings S.A. owned by BRW Aviation LLC, has effective control of Avianca.

The following are the significant subsidiaries in the Group included within these consolidated financial statements:


Name of Subsidiary	Country of Incorporation	Ownership Interest %
Name of Subsidiary	Country of Incorporation	2020			2019
Avianca Ecuador S.A.	Ecuador		99.62	%		99.62	%
Aerovias del Continente Americano S.A. (Avianca)	Colombia		99.98	%		99.98	%
Avianca, Inc.	EE.UU.		100	%		100	%
Avianca Leasing, LLC	EE.UU.		100	%		100	%
Grupo Taca Holdings Limited	Bahamas		100	%		100	%
Latin Airways Corp.	Panama		100	%		100	%
LifeMiles Ltd.	Bermuda		70	%		70	%
Avianca Costa Rica S.A.	Costa Rica		92.42	%		92.42	%
Taca International Airlines, S.A.	El Salvador		96.83	%		96.83	%
Tampa Cargo Logistics, Inc.	EE.UU.		100	%		100	%
Tampa Cargo S.A.S.	Colombia		100	%		100	%
Technical and Training Services, S.A. de C.V.	El Salvador		99	%		99	%
Avianca Peru S.A.	Perú		100	%		100	%
Regional Express Américas S.A.S.	Colombia		100	%		100	%
Vu–Marsat S.A.	Costa Rica		100	%		100	%

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The Company through its subsidiaries is a provider of domestic and international, passenger and cargo air transportation, both in the domestic markets of Colombia, Ecuador, Costa Rica, Nicaragua and Peru and international routes serving North, Central and South America, Europe, and the Caribbean. The Company has entered into a number of bilateral code share alliances with other airlines (whereby selected seats on one carrier’s flights can be marketed under the brand name and commercial code of the other), expanding travel choices to customers worldwide. Marketing alliances typically include joint frequent flyer program participation; coordination of reservations, ticketing, passenger check in and baggage handling; transfer of passenger and baggage at any point of connectivity, among others. The code-share agreements currently in place with other airlines include Air Canada, Aeromexico, United Airlines, Copa Airlines, Silver Airways, Iberia, Lufthansa, All Nippon Airways, Singapore Airlines, Eva Airways, Air China, Etihad Airways, Turkish Airlines, Air India, Azul Linhas Aéreas Brasileiras and GOL Linhas Aéreas Inteligentes, Avianca, Taca International (as well as Taca affiliates) and Avianca Ecuador are members of Star Alliance, which give customers access to destinations and services offered by Star Alliance network. Star Alliance members include several of the world’s most recognized airlines, including Lufthansa, United Airlines, Thai Airways, Air Canada, TAP, Singapore Airlines, among others, as well as smaller regional airlines. All of them are committed to meeting the highest standards in terms of security and customer service.

Cargo operations are carried out by our subsidiaries and affiliates, including Tampa Cargo S.A.S. with headquarters in Colombia and Aerotransporte de Carga Union S.A. de C.V. The Group also undertakes cargo operations through the use of hold space on passenger flights and dedicated freight aircraft. In certain of the airport hubs, the Group performs ground operations for third-party airlines. Additionally, an important part of the cargo business is carried by the companies that operate passenger air transportation.

The Company owns and operates a coalition loyalty program called LifeMiles (the “Program”), which is also the frequent flyer Program for the airline subsidiaries of AVH. LifeMiles sells loyalty currency (“Miles”) to its commercial partners and Program members, including to AVH airlines and other airline partners from the Star Alliance network, and collects incentive, fees from partners and members of the Program for certain transactions. These partners in turn use Miles to reward their customers, increasing loyalty for their brands. For instance, partner airlines reward passengers with Miles whenever they fly, financial partners reward cardholders with Miles when they spend with their credit cards, and retail partners reward customers with Miles when they purchase merchandise or other goods and services. Miles earned can be exchanged for flights with Avianca, airline members of Star Alliance and other air partners, as well as for other commercial partners’ products and services such as hotel nights, car rentals and retail merchandise, among other rewards.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

As of March 31, 2020, and 2019, Avianca Holdings S.A. had a total fleet consisting of:


	March 31, 2020						December 31, 2019
Aircraft	Owned/ Financial Lease		Operating Lease (1)		Total		Owned/ Financial Lease		Operating Lease (1)		Total
Airbus A-319		23		4		27		23		4		27
Airbus A-320		22		35		57		31		26		57
Airbus A-320 NEO		3		7		10		3		7		10
Airbus A-321		7		6		13		7		6		13
Airbus A-321 NEO		—		2		2		—		2		2
Airbus A-330		3		6		9		3		7		10
Airbus A-330F		6		—		6		6		—		6
Airbus A-300F		3		—		3		5		—		5
Boeing 787-8		8		5		13		8		5		13
Boeing 787-9		—		1		1		—		1		1
ATR-72		15		—		15		15		—		15
Boeing 767F		2		—		2		2		—		2
Embraer E-190		—		—		—		10		—		10

		92		66		158		113		58		171

(1)

From January 1, 2019, as a result of the adoption of IFRS 16, the leases that are legally denominated operative are recorded in the consolidated statement of financial position as part property and equipment, as well as the recognition of the related financial liability that represents the present value of the minimum payments of the lease contract.

(2) Basis of preparation of the consolidated financial statements

Applied Professional Accounting Standards

(a) Statement of compliance.

The condensed consolidated interim financial statements as of and for the three months period ended March 31, 2020 and 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board (“IASB”).

The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements as of and for the year ended December 31, 2019. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The consolidated interim financial statements of the group for the months ended March 31, 2020 were prepared and submitted by Management and authorized for issuing by Audit Committee on June 15, 2020 that have been delegated by the Board of Directors.

(b) Basis of measurement

The condensed consolidated interim financial statements have been prepared on a historical cost basis, except for, land and buildings (classified as administrative property), assets held for sale, derivative financial instruments and plan assets, which have been measured at fair value. The carrying values of recognized assets and liabilities that are designated as hedged items in cash flow for changes in fair value that would otherwise be carried at amortized cost are adjusted to recognize changes in the fair values attributable to the risks that are being hedged in effective hedge relationships.

(c) Functional and presentation currency

The Group’s condensed consolidated interim financial statements are presented in US Dollars, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.

(d) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

In preparing these Condensed Consolidated Interim Financial Statements, significant judgments were made by Management when applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2019.

The following are critical judgments used in applying accounting policies that may have the most significant effect on the amounts recognized in the consolidated financial statements:

•

The Group operates certain aircraft under a financing structure which involves the creation of structured entities that acquire aircraft with bank and third–party financing. This relates to 83 aircraft from the A319, A320, A321, A330, A330F,

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

ATR72, and B787 families. The Group has determined, based on the terms and conditions of the arrangements, that the Company controls these special purpose entities (“SPE”) and therefore, SPEs are consolidated by the Group and these aircraft are shown in the consolidated statement of financial position as part of Property and Equipment with the corresponding debt shown as a liability.

The following assumptions and estimation uncertainties may have the most significant effect on the amounts recognized in the consolidated financial statements within the next financial year:

•

The Group recognizes revenue from tickets that are expected to expire without having been used based on historical data and experience. To define the expected expiration, with the support of an independent third-party specialist, the administration must make informed estimates of the historical experience, which is an indication of the future behavior of the clients, analyzed by type of rate. As indicated by the accumulated data, the administration evaluates the historical data once a year or more frequently according to experience and makes the necessary adjustments.

•

The Group believes that the tax positions taken are reasonable. However, tax authorities by audits proceedings may challenge the positions taken resulting in additional liabilities for taxes and interest that may become payable in future years. Tax positions involve careful judgment on the part of management and are reviewed and adjusted to account for changes in circumstances, such as lapse of applicable statutes of limitations, conclusions of tax audits, additional exposures derived from new legal issues or court decisions on a particular tax. The Group establishes provisions, based on their estimation on feasibility of a negative decision derived from an audit proceeding by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and different interpretations of tax regulations by the taxable entity and the responsible tax authority. Actual results could differ from estimates.

•

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized and the tax rates used, based upon the likely timing and the level of future taxable profits together with future tax planning strategies, and the enacted tax rates in the jurisdictions in which the entity operates.

•

The Group measures administrative land and buildings primarily in Bogota, Medellin, San Jose, and San Salvador at revalued amounts with changes in fair value being recognized in other comprehensive income. The Group engaged independent valuation specialists to assists management in determine the fair value of these assets as of December 31, 2019. The valuation techniques used by these specialists require estimates about market conditions at the time of the report.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

•

The Group estimates useful lives and residual values of property and equipment, including fleet assets based on network plans and recoverable value. Useful lives and residual values area revaluated annually considering the latest fleet plans and business plan information. In the note 12 provides more information about the net book value of the property and equipment and their respective depreciation charges.

•

The Group evaluates the carrying value of long-lived assets subject to amortization or depreciation whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized when the asset’s carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair market value.

Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired.

•

The cost of defined benefit pension plans and other post–employment medical benefits and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long–term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

For determines the discount rate of the pension plans in Colombia, the management takes as a reference the rate of the bonds issued by the Colombian Government.

The mortality rate is based on publicly available mortality tables in Colombia. Future salary increases and pension increases are based on expected future inflation rates in Colombia.

•

The Group estimated the breakage of miles, supported by a third valuation specialist to assist management in this process. The Group considers the behavior of the members based on a segmentation into statistically homogeneous groups of members to be able to project future behaviors, and therefore is considered to be more robust in predicting redemption rates by segment and breakage estimates of the Program.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

•

The Group estimated a provision for expected credit losses based on informed and reasonable information about past events, present conditions and reasonable and justifiable forecasts regarding future economic conditions, considering credit risk, classification and late payment.

•

The Group recognizes a provision in the balance sheet when a third-party account has a legal or implicit obligation as a result of a past event, and it is probable that an exit of liquidity benefits to the obligation is required. In relation to provisions for litigation, the main source of uncertainty is the time of the outcome of the process.

•

Aircraft lease contracts establish certain conditions in which aircraft shall be returned to the lessor at the end of the contracts. To comply with return conditions, the Group incurs costs such as the payment to the lessor of a rate in accordance with the use of components through the term of the lease contract, payment of maintenance deposits to the lessor, or overhaul costs of components. In certain contracts, if the asset is returned in a better maintenance condition than the condition at which the asset was originally delivered, the Group is entitled to receive compensation from the lessor. The Group accrues a provision to comply with return conditions at the time the asset does not meet the return condition criteria based on the conditions of each lease contract. The recognition of return conditions require management to make estimates of the costs with third parties of return conditions and use inputs such as hours or cycles flown of major components, estimated hours or cycles at redelivery of major components, projected overhaul costs and overhaul dates of major components. At redelivery of aircraft, any difference between the provision recorded and actual costs is recognized in the result of the period.

