Avianca Aerovías Nacionales de Colombia SA

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Avianca Aerovías Nacionales de Colombia SA

Avenida El Dorado 93-30, Piso 5,
Santafe de Bogota D.C.
Colombia
Telephone: +57 (1) 413 9511
Fax: (1) 413 8716
Web site: http://www.avianca.com

Private Company
Incorporated: 1919 as Sociedad Colombo-Alemana de Transportes Aéreos (SCADTA)
Employees: 3,200 (1999)
Sales: COL 932.93 billion (1999)
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation

Considered the world’s second oldest operating airline after KLM Royal Dutch Airlines, Avianca Aerovías Nacionales de Colombia SA pioneered civil aviation in South America. Once controlled by Pan American Airways (Pan Am), the company is now 60.7 percent owned by Bavaria SA, a $5 billion a year Colombian conglomerate with interests in beverages, media, and energy. The unique challenges of Colombia’s topography have never truly been mastered, and economic and political conditions also have been difficult for the company to navigate.

Germanic Origins

Colombia’s first airline, the Compama Colombiana de Navegación Aérea (CCNA), was founded on September 16,1919 but suffered a string of fatal accidents and folded three years later. Avianca’s predecessor, the Sociedad Colombo-Alemana de Transportes Aéreos or SCADTA, was created on December 5, 1919 by a group of Colombian and expatriate German businessmen. At the time of SCADTA’s founding, CCNA had already won the government contract for airmail and passenger service between Bogotá and the more populated provinces.

According to the detailed accounting by R.E.G. Davies in Airlines of Latin America, however, experience was a very cruel teacher in CCNA’s case. By the time SCADTA’s first two all-metal Junkers F-13 floatplanes arrived from Germany in July 1920, CCNA had lost two-thirds of its planes and flight crews in accidents.

Austrian industrialist Dr. Peter Paul von Bauer began investing in SCADTA in 1921 and soon came to manage the enterprise and promote it overseas. After months of preparations and at least one fatal accident, the company began scheduled service between Barranquilla and Girardot on September 19,1921. Davies calls this probably the most significant date in Latin American civil aviation: the continent finally had a reliable airline.

By this time, SCADTA’s fleet had grown to six F-13s. Although not subsidized like U.S. and European airlines, SCADTA was able to issue its own stamps at a premium and eventually operated its own post offices. Passengers also were carried, at the rate of about 250 pesos (US$250) each way (more for those weighing more than 65 kilograms). The journey took about eight hours, many times faster than the fortnight required by riverboats. Barranquilla-Girardot operated twice a week, with one flight a week extending up the Magdalena River to Neiva. Soon Cartagena and Santa Marta were added to the network.

Shortly after scheduled service began, SCADTA created a Seccin Cientffica to handle aerial photography, made possible by cameras smuggled from Germany. One of this unit’s first projects was to provide reconnaissance concerning a border dispute between Colombia and Venezuela near Ciicuta.

Von Bauer bought out one of the original partners in July 1922 and became a director, owning four-fifths of the shares. The company won its first airmail contract a couple of months after carrying Colombia President Pedro nel Ospina on a flight that September. The next May, SCADTA flew 3.5 million pesos from Medellín to the State Bank in Bogotá when there was a run on the bank. The year 1924 was especially unlucky, however: one crash killed six people, including chief pilot Hellmuth von Krohn and company President Don Ernesto Cortissoz, and another two planes were lost later.

SCADTA bought a couple of twin-engined Dornier Wai flying boats in 1925 and began exploring opportunities for routes in the Caribbean. U.S. politicians blocked access to Miami or New York, however, ostensibly to prevent German interests from gaining a foothold in U.S. trade but also likely due to the fact that the United States had yet to field an international airline of its own. One of the planes was shipped back to Germany and the other crashed the next year. SCADTA then looked south to start its first international passenger and airmail service, to Guayaquil, Ecuador, beginning in June 1928. This was extended to Panama City and Cristóbal in April the next year, tripling the airline’s route mileage. During this time, SCADTA began using the name Servicio Bolivariano de Transportes Aéreos in its marketing, referring to the great liberator of South America Simon Bolivar.

Pan Am Takes Control in 1930

The United States signed a bilateral air agreement, its first ever, with Colombia on February 23, 1929. PANAGRA, a partnership of Pan American Airways and the W.R. Grace shipping line, had started its own service from Miami to Panama City on February 3. Charles Lindbergh piloted the inaugural flight in a Sikorsky S-38 flying boat. PANAGRA had stronger finances, more influence, better equipment, and more publicity than SCADTA. Von Bauer signed a secret agreement with Pan Am president Juan Trippe in which SCADTA surrendered its international routes in exchange for an infusion of capital. Pan Am acquired 84.4 percent of the capital after a formal agreement was signed in February 1930 and SCADTA essentially became the Colombian part of the Pan Am network. Von Bauer resigned as president, and two U.S. citizens were added to the SCADTA board. In addition, new American-and British-made planes began appearing in SCADTA’s di-verse fleet.

