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Avianca files counter suit in bitter airline battle

Colombia-based airline Avianca filed a counter lawsuit in New York on Monday in the latest round of a no-holds-barred legal battle between two Latin American tycoons over the strategic control of one of the region’s biggest carriers and its mooted alliance with United Airlines.

Avianca and Gérman Efromovich, the carrier’s biggest shareholder, accused Kingsland Holdings, its second-biggest shareholder, of leaking boardroom secrets in an attempt to obstruct the negotiations with United. The lawsuit against Kingsland, a holding company for Avianca shareholder Roberto Kriete, follows a suit filed by Kingsland three weeks ago.

The countersuit “concerns a disloyal director who . . . has worked actively to undermine the company’s strategic goals for his own selfish purposes . . . [and] has engaged in a smear campaign,” Avianca said in its complaint in New York State Supreme Court. The motion seeks to dismiss Kingsland’s claims and to overturn its injunction to stop Avianca’s talks with United.

Mr Kriete, a Salvadorean tycoon, has called the mooted United-Avianca strategic alliance a “sweetheart” arrangement which ignored better offers from other airlines and instead seeks to “shore up [Efromovich’s] other financially strapped business concerns”.

Avianca responded on Monday that “Kriete has attempted to pressure United into abandoning any negotiations with Avianca because he perceives such a deal would not service his narrow self-interest and his other personal ventures in the aviation industry”.

The flurry of legal action comes after United and Avianca announced in January plans for a strategic alliance, a $200m rights issue by Avianca and also its potential merger with OceanAir, a smaller Brazilian airline controlled by Mr Efromovich.

The dispute has underscored how US airlines such as United, the third-largest US carrier by passenger numbers, are seeking to bulk up in faster-growing Latin American markets.

It has also highlighted the ambitions of Mr Efromovich to create “the most important airline from Rio Grande to the penguins of Patagonia”, as he has put it, versus the apparently contrasting desire of Mr Kriete to exit from Avianca with a profitable sale.

Kingsland, which acts for Mr Kriete’s family, holds a 22 per cent voting stake in Avianca and 14.5 per cent of its total shares. The remaining 34 per cent of stock in Avianca, which has a $1bn market capitalisation and some $3bn in net debt, are non-voting shares publicly traded in New York and Bogotá.

Mr Efromovich, who is also Avianca’s chairman, owns 78 per cent of Avianca’s voting shares and 51.5 per cent of its total equity via Synergy Group, a conglomerate he controls.

Synergy has multiple Brazilian interests ranging from shipbuilding to agriculture and airlines that have been hit by Brazil’s recession. It has allegedly pledged most of its stock in Avianca as collateral for loans made to it by Elliott Management, a New York hedge fund that successfully sued Argentina over its 2002 sovereign default.

Court documents reveal that Mr Efromovich and Mr Kriete have been at each other’s throats almost from the start of their association, which formally began in 2010 with the sale to Avianca of Grupo Taca, a central American airline founded by Mr Kriete’s family.

Under a shareholder agreement, Kingsland can sell its stake in Avianca to Synergy for a 10 per cent premium to the market price, but Kingsland has argued that a full sale of Avianca to another airline would lead to a better price.

Avianca said in a statement on Monday that “Kingsland’s legal manoeuvres are a heavy-handed attempt to obtain greater rights in the courtroom than it previously negotiated for and agreed to in the parties’ shareholder agreement”. It added that it had met all its obligations under the shareholder agreement, while Mr Kriete had conflicting interests as a co-founder of Volaris, a competing airline in Central America and Mexico.

United was not available for immediate comment. Kingsland said in a statement it rejected “any assertion that Mr Kriete has acted improperly in any way or other than in the best interests of Avianca and its minority shareholders”. It added that Kingsland was “pursuing this action to protect the viability of the company”. Avianca shares fell 3 per cent in New York to trade at $7.59.

Additional reporting by Andres Schipani in Bogotá

Via FT