(e) Going Concern

The condensed consolidated interim financial statements have been prepared on a going concern basis.

The Group has recognized a net loss after tax of $121,195 for the three months ended March 31, 2020, and $893,995 for the year ended December 31, 2019, that originated a equity deficit, as at that date, the consolidated statement of financial position reflected an excess of current liabilities over current assets of $3,114,433 and $495,580 (excluding air traffic liability and frequent flyer deferred revenue).

The World Health Organization declared COVID-19 a pandemic and, in March 2020, governments around the world, including those of the United States, Colombia and most Latin American countries, declared states of emergency in their respective jurisdictions and implemented measures to halt the spread of the virus, including enhanced screenings, quarantine requirements and severe travel restrictions.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Following orders by the governments of Colombia and of other countries in which we operate, we have temporarily ceased international passenger operations to and from Colombia, ceased all Colombian domestic passenger flight operations and cancelled all passenger flights to and within Peru, El Salvador and Ecuador. As a result of these measures, substantially all of our passenger flights have been cancelled and our corresponding fleet has been grounded.

In addition to reducing capacity, in order to mitigate the effects of these developments, we implemented additional cost savings and liquidity preservation measures, including temporary deferral of non-essential expenses, capital expenditures and labor contracts, as well as a suspension on hiring of new employees, an implementation of voluntary unpaid leave of absence and temporary salary reductions, which have resulted in a reduction of approximately 34% in salary wages and benefits expenses until May 2020, as compared to the same period in 2019.

Additionally, the group has cut all non-essential capital expenditures, and has suspended payments on leases and on payment of principal on certain loan obligations in breach of debt covenants on aircraft financing loans and other loans. Requests from our creditors regarding defaults or debt covenants are subject to the development of Chapter 11 (See Note 27).

The spread of COVID-19 and the government measures taken to address it have already had a material and adverse effect on the airline industry and on us and have resulted in unprecedented revenue and demand drop as well as overall macroeconomic uncertainty. As of the date of this report, the group passenger revenues have decreased 51% year to date, as compared to the same period in 2019.

We cannot foresee or quantify the extent of the impact of COVID-19 on our operational and financial performance, which will depend on developments relating to the spread of the outbreak, the duration and extent of quarantine measures and travel restrictions and the impact on overall demand for air travel, all of which are highly uncertain and cannot be predicted.

As a result of extremely challenging market conditions, the suspension of our passenger travel operations, our current financial situation, and the resulting risks and uncertainties surrounding our Chapter 11 proceedings (See Note 27), there is significant uncertainty about our ability to continue as a going concern.

Our ability to continue as a going concern depends, among other things, on our capacity to (i) restart our passenger travel operations profitably, which depends on many factors beyond our control, mainly related to derived developments of the spread of COVID-19, its impact on passenger air transportation demand and government measures regarding travel restrictions, quarantine requirements, and others, and (ii) successfully developing and implementing our Chapter 11 reorganization plan .

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The continuity of the group as a going concern is subject to the success of the negotiation and execution of the reorganization plan, a process that can last from 12 to 18 months.

(3) New and amended standards and interpretations

3.1 Amendments to IFRSs that are mandatorily effective for the current year

The Group has applied for the first time some standards and modifications to the standards, which were effective for the periods beginning on January 1, 2020. The Group has not applied any standard, interpretation or modification that has been issued but is not yet effective.

Amendments to IFRS 3: Definition of a Business

In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments.

Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of application.

Amendments to IAS 1 and IAS 8: Definition of Material

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’

The amendments to the definition of material do not have a significant impact on the Group’s consolidated financial statements.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

3.2 Standards issued but not yet effective

The Group has not applied the following new and revised IFRSs that are not yet effective:

IFRS 17 Insurance contracts

IFRS 17 is effective for reporting periods beginning on or after January 1, 2023, with comparative figure es required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group.

(4) Segment information

The Group reports information by segments as established in IFRS 8 “Operating segments”. The Group has two reportable segments, as follows:

•

Air transportation: Corresponds to passenger and cargo operating revenues on scheduled flights and freight transport, respectively.

•

Loyalty: Corresponds to the coalition loyalty program, the frequent flyer program for the airline subsidiaries of Avianca Holdings S.A.

The Board of Directors is the Chief Operating Decision Maker (CODM) and monitors the operating results of its reportable segment separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on statement of comprehensive income and is measured consistently with the Group’s consolidated financial statements.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The Group’s operational information by reportable segment for the three months ended March 31, 2020 are as follows:


	For the three months ended March 31, 2020
	Air transportation			Loyalty (1)			Eliminations			Consolidated
Operating revenue: (2)
External customers	$	879,576		$	64,344		$	—		$	943,920
Inter-segment		27,079			290			(27,369	)		—

Total operating revenue	$	906,655		$	64,634		$	(27,369	)	$	943,920
Operating expenses		794,186			33,901			(27,369	)		800,718
Depreciation, amortization		138,867			3,058			(2,504	)		139,421

Operating (loss) profit		(26,398	)		27,675			2,504			3,781
Interest expense		(105,511	)		(8,180	)		—			(113,691	)
Interest income		1,500			475			—			1,975
Derivative instruments		(311	)		(1	)		—			(312	)
Foreign exchange		984			(134	)		—			850
Income tax expense		(13,844	)		46			—			(13,798	)

Net (loss) profit for the period	$	(143,580	)	$	19,881		$	2,504		$	(121,195	)

Total Assets at March 31, 2020	$	6,922,763		$	271,566		$	(189,202	)	$	7,005,127

Total Liabilities at March 31, 2020	$	6,386,146		$	888,614		$	(136,918	)	$	7,137,842

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The Group’s operational information by reportable segment for the three months ended March 31, 2019 are as follows:


	For the three months ended March 31, 2019
	Air transportation			Loyalty (1)			Eliminations			Consolidated
Operating revenue: (2)
External customers	$	1,074,056		$	76,697		$	—		$	1,150,753
Inter-segment		33,237			309			(33,546	)		—

Total revenue		1,107,293			77,006			(33,546	)		1,150,753
Operating expenses		970,263			43,676			(32,839	)		981,100
Depreciation, amortization		160,896			2,826			(12,522	)		151,200

Operating profit (Loss)		(23,866	)		30,504			11,815			18,453
Interest expense		(59,310	)		(9,306	)		—			(68,616	)
Interest income		3,822			632			—			4,454
Derivative instruments		495			—			—			495
Foreign exchange, net		(11,725	)		(24	)		—			(11,749	)
Equity method		245			—			—			245
Income tax expense		(11,235	)		41			—			(11,194	)

Net segment profit (loss) for the period		(101,574	)		21,847			11,815			(67,912	)

Total Assets at December 31, 2019	$	7,219,611		$	243,249		$	(188,950	)	$	7,273,910

Total Liabilities at December 31, 2019	$	6,522,422		$	880,483		$	(134,162	)	$	7,268,743

(1)	Loyalty revenue for redeemed miles is found in the entry of passengers; and other loyalty income is recorded in other income.

(2)	Results, assets and liabilities allocated to the loyalty segment correspond to those attributable directly to the subsidiary LifeMiles Corp., and exclude assets, liabilities, income and expenses of the loyalty program recognized in the Avianca Holdings Subsidiaries.

Inter-segment revenues are eliminated upon consolidation and reflected in the “Eliminations” column.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The Group’s revenues by geographic area for the three months ended March 31, 2020, and 2019 are as follows:


	For the three months ended March 31,
	2020		2019
United States of America	$	136,913	$	155,049
Central America and the Caribbean		135,161		161,190
Colombia		419,649		489,890
South America (excluding Colombia)		159,039		224,259
Other		93,158		120,365

Total operating revenue	$	943,920	$	1,150,753

The Group allocates revenues by geographic area based on the point of origin of the flight. Non-current assets are composed primarily of aircraft and aeronautical equipment, which are used throughout different countries and are therefore not assignable to any particular geographic area. Within the geographic areas presented there are no individually significant countries.

(5) Seasonality

The results of operations for any interim period are not necessarily indicative of those for the entire year because the business is subject to seasonal fluctuations. These fluctuations are the result of high vacation and leisure demand occurring during the northern hemisphere’s summer season in the third quarter (principally in July and August) and again during the fourth quarter (principally in December).

In addition, January is typically a month in which heavy air passenger demand occurs. The lowest levels of passenger traffic are concentrated in February, March and May. Given the proportion of fixed costs, the Company and its subsidiaries expect that quarterly operating results to continue to fluctuate from quarter to quarter. This information is provided to allow for a better understanding of the results; however, management has concluded that this does not constitute “highly seasonal” as defined by IAS 34.

(6) Foreign exchange

For the nine-months period ended March 31, 2020, the Group recognized a net gain of $850, mainly as a result of the devaluation of the Colombian peso against the US dollar of 24.4%, compared to the exchange rate as of December 31, 2019. For the three-months period ended March 31, 2019, the Group recognized a net loss of $11,749, mainly as a result of the revaluation of the Colombian peso against the US dollar of 2.3%, compared to the exchange rate as of December 31, 2018.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(7) Employee benefits

The Group sponsors defined benefit pension plans, which require contributions to be made to separately administered funds. The Group has also agreed to provide certain additional post-employment benefits. These benefits are unfunded as of December 31, 2019. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit cost method. Actuarial gains and losses for defined benefit plans are recognized in full in the period in which they occur in other comprehensive income.

The defined benefit liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds of the country where each benefit plan is established), less the fair value of plan assets out of which the obligations are to be settled. Plan assets are assets that are held by CAXDAC. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value is based on market price information and in the case of quoted securities on the published bid price. The value of any defined benefit asset recognized is restricted to the sum of any past service costs and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

The discount rate indexed by Colombian Government bonds was 6.01 % and 6.25% as of March 31, 2020 and December 31, 2019, respectively

(8) Cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash as of March 31, 2020, December 31, 2019, and March 31, 2019, are as follows:


	March 31, 2020		December 31, 2019		March 31, 2019
Cash on hand and bank deposits	$	422,143	$	339,010	$	278,854
Demand and term deposits (1)		1,774		3,462		12,064

Cash and cash equivalents		423,917		342,472		290,918
Restricted cash		1		1		107

Cash, cash equivalents and restricted cash	$	423,918	$	342,473	$	291,025

(1)

As of March 31, 2020, and December 31, 2019, within the cash equivalents, there are demand and term deposits that amounted to $1,774 and $ 3,462, respectively. The use of term deposits depends on the cash requirements of the Group. As of March 31, 2020, term deposits accrue annual interest rates between (1.66)% and 4.97% in Colombian pesos and between 1.74% and 4.59% in dollars. As of December 31, 2019, term deposits accrue annual interest rates between 3.61% and 5.21% in Colombian pesos and between 1.94% and 6.02% in dollars.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(9) Trade and other receivables

Trade and other receivables as of March 31, 2020 and December 31, 2019 are as follows:


	March 31, 2020			December 31, 2019
Trade	$	162,901		$	222,694
Employee advances		2,725			3,267
Other (1)		80,868			72,331

	$	246,494		$	298,292
Less provision for expected credit losses		(41,389	)		(42,001	)

Total	$	205,105		$	256,291

Net current	$	186,255		$	233,722
Net non-current		18,850			22,569

Total	$	205,105		$	256,291

Trade receivables are non-interest bearing.