At home, SCADTA benefited from the election of a new president of Colombia, Dr. Olaya Herrera, a supporter of von Bauer with progressive views regarding transportation. In January 1932, SCADTA began acting as the official airmail agency of the country, employing 300 letter carriers. The airline did its patriotic duty in return, supporting the Colombian military when Peru attempted to annex the Leticia Trapezium in 1932.

With Pan Am’s backing, SCADTA expanded its domestic network in the early 1930s, connecting Medellín with the company’s home base of Barranquilla, and with Colombia’s other large city, Bogotá. Equipment limitations meant that none of these routes were nonstop, however. Unfortunately, accidents were endemic, including one in Medellín that killed 17 people. A network of grass field airports was developed to accommo-date the faster and more powerful aircraft that were replacing SCADTA’s floatplanes. The Boeing 247D displaced the Ford Tri-Motor as the flagship of the fleet.

SCADTA merged with the Servicio Aéreo Colombiano, a minor competitor, in 1940. Although von Bauer, alarmed at developments in Nazi Germany, had returned from retirement in Austria to lead the airline once again, the U.S. state department was pressuring Pan Am and the Colombian government to curb the German influence at the airline. On June 8, 1940 all 80 German employees were fired and the company was officially renamed Aerovías Nacionales de Colombia—AVIANCA—on June 14. Pan Am’s shareholding was reduced to 64 percent from 80 percent, and the Colombian government held 15 percent.

Postwar Consolidation and Expansion

By the late 1940s, the fleet had been updated with Douglas DC-3s and most of the seaplane bases had been closed. Avianca resumed international services with a route to Ecuador launched on March 21, 1946. Service soon was added to the Panama Canal Zone and by the next year a new Douglas DC-4 was connecting Colombia nonstop with Miami. Avianca thus be-came only the second airline, after Aerovías Brasil, to connect with the U.S. mainland. The carrier remained part of the Pan Am system, however.

Avianca’s network reached to New York in April 1949; Lisbon, Rome, and Paris were added the next year. By 1957, Avianca had leveraged its strategic location with a number of new routes to the north and south and had upgraded its international service with the Lockheed Super Constellation, its new flagship.

Key Dates

1919:: SCADTA is formed with backing from German and Colombian businessmen.
1921:: After years of preparations and survey flights, SCADTA starts scheduled operations.
1928:: International service begins to Ecuador via the Servicio Bolivariano de Transportes Aéreos.
1930:: Pan Am secretly acquires control of SCADTA.
1940:: All German employees are fired and company is renamed Avianca.
1947:: Avianca becomes the second South American air-line to connect with the United States.
1950:: Avianca’s network reaches Europe.
1960:: First jets are introduced on international routes.
1970:: Brick red color scheme is adopted.
1986:: Debts reach US$170 million.
1991:: Colombian civil aviation market is liberalized as Avianca struggles to maintain its stature.
1996:: Avianca enters a strategic alliance with American Airlines.
2000:: Avianca invests US$ 12 million to upgrade services.

A number of independent operators had sprung up in Colombia to capitalize on the availability of war surplus aircraft. Most faltered within a few years; Avianca absorbed two of them, Sociedad Aérea de Tolima (SAETA) and Lineas Aéreas Nacionales, S.A. (LANSA), in the early 1950s. The LANSA merger in 1951 reduced Pan Am’s shareholding to less than 40 percent. In 1963, Avianca bought the failed Sociedad Aeronautica de Medellín, S.A. (SAM), founded by a retired U.S. Air Force captain, through its Aerotaxi subsidiary. Another generation of airlines started in the mid-1950s, including Lloyd Aéreo Colombiano (LAC), Taxi Aéreo de Santander (TAXADER), Lineas Aéreas La Urraca, and Aerovías Condor de Colombia, Ltda (Aerocondor). Of these, Aerocondor proved the most effective competitor and mishap-laden Urraca survived until 1979. The Colombian Air Force also operated an air service to remote provinces known as the Servicio Aeronavegacion a Territorios Nacionales (SATENA).

Avianca began flying to New York by jet in October 1960 via a leased Boeing 707. By 1962, it operated Boeing 720 jets on all its international routes. It began flying the three-engined Boeing 727 on domestic routes in January 1966. A couple of years later, Pan Am’s shareholding was reduced to 25 percent; it fell to 11 percent by 1975 as Avianca regained its independence, as displayed in a bold brick red color scheme adopted in 1970.

