Bankrupt airline Avianca paid millions in executive bonuses during pandemic

An employee of the Avianca Airlines, wearing a face shield and a protective mask, talks to a passenger at the check-in section at the El Dorado International Airport, in Bogota
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SAO PAULO (Reuters) – Airline Avianca Holdings <AVT_p.CN> came under broad criticism in Colombia for paying its top two executives $6 million in bonuses in May, at a time when the carrier had furloughed most of its employees without pay and was preparing a bankruptcy filing.

According to bankruptcy court documents submitted by Avianca itself, the airline paid Chief Executive Anco van der Werff $3.7 million and paid Chief Financial Officer Adrian Neuhauser $2.8 million on May 6.

Five days later, the airline filed for Chapter 11 bankruptcy protection in the U.S.

“Avianca is facing the most challenging crisis in our 100-year history,” van der Werff said at the time.

On Wednesday, Avianca defended the bonuses, saying they were necessary “as an incentive for the company’s management team to continue to provide services to Avianca.”

In court filings, it also said its key executives would have sought employment elsewhere without the extra pay.

During the pandemic, Avianca took more radical payroll cutting measures than its rivals, asking the majority of its 20,000 employees to take unpaid leaves. Its main rival LATAM Airlines Group <LTM.SN> slashed employees by half instead.

Avianca and most Latin American airlines have not received government bailouts like their peers in the U.S. or Europe, whose governments have mandated that executives forfeit bonuses in exchange for aid. Colombia’s government has, however, proposed a loan of more than $300 million to help get Avianca out of bankruptcy.

News of the bonuses was first reported by local TV station Noticias Caracol.

The May bonuses were at least the second round of bonuses paid that year, documents show, although Avianca said some of that money was in reality tied to 2019 performance.

On March 18, just days after the coronavirus pandemic led to the cancellation of almost all air travel in Latin America, van der Werff and Neuhauser received $3 million in bonuses combined.

A day later, Avianca said the rapidly evolving pandemic had led it to “take immediate and difficult decisions” including “the implementation of unpaid work leaves as soon as possible.”

Rivals Ryanair and British Airways, which have not filed for bankruptcy, have also come under scrutiny for proposing bonuses that were significantly more modest than Avianca’s.

Executives at a subsidiary of Lufthsansa, Austrian Airlines, eventually gave back bonuses last month, after Austria’s finance minister said the payments were “unacceptable” for a company that was being rescued.

(Reporting by Marcelo Rochabrun; Editing by Bernadette Baum)