Oct 29, 2025

Limited's (Avianca) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B+' from 'B'. Fitch has also upgraded Avianca MidCo2 Limited's senior secured debt to 'B+' with a Recovery Rating of 'RR4' from 'B/RR4'. The Rating Outlook is Stable. The upgrade reflects Avianca's improving credit risk profile following solid operating performance, deleveraging trend and lower refinancing risk exposure. The ratings reflect the industry's high cyclicality risks, solid market position in Latin America, lean cost structure, and strong liquidity position, though limited financial flexibility in terms of an unencumbered asset base. Avianca's medium-term challenges include managing growth and robust operating margins in a more competitive environment and, potentially, under a less supportive fuel price environment. In addition, Fitch has upgraded LifeMiles Ltd.'s Long-Term Foreign and Local Currency IDRs to 'B+' from 'B' and then withdrawn the ratings. The withdrawal is due to commercial reasons and the earlier repayment of the company's Term Loan B. Key Rating Drivers Solidifying Business Strategy: Avianca has been optimizing its network to boost profitability amid more balance market dynamics. The company has rationalized domestic capacity in Colombia, with continued network optimization. It launched 10 new international routes during 1H25 (additional three to be launched during 2H'25), expanding its footprint to 172 routes across 83 destinations. Avianca is focused on maintain a leadership position in the strategic markets of Colombia, Central America and Ecuador while enhancing its international footprint and expanding business class offerings on selected routes to capture premium revenues. Diversified Regional Market Position: Avianca's business model combines a solid brand and with large operations in Colombia and Central and South America. The company's sound international routes, cargo operations and loyalty program support adequate business diversification. Avianca's flexible business model has allowed it to rotate capacity within the region and maintain solid load factors of 80%-82% over the past few years. During the LTM period ending on June 30, 2025, Fitch estimates around 34% of Avianca's revenue distribution (points of sale) was from Colombia, 19% from North America, 23% from Central America and 11% from Europe and the remainder from various jurisdictions. Increasing Operations, Good Cost Structure: Fitch expects Avianca's operating cash flow to continue to improve in 2025 due to solid domestic traffic levels and better dynamics in the international segment, relatively lower fuel prices, cost efficiencies and capacity expansion. We forecast adjusted EBITDAR around USD1.5 billion in 2025 and USD1.6 billion in 2026. The efficient cost base, business premium revenue and lower fuel prices are driving record EBITDAR margins, with our base case of 25%-26% in 2025-2026. Positive FCF: Avianca's stronger operating cash flow generation is resulting in better-than-expected FCF. In its base case, Fitch now expects FCF to be positive. The differs from the previous rating case, in which operating cash flow generation was likely to be consumed by fleet modernization and ongoing business growth. Fitch now forecasts Avianca's FCF generation to be around USD66 million in 2026 after increasing capex. We assumed capex of USD440 million in 2025 and USD560 million in 2026. As per the company's bond indenture limitations, Fitch does not foresee shareholder returns in the short to medium term. Manageable Credit Metrics: Fitch's base-case scenario forecasts Total and Net EBITDAR Leverage at around 3.6x and 2.8x, respectively, during 2025. That is an improvement from 4.4x and 3.5x, respectively in 2024, but significant progress from its Chapter 11 exit year in 2022 (6.2x and 5.0x, respectively). For 2026 and 2027, total and net leverage should remain near 3.5x and 2.7x, respectively. Fitch expects Avianca to remain cautious regarding its inorganic growth strategy, as any M&A opportunities should be led by its parent company, ABRA Group Limited (ABRA). Improved Refinancing Exposure: Earlier this year Avianca exchanged its tranche A-1 senior secured notes due 2028 and issued new secured notes due in 2030. Avianca's goal was to simplify its capital structure and to eliminate restrictive covenants from the time of the Chapter 11 