International services were expanded in the 1970s and the airline began operating Boeing 747 jumbo jets in December 1976. Bogotá-Frankfurt became the most important route. A number of air taxi services and tiny airlines sprang up in the 1960s and 1970s, but Avianca remained the dominant carrier by far.

The Troubling 1980s

Avianca’s influence waned in the 1980s, however. The company ran up debts reaching US$170 million in 1986, when its terms were renegotiated. As Air Transport World reported, Avianca’s public image at home deteriorated as its on-time performance fell from 66 percent in 1986 to 32 percent in 1988. The carrier was tremendously overstaffed at 11,000 employees and suffered poor labor relations. SAM, which concentrated on tourist traffic to resorts, maintained a good reputation, unlike its sister airline.

To improve the bottom line, Avianca sold off its massive Boeing 747s and began ordering 767s in 1988 to renew its fleet. It also began to update its computer reservation system, contracting with IBM and acquiring Maxipars CRS from British Airways. The number of employees was reduced to 5,000 by 1990.

U.S. efforts against drug smuggling in the 1980s eventually prompted Avianca to retreat from the Colombia-U.S. cargo market. Penalties totaled US$14 million by 1988; 450 kilos of drugs had been found aboard the company’s planes the previous year. Avianca subsequently invested a huge amount of resources in drug detection. Although it was privately owned, terrorists targeted the carrier after a government crackdown on drug dealers, downing a Boeing 727 in 1989.

Liberalized in 1991

Spurred by customer complaints, the Colombian government deregulated the country’s civil aviation industry in 1991, opening the skies to 25 foreign airlines and a number of domestic start-ups. Local competitors Aces and Intercontinental hit Avianca hard. Aces even won the right to fly the Bogotá-Miami route, also eyed by United Airlines and Iberia. Mexicana, Alitalia, KLM, and British Airways also were flying to Bogotá by then. Avianca was again allowed to carry cargo to the United States aboard its Boeing 767s; however, it faced competition from ARCA, Aerosucre, and Aces (Aerolineas Centrales de Colombia) and U.S.-based Challenge and Arrow Air on the freight side.

Alvaro Jamarillo Buitagro became CEO in December 1991. He sought to instill a “corporate mystique” centering on customer service. The company launched a major restructuring in 1994, taking aim at productivity problems and reducing management levels from 13 to five. Catering and ground handling were outsourced. Avianca gained management control over SAM and the helicopter service Helicol in 1994. Its major stockholder was Grupo Empresarial Bavaria, the massive Colombian conglomerate.

Revenues were COL 933 billion (US$470 million) in 1997. Avianca’s market share, 61 percent at the beginning of the decade, had fallen to 41 percent. Company officials blamed much of the damage on the suddenness with which the markets were opened to competition and claimed the country’s bilateral agreements did not value its own market adequately against those of other countries. Another source of irritation was a lack of administrative scrutiny regarding safety procedures among low-cost operators, as well as the country’s grossly inadequate aviation infrastructure. The carrier also paid a price for Colombia’s political instability.

According to Flight International, although traffic in the region was booming, there was need for consolidation for the airline sector to become profitable again, since capacity was growing even faster than demand. Avianca’s latest president and CEO, Dr. Gustavo Alberto Lenis Steffens, compared the situation in South America with that of the United States and Europe at the beginning of deregulation. Several prominent carriers in neighboring states were either in bankruptcy (Viasa Venezuelan International Airlines, Ladeco Chilean Airlines) or had ceased operations (Ecuatoriana). Avianca looked for strategic alliances to ensure its share of traffic, but as of 1997 had a couple of code-share partners within Latin America, S AETA of Ecuador and the TACA group. The carrier had entered an alliance with American Airlines in December 1996.

Although Avianca maintained a relatively young fleet of 30 planes and continued to fly to Europe and North America, Lenis said the company had become conservative in its growth. Its SAM subsidiary had by then merged its operations with Avianca itself. Employment had been reduced to just 3,000.

Avianca and SAM launched a new marketing effort in November 1997. New concepts tried included a frequent flier program for children and a mobile check-in unit. The popular Night Express program kept the carrier’s regional planes full on red-eye trips between major cities. Priced to compete with buses, the service connected with a unique niche of business travelers.

In spite of these refinements and rising international traffic, Avianca lost COL 124 billion in 1999. The company was investing US$12 million in 2000 to upgrade services. Avianca and SAM both were planning to renew their fleets in 2003, when leasing agreements expired.