(1)

As of March 31, 2020, corresponds mainly to accounts receivable to Chelsea Securities S.A. for $34,980 and account receivable with Rolls Royce is $ 11,423. related to contractual rights acquired in connection with failures in Trent 1000 engines.

Changes during the year in the provision for expected credit losses for as follows:


	March 31, 2020			December 31, 2019
Balance at beginning of year	$	42,001		$	12,430
Provision bad debt expense (1)		1,256			50,703
Reversal against the allowance		(1,868	)		(21,132	)

Total	$	41,389		$	42,001

(1)	As of March 31, 2020, includes impairment of the account receivable assigned by Grupo Aeromar SA of CV to Chelsea Securities, S.A., this account receivable ($34,980), isn’t unsecured, originated in a potential investment of the Group in the Mexican market, a decision to the invest wasn’t approved.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(10) Balances and transactions with related parties

The following is a summary of transactions and balances of related parties for the periods ended March 31, 2020, December 31, 2019 and March 31, 2019:


Company	Country	March 31, 2020								December 31, 2019				March 31, 2019
Company	Country	Receivables		Payables		Revenues		Expenses		Receivables		Payables		Revenues		Expenses
OceanAir Linhas Aéreas. S.A.	Brazil	$	2,498	$	1,845	$	124	$	127	$	2,906	$	2,178	$	3,578	$	8,470
Transportadora del Meta S.A.S.	Colombia		—		—		—		—		—		448		—		1,277
Empresariales S.A.S.	Colombia		—		305		—		626		—		475		—		680
Global Operadora Hotelera S.A.S	Colombia		6		63		2		278		4		368		2		1,264
Corp Hotelera Internac S.A.	El Salvador		—		—		—		—		—		131		—		318
Servicios Aéreos Nacionales S.A.	Costa Rica		—		—		—		—		180		104		—		—
Turbo Leasing Corp.	Bahamas		90		—		—		—		196		—		—		—
Opera Transporte y Logistica Integral S.A.S.	Colombia		—		409		—		949		—		—		—		—
Otras			44		6		—		5		62		9		1		12

Subtotal		$	2,638	$	2,628	$	126	$	1,985	$	3,348	$	3,713	$	3,581	$	12,021


		Receivables		Payables						Receivables		Payables
Short–term		$	2,638	$	2,628					$	3,348	$	3,713

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The Group on March 31, 2020, recognized an estimate for impairment for accounts in relation with OceanAir Linhas Aereas, S.A account receivable for $7,622, that corresponds mainly to aircraft rentals and interline charges.

As of December 31, 2019, the Group received convertible equity financing from Kingsland International Group and United Airlines in the amount of $324,000. (See note 15).

The following is a description of the nature of services provided by and to related parties. These transactions include:


Related party		Nature of Services
Corporación Hotelera Internacional S.A. Global Operadora Hotelera S.A.S.		Accommodation services for crews and employees of the Group.

Empresariales S.A.S.		Transportation services for employees of Avianca, S.A.

OceanAir Linhas Aéreas, S.A. – in judicial reorganization (recuperação judicial)		On December 10, 2018, Oceanair Linhas Aéreas SA, a Brazilian airline that licenses the “Avianca” brand, together with AVB Holding SA, its parent entity, filed a petition for judicial restructuring before the First Bankruptcy Court of the Central District Court of the District of State of Sao Paulo, Brazil. The judicial recovery plan was approved at a general meeting of creditors on April 5, 2019. • On April 12, 2019, judicial recovery was granted, and the judge ratified the judicial recovery plan. Swissport and Petrobras two creditors in the judicial restructuring process, filed an interlocutory appeal against the decision that ratified the judicial recovery plan and requested a court order to suspend the auction of isolated productive units (UPI); • The São Paulo State Court granted the mandate of Swissport and suspended the UPI auction until a final resolution on the appeal is pending. Oceanair and AVB appealed against the suspension of the auction and the São Paulo State Court granted the appeal to allow Oceanair and AVB to proceed with the auction of seven UPIs, which contain airport spaces and the “Amigo Program”; • On July 10, 2019, Oceanair and AVB sold five of their seven UPIs at auction. Gol acquired 3 UPI and Latam 2 UPI. On July 11, 2019, ANAC said it would redistribute 41 slots at Congonhas airport as of July 29.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)


Related party		Nature of Services

		The decision of the interlocutory appeals filed by Petrobras and Swissport in relation to the approval of the judicial recovery plan was scheduled for July 29, 2019, where there was no unanimous decision and the sentence of said remedies was postponed until September. Subsequently, on September 26, 2019, the State Court of São Paulo, by majority, dismissed the interlocutory appeals, so the Oceainair and AVB bankruptcy declaration did not proceed at that time, since the list of art. 73 of the LRF is exhaustive and only allows a restrictive interpretation. Swissport and Petrobras filed new appeals that are still pending sentencing. On the other hand, within the scope of the judicial recovery plan, the aircraft renters submitted a declaration, requesting that the resources obtained in the auction be reserved, so that DIP creditors are paid with priority. On November 12, 2019, Oceanair submitted a statement stating that, in view of the redistribution of the slots (and the pending decision of the appeals that discuss this matter and that involve the ANAC), the payment of the auctions will be it would suspend under the plan and, therefore, the request made by the lessors would have lost the object. Therefore, as stated by Oceanair, it would be necessary to wait for the decision of the appeals involving ANAC, so that the auctions continue and only then, can the creditors be paid. On December 10, 2019, the Court of Appeals of São Paulo ruled in favor of ANAC, which decided that this entity would be able to redistribute the arrival and departure slots of Oceanair flights. On November 12, 2019, the Judicial Administrator (trustee) submitted a petition to the Judge, opting for the bankruptcy of Oceanair and AVB, in view of the absence of commercial activities by them. On December 18, 2019, the Judge decided, among other matters, to summon Oceanair to pronounce on the recommendation of the Judicial Administrator so that the judicial recovery plan becomes a bankruptcy process. Given that the judicial branch in Brazil was in recess from December 20, 2019 until January 20, 2020, On January 27, 2020, Oceanair requested a period of 10 days to decide on the request of the Judicial Administrator. The 10-day term that Oceanair had requested to rule on the recommendation of the judicial administrator to convert the case into bankruptcy was granted. The Avianca group had signed several contracts with Oceanair for the provision of logistics, marketing, advertising, maintenance, training, as well as an agreement with Tampa Cargo S.A.S. since November 4, 2014, reserve capacity to obtain priority rights and a minimum cargo transport capacity guaranteed on certain flights of the airline. Such contracts to date are not valid given the current situation of Oceanair and for the most part they are not being executed, therefore, Avianca sent to Oceanair a notification of termination of the contracts, so there are no more commercial relations between the companies. Also, Avianca had signed a license agreement with Oceanair for the use of the Avianca brand in Brazil, which ended in June 2019. Additionally, Avianca leased aircraft to Oceanair.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)


Related party		Nature of Services
Turboprop Leasing Corp Servicios Aéreos Nacionales S.A		Maintenance services to Avianca Guatemala S.A and Avianca Costa Rica S.A.

Transportadora del meta S.A.S.		It provides Avianca, S.A. ground transportation services for cargo / courier shipments.

Key management personnel compensation expense

During the three months year ended March 31, 2020 and 2019, the short-term employee benefits for key management personnel are $ 3,677 and $ 4,765. The Group does not have any long-term benefits including post-employment benefits, defined contribution plan, termination benefits or other long-term benefits for the key management personnel.

Following the detail for short-term compensation:


	For the three months ended March 31,
	2020		2019
Salaries	$	2,374	$	3,383
Bonuses		644		674
Social benefits		659		708

Total	$	3,677	$	4,765

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(11) Short term investments, deposits and other assets

Short term investments, deposits and other assets as of March 31, 2020 and December 31, 2019 are as follows:


	Notes		March 31, 2020		December 31, 2019
Short term investments (1)			$	49,690	$	55,440

Total			$	49,690	$	55,440

Deposits and other assets—short term:
Deposits with lessors (2)			$	13,577	$	11,963
Guarantee deposits (3)				10,241		8,657
Others (4)				16,047		18,030

Subtotal				39,865		38,650
Fair value of derivative instruments		18		—		525

Total			$	39,865	$	39.175

Deposits and other assets—long term:
Deposits with lessors (2)			$	45,079	$	35,374
Guarantee deposits (3)				8,094		10,032
Others (4)				6,653		8,657

Subtotal				59,826		54,063
Fair value of derivative instruments		18		—		11

Total			$	59,826	$	54,074

(1)

Short term classification corresponds to funds invested that will expire within one year. All treasury cash surpluses are invested as defined and outlined in the Group’s Investment Policy. Otherwise, they are classified as long-term. The restricted investments correspond to CDT’s and bonds constituted by the Trusts held by the Group.

(2)

Corresponds mainly to maintenance deposits in connection with leased aircraft. These deposits are applied to future maintenance event costs and are calculated on the basis of a performance measure, such as flight hours or cycles. They are specifically intended to guarantee maintenance events on leased aircraft.

Maintenance deposits paid do not transfer the obligation to maintain aircraft or the costs associated with maintenance activities.

Maintenance deposits are reimbursable to the Group upon completion of the maintenance event in an amount equal to the lesser of (a) the amount of the maintenance deposits held by the lessor associated with the specific maintenance event or (b) the qualifying costs related to the specific maintenance event.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(3)	Corresponds mainly to amounts paid to suppliers in connections with leasehold of airport facilities, among other service agreements.

(4)	Corresponds mainly to other security deposits, national tax refund titles and deferred charges.

(12) Property and equipment, net

The main additions correspond to:

•

Flight equipment: During the three months ended March 31, 2020, the Group execute sale and lease back transactions of nine Airbus A320 aircraft for $197,707 (recognized as rights) of use with Avalon Aerospace Leasing Limited. During the three months ended March 31, 2019, the Group did not acquire aircraft, and capitalized $6,081 related to the projects Boeing 787-9, ADS-B (Automated dependent surveillance – broadcast) and LF-ULD (Loew frequency underwater locator beacons).

As of March 31, 2020, the Group reclassified the aircraft of assets held for sale to Property and equipment 2 A319, 3 A320, 2 A330, 1 A330F and 4 A321 for a total amount of $ 352,867. As the “highly probable sale” condition is not fulfilled, derived from the current situation of the airline industry caused by COVID-19.

