Venezuela Reaches Deals With Six Airlines to Pay Dollar Debt

May 26, 2014 5:18 pm ET

(Updates with minister’s comment in third paragraph.)

May 26 (Bloomberg) -- Venezuela reached deals with six airlines to pay dollar debt and may devalue the bolivar for ticket purchasers as it works to normalize flights and prevent airlines from leaving the country.

The South American country will pay Colombia’s Avianca Holdings SA for money accumulated by its Avianca and Taca airlines in 2012, Finance Minister Rodolfo Marco Torres said. An agreement has also been reached with Grupo Aeromexico SAB de CV, Curacao’s Insel Air, Ecuador’s Tame and Aruba Airlines for debt accumulated in 2013, he said.

“We’ll keep supporting the airlines,” Marco Torres said in a post on his Twitter account today.

Airlines had the equivalent of $3.9 billion stuck in bolivars as of April as they struggled to repatriate revenue from ticket sales, according to the International Air Transport Association. At least 11 carriers cut capacity, sales or routes to South America’s largest oil exporter in the past year, with Air Canada becoming the first airline to stop flying to Caracas in March.

Avianca Chief Executive Officer Fabio Villegas said today in an e-mailed response to questions that he was informed about the government decision to pay 2012 debt. The company had about $319 million in cash in the country through the first quarter.

Avianca shares rose 2.6 percent to 3,700 pesos in Bogota today.

Ticket Devaluation

The value of revenue trapped in bolivars is being whittled away by the world’s highest inflation rate and frequent devaluations. Annual inflation hit 59 percent in March, after the government carried out the biggest devaluation since currency controls were instituted in 2003 with the introduction of the Sicad II exchange rate system.

Venezuela’s government informed airlines that airfares starting in July will be based on a weaker SICAD II rate of about 50 bolivars per dollar compared with the official rate of 6.3, Humberto Figuera, president of the Venezuelan Airlines Association, said today in a telephone interview.

“We’ve worked with airlines to reduce the dollar price of tickets,” Sea and Transport Minister Hebert Garcia Plaza said today in a post on his Twitter account. “We’ll work to place a realistic price on air tickets before they are moved to Sicad II.”

Airline tickets were moved to a secondary rate of about 10 bolivars per dollar known as Sicad I in January.

Creeping Devaluation

“The devaluation gets bigger as the government moves more sectors to Sicad II,” Asdrubal Oliveros, director of Caracas- based Ecoanalitica, said today in a telephone interview. “This measure will affect the middle class and business people who had been benefiting from a rate far below the black market rate for dollars. It could help regularize the sale of tickets in Venezuela.”

Panama’s Copa Airlines said May 8 that it would start cutting routes to Venezuela this month as it struggles to repatriate funds. The Panama City-based airline, which has routes connecting the U.S., Caribbean and Latin America, said it’s owed $488 million by the Venezuela government, valued at the official bolivar rate of 6.3 bolivars per dollar.

Venezuelan President Nicolas Maduro said on May 22 that any airline that pulled out of the country would not be allowed to return. He said airlines were not cutting flights to the country and were rather “reprogramming” flights to Brazil to meet demand for the World Cup next month.

--With assistance from Christine Jenkins in Bogota and Jose Orozco in Caracas.