process, release guarantees and discharge collaterals. Some proceeds were used to prepay LifeMiles's USD365 million Term Loan B due 2026. Fitch expects the company will maintain solid cash balances, with cash/LTM revenue between 15%-20%. Avianca's liquidity position is enhanced by an undrawn RCF of USD200 million due 2027. As of June 30, 2025, its cash + RCF/LTM revenue was 24%. Above-Average Industry Risks: The high-risk airline sector is cyclical and capital-intensive due to structural challenges, as well as being prone to exogenous shocks. High fixed costs combined with swings in demand and fuel prices typically translate into volatile profitability and cash flows. Exposure to foreign exchange fluctuations for Latin America competitors constitutes an additional risk, as costs are mostly in U.S. dollars and a large part of its cash flows are in local currency. For Avianca, this risk is somewhat mitigated by its international operations (85% of capacity). Consolidated Approach: Fitch applies its "Parent and Subsidiary Rating Linkage Criteria" to Avianca and its 100%-owned subsidiary LifeMiles, following the stronger parent path. The legal incentive for support is high, and the operational and strategic incentives are medium to high, resulting in equalized ratings. LifeMiles is a core asset, generating stable free cash flows and solid EBITDA margins. During 2024, LifeMiles contributes around 15% to EBITDA and represents around 7% of Avianca's debt. Peer Analysis Avianca's rating is below LATAM Airlines Group S.A.'s (BB/Positive Outlook) due to relatively higher leverage and weaker market diversification and financial flexibility. Avianca's business and credit profile is stronger than GOL Linhas Aereas Inteligentes S.A.'s (CCC+/Positive), a sister company also owned by Abra. Avianca is more diversified, with a stronger capital structure and manageable medium-term refinancing risks. Its ratings are constrained by limited financial flexibility in terms of an unencumbered asset base and the industry's high risks. Fitch expects Avianca's leverage to remain moderate at 2.8x and 2.7x in 2025 and 2026, while GOL's leverage is expected to remain high during 2025 at 5.4x and to decline to 4.1x in 2026 and 3.5x by 2027. In terms of liquidity GOL's cash/LTM revenue should be about 14% in 2025 and range from 10%-12% over the next two years, while Avianca's is around 15%-20% and including available RCF this goes up to 24%. Fitch forecasts LATAM's total and net adjusted leverage/EBITDAR ratios at around 2.1x and 1.4x during 2025 and 2026, with robust cash balances (cash plus RCF to LTM revenues on average above 25%). Relative to North American peers, Avianca's rating is lower due to structural and financial factors. American Airlines, Inc. (B+/Stable), United Airlines, Inc. (BB/Positive), and Air Canada (BB/Stable) all benefit from significant scale, global route networks, relatively lower leverage, stronger liquidity, and greater access to capital markets. Key Assumptions --Fitch's base case during 2025 and 2026 includes an increase in ASK to 71k and 74k; --Load factors around 80.5% during 2025-2026; --Steady cargo operations; -- Jet fuel ranging around USD2.65-2.75 in 2025- 2026; --Capex of USD440 million in 2025 and USD560 million in 2026; --No dividend distributions. Recovery Analysis Key Recovery Rating Assumptions The recovery analysis assumes Avianca would be considered a going concern in bankruptcy and the company would be reorganized rather than liquidated. Fitch has assumed a 10% administrative claim. Avianca's going concern EBITDA is USD500 million which incorporates EBITDA post-pandemic, adjusted by lease expenses, plus a discount of 20%. This correlates to an average of USD561 million during 2016-2019, reflecting intense volatility in the airline industry in Latin America. The going-concern EBITDA estimate reflects our view of a sustainable, post-reorganization EBITDA level, upon which we base the valuation of the company. The enterprise value (EV)/EBITDA multiple applied is 5.5x, reflecting Avianca's strong market position in Colombia, Central America and Ecuador. Fitch applies a waterfall analysis to the post-default enterprise valuation based on the relative claims of the debt in the capital structure. The debt waterfall assumptions consider the company's total debt. These assumptions result in a Recovery Rate for the secured debt within the 'RR1' range, but due to the soft cap of Colombia at 'RR4', Avianca's senior secured debt is rated 'B'/'RR4'. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade -- Dividends distributions deteriorating the company's credit metrics; -- Liquidity deterioration to below Cash LTM Revenues below 15%; -- Gross and net leverage ratios consistently above 4.0x and 3.5x; -- EBITDA fixed-charge coverage sustained at or below 1.8x; -- Competitive pressures leading to severe loss in market-share or yield deterioration; -- Aggressive growth strategy leading to a consolidation movement financed with debt. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade -- Total and net leverage below 3.5x and 3.0x, on a sustainable basis. -- Sound business strategy within Avianca's main markets' air traffic, supported by healthy yields and load factors; -- Ability to maintain strong cost structure, with adjusted EBITDAR margin above 25% on a sustainable basis including different fuel prices environment; -- Maintenance of a strong liquidity position (cash/LTM revenue consistently above 20%), and a well-spread debt amortization profile with no major refinancing risks in the medium term; -- EBITDAR fixed-charge coverage sustained at or above 2.5x; -- ABRA's ability to improve its capital structure and refinancing exposure reducing pressures on Avianca per dividends upstream. Liquidity and Debt Structure Avianca has maintained a solid liquidity position that is strong for the rating category. As of June 30, 2025, Avianca had around USD1.1 billion in cash and cash equivalents, compared with USD476 million of short-term debt. During the same period, Avianca's total debt was USD5.3 billion, and was mainly composed of USD2.8 billion of leasing obligations, USD1.1 billion of exchange notes due 2028, and USD1 billion of new secured notes due 2030. Avianca's cash position of USD1.1 million was sufficient to cover maturities until mid-2027. Avianca's liquidity position is further strengthen by an undrawn revolving credit facility due 2027 in the amount of USD200 million. Issuer Profile Avianca is the leading airline in Colombia, Ecuador and Central America, with one of the largest operations in Latin America. Avianca operates passenger and cargo transportation, with international routes representing 83% of total capacity. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations Avianca has an ESG Relevance Score of '4' for Group Structure due to its relatively new and larger airline operational group (ABRA), which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. Avianca has an ESG Relevance Score of '4' for Governance Structure due to its relatively new operational group (ABRA) that has lately demonstrated aggressive financial policies, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores RATING ACTIONS Entity / Debt Rating Recovery Prior Avianca Midco 2 PLC senior secured LT B+ Upgrade RR4 B Avianca Group International Limited LT IDR B+ Upgrade B LC LT IDR B+ Upgrade B LifeMiles Ltd. LT IDR B+ Upgrade B LT IDR WD Withdrawn LC LT IDR B+ Upgrade B LC LT IDR WD Withdrawn senior secured LT WD Withdrawn RR4 B Previous Page of 10 rows 20 rows 50 rows 100 rows 500 rows Next Loading... VIEW ADDITIONAL RATING DETAILS Additional information is available on www.fitchratings.com PARTICIPATION STATUS The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure. APPLICABLE CRITERIA Country-Specific Treatment of Recovery Ratings Criteria (pub. 03 Mar 2023) Corporates Recovery Ratings and Instrument Ratings Criteria (pub. 02 Aug 2024) (including rating assumption sensitivity) Corporate Rating Criteria (pub. 27 Jun 2025) (including rating assumption sensitivity) Sector Navigators – Addendum to the Corporate Rating Criteria (pub. 27 Jun 2025) APPLICABLE MODELS Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). Corporate Monitoring & Forecasting Model (COMFORT Model), v8.2.0 ( ADDITIONAL DISCLOSURES Dodd-Frank Rating Information Disclosure Form Solicitation Status Endorsement Policy ENDORSEMENT STATUS Avianca Group International Limited EU Endorsed, UK Endorsed Avianca Midco 2 PLC EU Endorsed, UK Endorsed LifeMiles Ltd. EU Endorsed, UK Endorsed DISCLAIMER & DISCLOSURES All Fitch Ratings (Fitch) credit ratings are subject to certain limitations and disclaimers. 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