•

Capitalized maintenance: Additions reported for the three months ended March 31, 2020 and 2019 correspond mainly to major repairs of the fuselage for $2,402 and $11,409, respectively, and major engine repairs for $14,266 and $16,591, respectively.

•

Reimbursement of predelivery payments (PDP’s): As of March 31, 2020, and 2019, the Group suspended the capitalization of interest on PDP’S, mainly due to the cessation of advance payments to aircraft manufacturers for a period of two years. As of March 31, 2019, the Group capitalized borrowing costs of $3,284 at an average interest rate of 7.04%.

As of March 31, 2020, the Group renegotiated aircraft purchase contracts with Boeing for $ 58,548, of which $50,000 was received in cash and $8,548 was retained for future orders. During the year ended March 31, 2019, the Group signed an Aircraft Purchase Agreement Assignment, assigning 3 Boeing 787-9 aircraft to Valderrama Aviation Limited, therefore, $83,049 related to this event were disposal.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Sale and Leaseback transactions

During the three months ended March 31, 2020, the group executed sale transactions with subsequent leasing, for $197,707, recognized as right of use.

During the three months ended at March 31, 2019, the group did not execute sale and lease back transactions.

During the three months ended March 31, 2020 and 2019, amortization for $6,749 and $1,350 respectively was recognized in the consolidated statement of comprehensive income.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Flight equipment, property and other equipment as of March 31, 2020 and March 31, 2019 is as follows:


	Flight Equipment			Capitalized Maintenance			Rotable Spare parts			Reimbursement of predelivery payments			Administrative property		Others			Total
Gross:
December 31, 2019	$	4,933,056		$	593,794		$	173,318		$	181,327		$	138,599	$	319,138		$	6,339,232
Additions		203,041			16,668			4,026			10,118			—		210			234,063
Disposals		(11,835	)		(2,212	)		(5,613	)		(58,548	)		—		(6,425	)		(84,633	)
Transfers		4,226			(1,264	)		(2,962	)		—			—		—			—
Reclassification assets held for sale		352,867			—			—			—			—		—			352,867

March 31, 2020	$	5,481,355		$	606,986		$	168,769		$	132,897		$	138,599	$	312,923		$	6,841,529

Accumulated depreciation:
December 31, 2019	$	945,220		$	225,973		$	47,277		$	—		$	27,487	$	139,958		$	1,385,915
Additions		90,650			27,203			2,456			—			384		6,605			127,298
Disposals		(4,666	)		(1,038	)		(5,607	)		—			—		(3,186	)		(14,497	)
Transfers		1,849			(1,264	)		(585	)		—			—		—			—

March 31, 2020	$	1,033,053		$	250,874		$	43,541		$	—		$	27,871	$	143,377		$	1,498,716

Net:
December 31, 2019	$	3,987,836		$	367,821		$	126,041		$	181,327		$	111,112	$	179,180		$	4,953,317

March 31, 2020	$	4,448,302		$	356,112		$	125,228		$	132,897		$	110,728	$	169,546		$	5,342,813

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Flight equipment, property and other equipment as of March 31, 2019 and March 31, 2018 is as follows:


	Flight Equipment			Capitalized Maintenance			Rotables Spare parts			Reimbursement of predelivery payments			Administrative property		Others			Total
Gross:
December 31, 2018	$	5,244,160		$	791,004		$	225,841		$	260,000		$	135,838	$	263,433		$	6,920,276
Adoption IFRS 16		966,806			—			—			—			—		68,580			1,035,386

January 1, 2019	$	6,210,966		$	791,004		$	225,841		$	260,000		$	135,838	$	332,013		$	7,955,662
Additions		6,081			30,435			5,713			6,365			—		7,210			55,804
Disposals		(3,654	)		(3,247	)		(3,269	)		(83,049	)		—		(3,000	)		(96,219	)
Transfers		(211	)		367			—			—			—		(156	)		—

March 31, 2019	$	6,213,182		$	818,559		$	228,285		$	183,316		$	135,838	$	336,067		$	7,915,247

Accumulated depreciation:
December 31, 2018	$	1,028,191		$	364,976		$	57,238		$	—		$	10,789	$	145,765		$	1,606,959
Additions		103,897			29,248			2,474			—			447		12,220			148,286
Disposals		(3,226	)		(777	)		—			—			—		(5,430	)		(9,433	)

March 31, 2019	$	1,128,862		$	393,447		$	59,712		$	—		$	11,236	$	152,555		$	1,745,812

Net:
December 31, 2018	$	4,215,969		$	426,028		$	168,603		$	260,000		$	125,049	$	117,668		$	5,313,317
March 31, 2019	$	5,084,320		$	425,112		$	168,573		$	183,316		$	124,602	$	183,512		$	6,169,435

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(13)

Intangible assets and goodwill, net

Intangible assets and goodwill, net of amortization as of March 31, 2020, and December 31, 2019,are follows:


	March 31, 2020		December 31, 2019
Routes	$	31,360	$	31,911
Trademarks		3,938		3,938
Software and webpages		171,177		158,690
Other intangible rights		—		2,935

Subtotal		206,475		197,474
Goodwill		308,033		308,033

Total Intangible Assets	$	514,508	$	505,507

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The following is the detail of intangible assets as of March 31, 2020 and December 31, 2019:


	Goodwill		Routes		Trade- Marks		Software & Webpages		Others		Total
Cost:
December 31, 2019	$	311,180	$	52,481	$	3,938	$	282,126	$	27,521	$	677,246

Additions (1)		—		—		—		21,124		—		21,124

March 31, 2020	$	311,180	$	52,481	$	3,938	$	303,250	$	27,521	$	698,370

Accumulated Amortization and Impairment Losses:
December 31, 2019	$	3,147	$	20,570	$	—	$	123,436	$	24,586	$	171,739

Amortization for the year		—		551		—		8,637		2,935		12,123

March 31, 2020	$	3,147	$	21,121	$	—	$	132,073	$	27,521	$	183,862

Carrying Amounts:

December 31, 2019	$	308,033	$	31,911	$	3,938	$	158,690	$	2,935	$	505,507

March 31, 2020	$	308,033	$	31,360	$	3,938	$	171,177	$	—	$	514,508

(1)	The main acquisitions of other intangibles correspond to SAP project for $16,316.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(13.1) Goodwill and intangible assets with indefinite useful life

Purposes of impairment testing of goodwill acquired through combinations of business and other intangibles with indefinite useful life, have been assigned to the air transport segment, since the Group considers that according to the operational and financial synergies between the different companies of the Group, this is the most appropriate and least arbitrary to measure the recoverable amount. In line with operative model of the Group.

The carrying value of the goodwill allocated to the air transport segment is as follows:


	March31, 2020		December 31, 2019
Goodwill	$	308,033	$	308,033
Routes		23,463		23,463
Trademarks		3,938		3,938

The group performed its annual impairment test in the fourth quarter of 2020 consistently with previous years. As of December 31, 2020, the Group did not identify potential impairment of goodwill or intangible assets.

Considering the impact of COVID-19 on our operations, in the first quarter of 2020, we performed a quantitative impairment test of our goodwill in accordance with IAS 36-Impairment of Assets.

Basis for calculating recoverable amount

The recoverable amounts of CGUs have been measured based on their value-in-use.

Value-in-use is calculated using a discounted cash flow model. Cash flow projections are based on the Business plan approved by the Board covering a five-year period that have been impacted by the decrease in demand and the restrictions imposed by various governments in the region and the corresponding adjustment of capacity offered. Cash flows extrapolated beyond the five-year period are projected to increase based on long-term growth rates. Cash flow projections are discounted using the CGU’s pre-tax discount rate.

Under the Board of directors approved business plan in the fourth quarter of 2019 and knows the impacts generated by COVID 19. The cash flows that have been used in the value-in-use calculations of business plans reflect the estimated negative impact of COVID 19 and the travel restrictions imposed on governments. based on the information that was known at the time and that is being put into practice by the Directorate under the existing conditions.

Macroeconomic assumptions are based on market data extracted from Bloomberg for both the expected WTI price and the expected interest rate levels, which have a direct impact on our cost projections, all costs are affected by inflation.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The main hypotheses used in the calculations of the value in use are as follows:


	March 31, 2020			December 31, 2019
Carrying amount of goodwill, routes and trademarks with indefinite life	$	335,434		$	335,434
Revenue growth p.a. over planning period		6.5 101.6	% to %		2.3 5	% to %
Operating income over planning period		6.3 10.7	% to %		5.2 8.8	% to %
Capital expenditures over planning period		(36.83 12.32	%) to %		(0.2 12.69	%) to %
Duration of planning period		5 years			5 years
Revenue growth p.a. after planning period		3.3	%		4.3	%
Operating Income after planning period		10.7	%		10.00	%
Capital expenditures after planning period		6.40	%		6.43	%
Business Enterprise Value		5,335,343			9,269,446
Discount rate (1)		15.15%/9.34	%		8.72	%

(1)	As a result of the distortion caused by the contingency of COVID19 in market rates, for the impairment test, as of March 31, 2020, multiple discount rates have been used, ranging from 15.15% in the first years to a 9.34% from the year 2022.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(14)

Assets held for sale

Assets held for sale as of March 31, 2020 and December 31, 2019 consisted of the following assets:


	March 31, 2020		December 31, 2019
Airbus aircraft (1)		—		128,640
Airbus aircraft – Sale and subsequent lease (1,2,4)		—		489,149
E-190 aircraft (1, 3)		—		59,548
Rotable E-190 aircraft (1)		893		3,716

Total assets held for sale	$	893	$	681,053

Liabilities associated with the assets held for sale		—		490,458

Total Debt assets held for sale	$	—	$	490,458

(1)

In August 2019, the Group began the process of selling 10 Airbus A318, 2 Airbus A319, 16 Airbus A320, 4 Airbus A321, 2 Airbus A330, 1 Airbus A330F and 10 Embraer E-190, in accordance with the business transformation plan where greater efficiency of the operated fleet is sought. This sale process would be subject to customary closing conditions. This plan seeks to reduce the families of older aircraft, to increase our efficiency.

(2)

In December 2019, the Group signed a letter of intent for the sale and subsequent lease agreement with Avalon Aerospace Leasing Limited in relation to 15 aircraft (Airbus A320 and A321). Of which as of March 31, 2020, 9 A320 were sold with sale and leaseback for a value of $263,293 and this operation generated a loss on sale of $ 1,628.

(3)	As of March 31, 2020, 10 Embraer 190 for $62,356. These sales generated a loss of $16.

(4)

As of March 31, 2020, the aircraft, 2 A319, 1 A320, 2 A330 and 1 A330F had not been sold therefore, they were classified as flight equipment since their sale do not meet the “highly probable”, derived from the current situation of COVID-19 (See Note 2e). and later decision to opt for voluntary reorganization under chapter 11 (See Note 27).

(5)	The assets classified as held for sale belong to the operating segment of air transportation.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(15)

Long–term debt

Loans and borrowings, measured at amortized cost, as of March 31, 2020 and December 31, 2019 are summarized as follows:


	March 31, 2020		December 31, 2019
Current:
Short–term borrowings and current portion of long–term debt	$	3,114,150	$	569,292
Current portion-bonds		78,005		65,632
Short-term aircraft rentals—right of use		200,244		229,260
Short-term other rentals—right of use		17,716		7,860

	$	3,410,115	$	872,044

Noncurrent:
Long–term debt	$	352,367	$	2,557,257
Non-current portion-bonds		466,801		465,612
Long-term aircraft rentals – right of use		1,069,431		899,265
Long-term other rentals – right of use		58,167		62,145

	$	1,946,766	$	3,984,279

Non-compliance debt

As of March 31, 2020, we have reclassified long-term debt to short-term debt for $2,455,934 as a result of default on the loan conditions, derived from non-payment decisions originated by the measures taken to preserve the Group’s cash as consequence of COVID-19 (see note 2e). On March 20, we unilaterally suspended debt amortization payments for $22.4 million that represents a total debt amount of $677.3 million.

Additionally, the amount of operating leases without payment to date amount to $9.6 million. The long-term portion related to these leases is not reclassified as its accelerated payment is not required by the lessor.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Terms and conditions of the Group’s outstanding obligations for periods ended March 31, 2020 and December 31, 2019, are as follows:


			March 31, 2020
	Due through		Weighted average interest rate			Nominal Value		Carrying Amount
Short–term borrowings		2021		7.12	%	$	171,827	$	166,435
Long–term debt		2029		4.48	%		4,939,334		3,300,082
Bonds		2023		8.93	%		550,000		544,806
Aircraft rentals		2031		4.92	%		1,539,038		1,269,675
Other rentals		2037		7.37	%		87,420		75,883

Total						$	7,287,619	$	5,356,881


			December 31, 2019
	Due through		Weighted average interest rate			Nominal Value		Carrying Amount
Short–term borrowings		2020		6.43	%	$	128,671	$	118,137
Long–term debt		2029		4.68	%		4.185,526		3.008,412
Bonds		2023		8.93	%		550,000		531,244
Aircraft rentals		2031		4.92	%		1.347,219		1.128,525
Other rentals		2037		7.37	%		87,405		70,005

Total						$	6,298,821	$	4,856,323

Below we present the detail of the debt balance by type of loan:


	March 31, 2020		December 31, 2019
Aircraft	$	2,123,779	$	1,831,470
Corporate		1,342,738		1,295,079
Bonds		544,806		531,244
Right of use IFRS 16		1,345,558		1,198,530

	$	5,356,881	$	4,856,323

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The main additions for the three months ended March 31, 2020 and 2019 corresponds to:

•

Loans (financial leasing) to finance the purchase of aircraft:

•

During 2020, the Group registered use rights debt for $191,819 for nine Airbus A320.

•

During 2019, the Group obtained $36,956 under loans in order to refinance two A320 aircraft.

•

Loans for general purposes of:

•

During 2020, the Group also obtained $77,917 for general working capital purposes. Mainly, it corresponds to a loan with Citadel through their administrative agent UMB Bank N.A. at a rate 9% for a term of 12 months.

•

During 2019, the Group also obtained $113,447. Mainly these loans are acquired by LifeMiles, $100,000 at a rate Libor+5.5 for a term of 3 years, with the purpose of paying dividends.

Secured loan agreement with United Airlines Inc. and Kingsland International Group S.A.

On November 18, 2019, Avianca Holdings S.A. signed a $250,000 convertible secured loan agreement with United Airlines, Inc. (“United”) and Kingsland International Group, S.A. or its affiliates (collectively, “Kingsland”), as creditors, which was added for $ 74,000 for a total of $324,000.

The main terms and conditions of convertible loan are:

•

Expiration: Four years from the date of initial disbursement.

•

Interest: 3% annual PIK.

•

Guarantee: A pledge on the shares of the most relevant subsidiaries of the Company.

•

Conversion Price—$4.6217 (in dollars) for each ADS, representing a 35% surcharge to the weighted average price volume at 90 days, as of October 3, 2019, of $3.4235 (in dollars). If there is a change of control event of the Company, the conversion price will be reduced to $4.1595 (in dollars). The conversion price can be adjusted if the price adjustment events contemplated in the agreement are given.

•

Mandatory conversion—The Company may require that the entire amount due under the Convertible Loan, together with all the corresponding PIK interest and cash caused, be converted into the Company’s capital in the event that the following conditions are met: (i) (a) Company ADSs are priced at a price of $7.00 (in dollars), or greater, at a weighted

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

average price volume at 112 of 150 consecutive business days (if such conversion occurs after the first anniversary of the Convertible Loan disbursement) or (b) the Company ADSs are quoted at a price of $7.00 (in dollars), or greater, at a weighted price volume of 90 consecutive 120 business days (if such conversion occurs after the first anniversary of the disbursement of the Convertible Loan), (ii) the total average consolidated cash balance of the Company is equal to or exceeds $700,000 in the immediately preceding six-month period, (iii) the non-existence of defaults under the Convertible Loan documentation and (iv) the non-existence of material disputes.

•

According to the contractual conditions, this financial instrument is classified as debt.

Senior bonds

As part of the Avianca Holdings debt reprofiling program, on December 31, 2019, the automatic and mandatory exchange of $ 484,418 of the aggregate principal amount of the Guaranteed Senior Bonds issued and in circulation with a 8.375% coupon with maturity in 2020 for a Amount of nominal equivalent Senior Guaranteed, with a coupon of 9.00% and maturity in 2023 (the “New Bonds”). The non-exchanged bonds (“Existing Bonds”) amount to an amount of $65,632 that have the same conditions of the initial issuance and whose maturity is in May 2020.

As of March 31, 2020, and December 31, 2019 the Senior Notes outstanding, and the corresponding balances are as follows:

Issuing entities

Original
currency

Total placed in
original currency

Balance as of

March 31,

December 31,

2020

2019

Avianca Holdings S.A., Avianca Leasing LLC and Grupo Taca Holdings Limited

USD

550,000

66,948

65,632


Issuers:		Avianca Holdings S.A., Avianca Leasing, LLC, and Grupo Taca Holdings Limited

Guarantors:		Avianca Costa Rica, S.A., Avianca Perú S.A., and Taca International Airlines, S.A. fully and unconditionally guarantee the total Notes. Aerovías del Continente Americano – Avianca, S.A. unconditionally guarantee the obligations of Avianca Leasing, LLC under the Senior Notes in an amount equal to $367 million.

Pending bonds		$ 65,581 aggregate capital amount of 8.375% Senior Bonds payable in 2020.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)


Initial Issue Price:		98.706%

Initial Issue Date:		May 10, 2013

Issue Amount:		$300 million

Interest:		The Senior Notes will bear interest at a fixed rate of 8.375% per year. The first issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on November 10, 2013. Interest will accrue from May 10, 2013. The second issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on May 10, 2014.

Second Issue Price:		104.50%

Second Issue Date:		April 8, 2014

Maturity Date (a):		The Senior Notes matured on May 10, 2020.

(a)	Due to the COVID-19 pandemic and the adverse effects caused, was not possible the Senior Bonds pay with an expiration date of May 10, 2020. Therefore, and in accordance with the indicated in note 2e this measure was taken with the objective of preserving the Group’s cash.

Issuing entities

Original
currency

Total placed in
original currency

Balance as of

March 31,

December 31,

2020

2019

Avianca Holdings S.A.

USD

484,419

477,858

465,612


Issuers:		Avianca Holdings S.A.

Guarantors:		Avianca Costa Rica, S.A., Avianca Perú S.A., and Taca International Airlines, S.A. fully and unconditionally guarantee the total Notes. Aerovías del Continente Americano – Avianca, S.A. unconditionally guarantee the obligations of Avianca Leasing, LLC under the Senior Notes in an amount equal to $367 million.

Pending bonds		$484,419 aggregate capital amount of 9.00% Senior Bonds payable in 2023

Initial Issue Date:		December 31, 2019

Issue Amount:		$484,419

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)


Interest:		The Senior Notes will bear interest at a fixed rate of 9.00% per year. The first issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on November 10. Interest will accrue from May 10, 2020. The interest are accumulated from December 31, 2019.

Transaction costs		The transaction costs associated with this new bond issue were $18,807, which are presented as a lower value of the initial carry amounts.

Maturity Date:		The Senior Notes will mature on May 10, 2023

Future payments on long–term debt

The following future payments including interests on long–term debt for the periods ended March 31, 2020 and December 31, 2019.

The amounts are gross and undiscounted and include contractual interest payments and exclude the impact of netting agreements.

Aircraft and corporate debt


	Years
	One		Two		Three		Four		Five and thereafter		Total
March 31, 2020	$	3,098,190	$	182,331	$	362,715	$	56,483	$	117,212	$	3,816,931

December 31, 2019	$	554,021	$	540,615	$	853,756	$	612,874	$	1,078,742	$	3,640,008

Bonds


	Years
	One		Two		Three		Four		Five and thereafter		Total
March 31, 2020	$	105,081	$	43,598	$	43,598	$	506,218	$	—	$	698,495

December 31, 2019	$	105,022	$	43,598	$	43,598	$	506,218	$	—	$	698,436

Aircraft rights of use


	Years
	One		Two		Three		Four		Five and thereafter		Total
March 31, 2020	$	252,320	$	300,225	$	279,016	$	244,302	$	324,011	$	1,399,874

December 31, 2019	$	256,192	$	238,618	$	226,537	$	198,880	$	323,329	$	1,243,556

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Other rights of use


	Years
	One		Two		Three		Four		Five and thereafter		Total
March 31, 2020	$	8,956	$	9,209	$	8,862	$	6,168	$	45,438	$	78,633

December 31, 2019	$	8,318	$	8,141	$	7,557	$	7,487	$	46,812	$	78,315

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Changes in liabilities derived from financing activities at March 31, 2020


	January 1, 2020		New acquisitions (1)		New Leases		Financial Cost		Payments			Interest Payments			Foreign exchange movement / Others			Reclassification (2)			March 31, 2020
Current interest-bearing loans and borrowings (excluding items listed below)	$	118,137	$	51,223	$	—	$	2,865	$	(1,452	)	$	(873	)	$	(3,465	)	$	—		$	166,435
Current portion of long-term credits (excluding items listed below)		451,155		13,786		—		43,898		(224,424	)		(52,223	)		6,030			2,709,493			2,947,715
Current Bonds		65,632		—		—		12,314		59			—			—			—			78,005
Non-current bonds		465,612		—		—		1,189		—			—			—			—			466,801
Non-current portion of long term debt		2,557,257		12,908		—		—		—			—			1,237			(2,219,035	)		352,367
Aircraft rentals – right of use		1,128,525		—		191,819		2,257		(50,669	)		(2,257	)		—			—			1,269,675
Other rentals – right of use		70,005		—		15		619		(2,808	)		(619	)		8,671			—			75,883

Total liabilities from financing activities	$	4,856,323	$	77,917	$	191,834	$	63,142	$	(279,294	)	$	(55,972	)	$	12,473		$	490,458		$	5,356,881

(1)	Goods and equipment acquired during the period under finance and operative lease; these movements have no effect on the consolidated statement of cash flows.

(2)	$490,458 it was reclassified from debt – assets held for sale to short-term and long-term debt. Likewise, a reclassification of long-term short-term debt of $2,163,924 has been made for purposes of non-compliance in some terms and conditions of our debts.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Changes in liabilities derived from financing activities at March 31, 2019


	January 1, 2019		Adoption IFRS 16		New acquisitions (1)		Financial Cost		Payments			Interest Payments			Foreign exchange			March 31, 2019
Current interest-bearing loans and borrowings (excluding itmes listed below)	$	119,866	$	—	$	4,474	$	1,485	$	(23,192	)	$	(1,280	)	$	151		$	101,504
Current portion of long-term credits (excluding items listed below)		469,500		—		108,973		5,552		(51,813	)		(5,669	)		(49,839	)		476,704
Current Bonds		37,376		—		—		773		6			(46	)		8,480			46,589
Non-current obligations under financial lease agreements and purchase agreements		2,830,922		—		36,956		36,668		(78,427	)		(25,490	)		38,385			2,839,014
Aircraft rentals		—		966,806		—		11,457		(52,619	)		(11,457	)		(1	)		914,186
Others rentals		—		68,580		—		1,304		(1,579	)		(1,304	)		1,267			68,268
Bonds		549,916		—		—		11,377		89			(673	)		(10,722	)		549,987

Total liabilities from financing activities	$	4,007,580	$	1,035,386	$	150,403	$	68,616	$	(207,535	)	$	(45,919	)	$	(12,279	)	$	4,996,252

(1)	Goods and equipment acquired during the period under finance lease; these movements have no effect on the statement of cash flows.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(16)

Losses per share

The calculation of basic loss per share at March 31, 2020 and 2019 is as follows:


	March 31, 2020			March 31, 2019
Net loss attributable to Avianca Holdings S.A.	$	(126,164	)	$	(74,975	)

Weighted average number of shares
(in thousands of shares)
Common stock		660,800			660,800
Preferred stock		336,187			336,187
Losses per share (1)
Common stock	$	(0.13	)	$	(0.075	)
Preferred stock	$	(0.13	)	$	(0.075	)

(1)	Expressed in dollars.

There are no interests in convertible preferred shares.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(17) Other Comprehensive Income (“OCI”) Reserves

The movement of the other comprehensive income as of December 31 2019, to March 31, 2020, is as follows:


	Attributable to owners of the Company
										Income tax reserves relating to (4)
	Hedging reserves (1)			Fair value reserves (2)			Reserves relating to actuarial gains and losses (3)			Fair value reserves		Reserves relating to actuarial gains and losses		Revaluation of administrative property (5)		Total			NCI			Total OCI
As of December 31, 2019	$	(3,.098	)	$	457		$	(116,704	)	$	3	$	527	$	40,695	$	(78,120	)	$	16		$	(78,104	)
Other comprehensive Income (loss) for the Period		(4,406	)		(212	)		(14,037	)		—		3,323		—		(15,332	)		(1,355	)		(16,687	)

As of March 31, 2020	$	(7,504	)	$	245		$	(130,741	)	$	3	$	3,850	$	40,695	$	(93,452	)	$	(1,339	)	$	(94,791	)

The movement of the other comprehensive income as of December 31 2018, to March 31, 2019, is as follows:


	Attributable to owners of the Company
										Income tax reserves relating to (4)
	Hedging reserves (1)			Fair value reserves (2)			Reserves relating to actuarial gains and losses (3)			Fair value reserves		Reserves relating to actuarial gains and losses		Revaluation of administrative property (5)		Total			NCI		Total OCI
As of December 31, 2018	$	(7,194	)	$	(748	)	$	(74,177	)	$	3	$	86	$	37,934	$	(44,096	)	$	194	$	(43,902	)
Other comprehensive Income (loss) for the Period		1,708			627			(1,380	)		—		194		—		1,149			39		1,188

As of March 31, 2019	$	(5,486	)	$	(121	)	$	(75,557	)	$	3	$	280	$	37,934	$	(42,947	)	$	233	$	(42,714	)

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(1)

Hedging Reserves

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash flows (See Note 18).

(2)

Fair value reserves

The fair value reserve comprises the cumulative net change in the fair value of available–for–sale financial assets until the assets are derecognized or impaired.

(3)

Reserve relating to actuarial gains and losses

It comprises actuarial gains or losses on defined benefit plans and post–retirement medical benefits recognized in other comprehensive income.

(4)

Income tax on other comprehensive income

Whenever an item of other comprehensive income gives rise to a temporary difference, a deferred income tax asset or liability is recognized directly in other comprehensive income.

(5)

Revaluation of administrative property

Revaluation of administrative property is related to the revaluation of administrative buildings and property in Colombia, Costa Rica, and El Salvador. The revaluation reserve is adjusted for increases or decreases in fair values of such property.

The following provides an analysis of items presented net in the statement of consolidated statement of comprehensive income which have been subject to reclassification, without considering items remaining in OCI which are never reclassified to profit of loss:


	For the three months ended March 31,
	2020			2019
Cash flow hedges:
Reclassification during the period to profit or loss	$	(8,477	)	$	(7,532	)
Effective valuation of cash flow hedged		3,319			7,846

	$	(5,158	)	$	314

Fair value reserves:
Valuations of investments in fair value with changes in OCI	$	(212	)	$	1,222

	$	(212	)	$	1,222

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(18)

Derivatives recognized as hedging instruments

Financial instruments recognized as hedging instruments at fair value through other comprehensive income as of March 31, 2020 and December 31, 2019, are the following:


	March 31, 2020		December 31, 2019
Cash flow hedges—assets
Fuel price	$	—	$	525
Interest rate		—		11

Total	$	—	$	536

Cash flow hedges—liabilities
Fuel price	$	9,656	$	—
Interest rate		6,509		1,241

Total	$	16,165	$	1,241

The notional value of derivatives recognized as hedging instruments for the period ended March 31 and 2020 and December 31, 2019, is equivalent to 10,899,000 and 6,792,000, respectively, gallons of jet fuel for aircraft.

Financial assets and liabilities at fair value through other comprehensive income reflect the change in fair value of fuel price derivative contracts designated as cash flow hedges. Hedged items are designated future purchases deemed as highly probable forecast transactions.

Cash flow hedges liabilities are recognized within other liabilities in the consolidated statement of financial position.

The Group purchases jet fuel on an ongoing basis as its operating activities require a continuous supply of this commodity. The increased volatility in jet fuel prices has led the Group to the decision to enter into commodity contracts. These contracts are expected to reduce the volatility attributable to fluctuations in jet fuel prices for highly probable forecast jet fuel purchases, in accordance with the risk management strategy outlined by the Board of Directors. The contracts are intended to hedge the volatility of the jet fuel prices for a period between three and twelve months based on existing purchase agreements.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur, and the fair values of the related hedging instruments to March 31, 2020 and December 31, 2019:


March 31, 2020	Fair Value		1–12 months		12–24 months
Fuel price
Liabilities	$	9,656	$	9,656	$	—
Interest rate
Liabilities	$	6,509		1,722	$	4,787


December 31, 2019	Fair Value		1–12 months		12–24 months
Fuel price
Assets	$	525	$	525	$	—
Interest rate
Assets		11		—		11
Liabilities	$	1,241	$	—	$	1,241

The terms of the cash flow hedging contracts have been negotiated for the expected highly probable forecast transactions to which hedge accounting has been applied. As of March 31, 2020, and December 31, 2019, a net (loss)/gain relating to the hedging instruments of $ (312), $ 3,932 respectively, is included in other comprehensive income.

(19)

Derivative financial instruments

Derivative financial instruments at fair value through profit or loss as of March 31, 2020 and December 31, 2019, are the following:


	March 31, 2020		December 31, 2019
Derivatives not designated as hedges – liabilities
Derivative contracts of interest rate	$	88	$	48

Total	$	88	$	48

Financial instruments to fair value financial instruments to fair value without effect in other comprehensive income are derivative contracts not designated as hedges instruments for accounting purposes that are intended to reduce the levels of risk of foreign currency and interest rates.

Liabilities on derivatives not designated as hedges are recognized within other liabilities in the consolidated statement of financial position.

Foreign currency risk

Certain foreign currency forward contracts are measured at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The foreign currency forward contract balances vary with the level of expected foreign currency sales and purchases and changes in foreign currency forward rates.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Interest rate risk

The Group incurs interest rate risk primarily on financial obligations to banks and aircraft lessors. Certain financial derivative instruments are recognized at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The interest rate contracts vary according to the level of expected interest payable and changes in interest rates of financial obligations. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps and options. Under these agreements, the Group pays a fixed rate and receives a variable rate.

(20)

Offsetting of Financial Instruments

The Group has derivative instruments that could meet the offsetting criteria in paragraph 42 of IAS 32 given that the Group has signed with its counterparties enforceable master netting arrangements. Consequently, when derivatives signed with the same counterparty and for the same type of notional result in gross assets and liabilities, the positions are set off resulting in the presentation of a net derivative. As of March 31, 2020, and December 31, 2019, the Group has not set off derivative instruments because it has not had gross assets and liabilities with the same counterparty for the same type of notional.

(21)

Fair value measurements

The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities as of March 31, 2020:

Quantitative disclosures of fair value measurement hierarchy for assets:


	Fair value measurement using
Assets measured at fair value	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Investments		—		49,690		—		49,690
Assets of the benefits plan		—		169,082		—		169,082
Assets held for sale (1)		—		893		—		893
Revalued administrative property (note 12)	$	—	$	—	$	110,728	$	110,728

(1)

Assets held for sale do not include sales costs associated.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Quantitative disclosures of fair value measurement hierarchy for liabilities:


	Fair value measurement using
Liabilities measured at fair value	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Interest rate derivatives (notes 18 and 19)	$	—	$	16,253	$	—	$	16,253
Liabilities for which fair values are disclosed
Short–term borrowings and long–term debt	$	—	$	5,356,881	$	—	$	5,356,881

The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities as of December 31, 2019:

Quantitative disclosures of fair value measurement hierarchy for assets:


	Fair value measurement using
Assets measured at fair value	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Derivative financial assets (note 18 and 19)
Aircraft fuel hedges	$	—	$	525	$	—	$	525
Interest rate derivatives		—		11		—		11
Investments		—		55,440		—		55,440
Assets of the benefits plan		—		204,527		—		204,527
Assets held for sale (1)		—		694,336		—		694,336
Revalued administrative property (note 12)	$	—	$	—	$	111,112	$	111,112

(1)

Assets held for sale do not include sales costs associated.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Quantitative disclosures of fair value measurement hierarchy for liabilities:


	Fair value measurement using
Liabilities measured at fair value	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Interest rate derivatives (notes 18 and 19)	$	—	$	1,289	$	—	$	1,289
Liabilities for which fair values are disclosed
Short–term borrowings and long–term debt	$	—	$	5,454,688	$	—	$	5,454,688

Fair values hierarchy

The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows:

Level 1

Observable inputs such as quoted prices in active markets

Level 2

inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or

Level 3

inputs are unobservable inputs for the asset or liability.

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re–assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Fair values have been determined for measurement and/or disclosure purposes based on the following methods.

(a)

The fair value of financial assets which changes in OCI is determined by reference to the present value of future principal and interest cash flows, discounted at a market based on interest rate at the reporting date.

(b)

The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate contracts, foreign currency forward contracts and commodity contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign currency spot and forward rates, interest rate curves and forward rate curves of the underlying commodity.

(c)

The fair value of short–term borrowings and long–term debt, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at a market-based interest rate at the reporting date. For finance leases, the market rate is determined by reference to similar lease agreements.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(d)

The Group uses the revaluation model to measure its land and buildings which are composed of administrative properties. Management determined that this constitutes one class of asset under IAS 16, based on the nature, characteristics and risks of the property. The fair values of the properties were determined by using market comparable methods. This means that valuations performed by the appraisals are based on active market prices, adjusted for difference in the nature, location or condition of the specific property. The Group engaged accredited independent appraisals, to determine the fair value of its land and buildings.

(22)

Income tax expense and other taxes

Assets and liabilities for taxes as of March 31, 2020 and December 31, 2019 are as follows:


	March 31, 2020			December 31, 2019
Current income tax – assets	$	96,991		$	99,973
Other current taxes
Current VAT – assets		89,975			90,955
Other taxes current		6,702			7,791

Total other current taxes		96,677			98,746

Total current tax – assets	$	193,668		$	198,719
Non-current income tax – assets		2			1

Total tax—assets	$	193,670		$	198,720

Current income tax—liabilities	$	(22,261	)	$	(26,421	)

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The major components of income tax expense for the three months ended March 31, 2020, and 2019 are:

Consolidated statement of comprehensive income.


	For the three months ended March 31,
	2020		2019
Current income tax:
Current income tax charge	$	6,695	$	8,464
Deferred tax expense:
Relating to origination and reversal of temporary differences		7,103		2,730

Income tax expense reported in the income statement	$	13,798	$	11,194

Consolidated statement of other comprehensive income


	For the three months ended March 31,
	2020		2019
Reserves relating to actuarial gains and losses	$	3,037	$	194

Income tax expense charged directly to other comprehensive income	$	3,037	$	194

The Group files tax returns in many jurisdictions around the world. Tax returns contain issues that are potentially subject to different interpretations of tax laws and regulations, which may lead to inquiries and legal claims with tax authorities. The resolution of these consultations and legal claims may take several years, but the Group does not currently expect that resolution to have any significant impact on the consolidated financial position or results of operations. The extent to which there are open consultations and legal claims will depend on the jurisdiction and the issue in question.

Income tax expense is recognized based on management’s estimate of the weighted average effective annual income tax rate expected for the full financial year for each component. As of March 31, 2020, and 2019 there is no effective tax rate, considering that although some of the components are taxed based on their individual profit, a loss is presented in the consolidated statements of comprehensive income.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(23) Provisions for legal claims

As of March 31, 2020, and December 31, 2019, the Group is involved in different lawsuits and legal actions that arise in the development of commercial activities.

The changes in provisions for litigation as of March 31, 2019, and December 31, 2019 are as follows:


	March 31, 2020			December 31, 2019
Balances at the beginning of the period	$	20,244		$	7,809
Provisions constituted		4,782			21,208
Provisions reverse		(6,881	)		(6,537	)
Provisions used		—			(2,236	)

Balances at the end of the period	$	18,145		$	20,244

Among the provisions for litigation are those related to labor processes (March 31, 2020: $3,885, December 31, 2019: $6,413), consumer protection processes (March 31, 2020: $2,382, December 31, 2019: $4,101) and civil processes (Match 31, 2020: $749, December 31, 2019, $766).

Certain proceedings are considered possible obligations. Based on the plaintiffs’ claims, as of Mar 31, 2020, and Mar 31, 2019, these contingencies amount to a total of $156,547 and $206,382, respectively. Certain losses which may result from those proceedings will be covered either by insurance companies or with funds provided by third parties. The proceedings that will be settled using the aforementioned forms of payment are estimated $26,155 as of Mar 31, 2020 and $28,174 as of December 31, 2019.

In accordance with IAS 37, the legal claims that the Group considers representing a remote risk are not contemplated in the consolidated financial statements.

Internal investigations to determine whether we may have violated the U.S. Foreign Corrupt Practices Act and other laws

In August 2019, the Group disclosed that it had discovered a business practice at the Group whereby Group employees, including members of senior management, as well as certain members of the board of directors, provided “things of value,” which based on its current understanding have been limited to free and discounted airline tickets and upgrades, to government employees in certain countries. The Group commenced an internal investigation, supervised by the Audit Committee, and retained reputable outside counsel and a specialized forensic investigatory firm to determine whether this practice may have violated the FCPA or other potentially applicable U.S. and non-U.S. anti-corruption laws. In 2018, the Group implemented certain revisions to its policies designed to prevent such practice from occurring, including limiting the number of persons at the Group who are authorized to issue free and discounted airline tickets and upgrades, and requiring additional internal approvals. On August 13, 2019, the Group voluntarily disclosed this investigation to both the U.S. Department of Justice and the SEC, and, subsequently, to the Colombian Financial Superintendence.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Also, in February 2020, the Office of the Attorney General of Colombia served Avianca with a search warrant of its offices with the objective of collecting information related to this investigation. As has been its practice, Avianca has cooperated and will continue to cooperate with all pertinent authorities. Avianca will provide the information being requested to the Office of the Attorney General of Colombia, while exercising its legal rights to ensure that its confidential and privileged information remains protected.

The U.S. and Colombian government inquiries described above, related inquiries and developments in other countries, and the Group’s internal investigations are continuing. Any action in these or related inquiries, proceedings or other developments, or any agreement the Group enters into to settle the same, may result in substantial fines, reputational harm and other sanctions and adverse consequences. Based upon the opinion of its outside counsel, the Group believes that there is no adequate basis at this time for estimating accruals or quantifying any contingency with respect to these matters.

Internal Investigation regarding potential impacts at the group due to corrupt business practices at Airbus

In January 2020, our primary aircraft supplier Airbus entered into a settlement with authorities in France, the United Kingdom and the United States regarding corrupt business practices. Airbus’ settlement with French authorities references a possible request by an Avianca “senior executive” in 2014 for an irregular commission payment, which was ultimately not made. As a result of this development, we have voluntarily initiated an internal investigation to analyze our commercial relationship with Airbus and to determine if we have been the victim of any improper or illegal acts. We have disclosed this internal investigation to the U.S. Department of Justice and the SEC, as well as the Superintendence of Industry and Commerce and the Colombian Office of the Attorney General. We are cooperating with all agencies. Our internal investigations are not complete and we cannot predict the outcome of these internal investigations or what potential actions may be taken by the U.S. Department of Justice, the SEC or local regulators or officials. If it is found that these business practices violated the FCPA or other similar laws applicable to us, or we were at any time not in compliance with any other laws governing the conduct of our business, we could be subject to criminal and civil remedies, including sanctions, monetary penalties and regulatory actions, which could materially and adversely affect us.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Review of potential inadvertent violations of the U.S. Cuban Assets Control Regulations

In September 2019, the Group disclosed that it had become aware that it had become subject to U.S. jurisdiction for purposes of certain U.S. sanctions laws and regulations administered by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury. This jurisdictional nexus was established as a result of the transfer, on November 9, 2018, by the Group’s parent company, Synergy Aerospace Corp. (Synergy), of approximately 78% of the Group’s voting common shares (Share Transfer) from a Panama based company to a Delaware limited liability company wholly-owned by Synergy (BRW). Synergy had formed BRW and effected the Share Transfer unilaterally in connection with BRW obtaining a loan from United Airlines. Having become aware that as a consequence of the ownership change the Group is considered a person subject to U.S. jurisdiction under certain of OFAC’s sanctions programs, the Group engaged outside counsel to conduct a review aimed at identifying any potential violations of U.S. sanctions regulations. As a result of this review, the Group identified that the regularly scheduled commercial passenger flights between cities in Central and South America and Havana, Cuba and related Cuba operations that it has historically conducted may have constituted inadvertent violations of the U.S. Cuban Assets Control Regulations (CACR) during the period following the Share Transfer. During the period beginning on the date of the Share Transfer and ending on September 30, 2019, such flights to and from Havana, Cuba comprised an inconsequential amount of the Group’s gross revenues. On September 25, 2019, the Group submitted to OFAC a preliminary voluntary self-disclosure addressing such potential inadvertent violations, followed by more detailed full narrative voluntary self-disclosures submitted on October 4, 2019, and November 25, 2019. OFAC is currently reviewing these voluntary self-disclosures. In concert with these voluntary disclosures, the Group commenced the termination of all of its Cuba-related activities. As of to date of issuance of this consolidated financial statements, the Group no longer operates any flights to Cuba, nor does the Group sell any passenger or cargo tickets involving Cuba (including via its codeshare and interline partners). The Group no longer maintains a physical presence in Cuba and has issued termination notices for all of its legacy Cuba-related contracts and employees (for example, ground services, ticket sales, and other services in Cuba that supported the Company’s now-terminated Cuba passenger flights). The Group has kept OFAC apprised of these actions and remains in communication with OFAC concerning the Group’s voluntary self-disclosures and the termination of the Company’s Cuba-related activities. Based on the above, the Group believes that there is no adequate basis at this time for estimating accruals or quantifying any contingency with respect to theses matters.

In light of the above, the Group has embarked on a comprehensive effort to improve and expand its compliance program worldwide, including enhancements to the Group’s existing sanctions screening processes, implementation of a comprehensive sanctions compliance program, and sanctions training for key Group employees.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(24) Future aircraft leases payments

The Group has 83 aircraft that are under financial leasing. The following is the summary of future financial lease commitments:


	Aircraft
Less than one year	$	2,128,914

	$	2,128,914

The Group has 66 aircraft that are under operating leases, which have an average lease term of 62 months. Operating leases can be renewed, in accordance with the administration’s business plan. The following is the summary of the future commitments of operating leases:


	Aircraft
Less than one year	$	297,301
Between one and five years		941,160
More than five years		381,988

	$	1,620,449

(1)

As of January 1, 2019, as a result of the adoption of IFRS 16, the leases that are legally denominated operative are recorded in the consolidated statement of financial position as part of ownership of flight equipment as well as the recognition of the related financial liability that represents the present value of the minimum payments of the lease contract.

The Group has 9 engines under an operating lease contracts for its aircraft fleet of the E190 and A320 families. The following is the summary of the future commitments of operating leases:


	Engines
Less than one year	$	4,576
Between one and five years		22,807
More than five years		939

	$	28,322

In February 2020, the Group finished the aircraft operating lease agreements of two E-190 with Aerolitoral, S.A. de C.V. No future incomes from lease agreements are expected.

During the first quarter of 2020, Avianca Holdings S.A. finished the wet lease of one A330, extended one A319 operating lease, and sold ten E190 and two A300F. Avianca Holdings S.A. also signed nine A320 Sale and Lease Back Agreements, by which the leases changes from financial to operating.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

The amount of recognized payments as expenses during ended March 31, 2020 and 2019 are as follows:


	March 31, 2020		March 31, 2019
Leases minimum payments	$	4,731	$	—

(25) Acquisition of aircraft

In accordance with the agreements in effect, future commitments related to the acquisition of aircraft and engines as of March 31, 2020, as follows:


	Less than one year		1-3 years		3-5 years		More than 5 years		Total
Aircraft and engine purchase commitments	$	10,233	$	76,193	$	520,662	$	5,091,107	$	5,698,195

Amounts disclosed reflect certain discounts negotiated with suppliers as of the balance sheet date, which discounts are calculated on highly technical bases and are subject to multiple conditions and constant variations. Among the factors that may affect discounts are changes in our purchase agreements, including order volumes.

The Group plans to finance the acquisition of the commitments acquired with the resources generated by the Group and the financial operations that can be formalized with financial entities and aircraft leasing companies

(26) Dividends

The Group didn’t decree dividends during the three months ended March 31, 2020, based on the retained losses as of December 31, 2019, and dividends were decreed by the Group during the three months ended March 31, 2019, based on retained earnings as of December 31, 2018:


	March 31, 2020		December 31, 2019
Dividends decreed
Dividend—Ordinary shared	$	—	$	9,862
Dividend—Preferred shared		—		5,523

Total	$	—	$	15,385

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

At a regular meeting of the shareholders’ meeting held on March 27, 2020, unanimously of the shareholders present at the meeting, it was approved not to distribute dividends for the 2019 financial year.

The General Shareholders Meeting of Avianca Holdings S.A. at an ordinary session on March 27, 2020, unanimously by the shareholders present at the meeting, approved not to distribute dividends for the year 2019. The General Shareholders Meeting of Avianca Holdings S.A. at an ordinary session on March 22, 2019, agreed distribution of profits for the year 2018 as dividend to the shareholders preferent and ordinary of the Group that will be paid the amount of COP$50 (Preferred shared) and COP$46 (Ordinary shared) per share, respectively. The dividends decreed were paid on May 24, 2019 by the amount of COP$16 and COP$3 per share, August 23, 2019 COP$16 and COP$3 per share and September 20, 2019 COP$18 and COP$40 per share, respectively.

Dividends declared and paid to minority shareholding

During the year ended March 31, 2020, and 2019, the subsidiaries with minority interest, declared and paid dividends as follows:


	March 31, 2020						March 31, 2019
Subsidiaries	Minority Interest		AVH Participation		Total Dividends		Minority Interest		AVH Participation		Total Dividends
LifeMiles Ltd (1) (2)		—		—		—	$	30,000	$	70,000	$	100,000

Total	$	—	$	—	$	—	$	30,000	$	0,000	$	100,000

(1)	The dividends received for AVH are eliminated in consolidation process.

(2)	As of December 31, 2019, there aren’t outstanding balances payable for dividends for minority interest.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

(27) Subsequent Events

Avianca Holding Chapter 11 Filing and Insolvency of Avianca Peru

As a result of the aforementioned adverse developments, in order to preserve and reorganize our businesses, Avianca Holdings S.A. and certain of its affiliated entities filed, on May 10, 2020, voluntary petitions for Chapter 11 relief under title 11 of the United States Code (11 U.S.C. § 101, et. seq.) with the United States Bankruptcy Court for the Southern District of New York, which cases are being jointly administered under Case No. 20-11133 (MG). LifeMiles^™, Avianca’s loyalty program, is administered by a separate company and is not part of the Chapter 11 filing.

Through the Chapter 11 reorganization process, Avianca intends to:

•

Protect and preserve operations so Avianca can continue to operate and serve customers with safe and reliable air travel, under the strictest biosafety protocols, as COVID-19 travel restrictions are gradually lifted;

•

Ensure connectivity and drive investment and tourism by continuing as Colombia’s flagship airline, serving over 50% of the domestic market in Colombia and providing essential non-stop service across South America, North America and European markets as well as continuing cargo operations, playing a key role in the economic recovery of Colombia and the Company’s other core markets following the COVID-19 pandemic;

•

Preserve jobs in Colombia and other markets where the Company operates, with Avianca directly responsible for more than 21,000 jobs throughout Latin America, including more than 14,000 in Colombia, and working with more than 3,000 vendors; and

•

Restructure the Company’s balance sheet and obligations to enable Avianca to navigate the effects of the COVID-19 pandemic as well as comprehensively address liabilities, leases, aircraft orders and other commitments.

As a consequence of our filing Chapter 11 petitions, our operations and our ability to develop and execute our business plan, as well as our continuation as a going concern, will be subject to the risks and uncertainties associated with bankruptcy. These risks include our ability to:

•

to comply with the terms and conditions of the cash management order entered by the bankruptcy court in connection with our Chapter 11 proceedings,

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

•

to maintain adequate cash on hand,

•

to generate cash flow from operations, which depends largely on factors beyond our control relating to developments deriving from the spread of COVID-19,

•

confirm and consummate a plan of reorganization with respect to our Chapter 11 proceedings;

•

obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, as well as comply with the terms and conditions of that financing;

•

maintain our relationships with our creditors, suppliers, service providers, customers, directors, officers and employees; and

•

maintain contracts that are critical to our operations on reasonably acceptable terms and conditions.

•

the high costs of bankruptcy proceedings and related fees;

•

the ability of third parties to seek and obtain court approval to (i) terminate contracts and other agreements with us, (ii) shorten the exclusivity period for us to propose and confirm a Chapter 11 plan or to appoint a Chapter 11 trustee or (iii) convert the Chapter 11 proceedings to Chapter 7 liquidation proceedings; and

•

the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 proceedings that may be inconsistent with our plans.

Any delays in our Chapter 11 proceedings increase the risks of our inability to reorganize our business and emerge from bankruptcy and may increase our costs associated with the reorganization process.

Further, on May 18, 2020, we announced to the market that, following a general shareholders’ meeting of Avianca Peru, on May 10, 2020 the board of directors of Avianca Peru agreed to terminate its operations and begin a voluntary dissolution and liquidation process under local Peruvian law in order to preserve and protect our businesses in the face of the COVID-19 crisis. In the future, we expect to continue to serve routes to and from Peru through our airlines in Colombia, El Salvador and Ecuador, once government flight restrictions permit us to do so.

Because of the many risks and uncertainties associated with a voluntary filing for relief under Chapter 11 and the related proceedings, we cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 proceedings may have on us and there is no certainty as to our ability to continue as a going concern.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Notwithstanding the above, as a result of the chapter 11 process, we can anticipate the potential qualitative effects on the following line items of our financial statements:

•

Property and equipment: Avianca filed a motion to reject the leases for 14 aircraft. However, after subsequent negotiations with certain of its lessors, on May 19, 2020, Avianca and its filing subsidiaries revised the list of rejected leases and reduced it to 12 aircraft. The rejection motion was approved in a hearing of June 11, 2020, after this the Group will evaluate the execution of these rejections. Avianca continues its discussions with the applicable aircraft financing counterparties while it evaluates all available options with respect to Avianca and its filing subsidiaries’ fleet.

The negotiations with the lessors may impact our recognition of ROU as well as affect our estimates for provisions for Aircraft return conditions.

Further, assets held for sale will have to be reviewed since scheduled sales of certain aircraft had not been closed before the company’s filing for chapter 11.

•

Goodwill Impairment: The spread of the COVID 19 pandemic could have lasting effects on the demand environment for Air traffic and potentially result in significant adjustments to our business plan, which could adversely affect projections for recoverable amounts and valuations for goodwill. We evaluated the impairment of goodwill as of March 31, 2020, without the effect of impairment. However, considering the instability of the operation derived from the development of COVID-19 and our Chapter 11 process, we will continue to monitor the changes that may occur in subsequent periods and if they may affect the valuation of goodwill.

•

Air Traffic liability: Typically, unused tickets expire after one year, and any revenue associated with tickets sold for future travel is recognized within 12 months. In response to COVID-19, Avianca is providing its customers with the option to receive a travel voucher that extends the expiration date of certain tickets. As such, any revenue associated with these tickets will not be recognized until the new flight date. Additionally, given this change in travel schedule, Avianca’s estimates of revenue from unused tickets may be subject to variability and differ from historical averages. Finally, the airline industry expects a reduction in the demand for air traffic even after government imposed travel restrictions are lifted, which would adversely affect future sales and revenues.

AVIANCA HOLDINGS S.A. AND SUBSIDIARIES

(Republic of Panama)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(In USD thousands)

Notification of the removal from listing and registration of the stated securities

On May 12, 2020, the New York Stock Exchange (“NYSE”) suspended trading of the American Depositary Shares (“ADSs”) and requested the Securities and Exchange Commission (“SEC”) to deregister the ADSs of Avianca Holdings S.A, once certain procedures are finalized. Avianca confirms that, by means of a notice from the NYSE pursuant to Form 25-NSE, all the conditions precedent to delisting set forth under SEC Rule 12d2-2(b) have been satisfied, the Company’s ADSs were deregistered on May 27, 2020, under Section 12 (b) of the Securities Exchange Act of 1934.

BVC notification AVH share trading by auction.

On May 22, 2020, the Bolsa de Valores de Colombia (“BVC”) notified the Company that the negotiation of the preferred stock (BVC: PFAVH), will take place in the Instruments for Auction session from May 26, 2020, in the Instrument Negotiation by Auction schedule, the positions of the BVC investors can only be registered during the determined auction period, and the corresponding operations are executed according to the provisions of the BVC Regulations.

****

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Form 6-K Avianca Holdings S.A. For: Jun 16

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