Of late, things are not going well for Venezuela, and airlines
that operate within the country are facing the brunt of it. Amid
political turmoil, the country now faces the danger of losing the
service of major airlines as they are unable to transfer $3.8
billion in unpaid revenues, which have been accumulating since
As per International Air Transport Association (IATA), the
airlines have to incur considerable losses to transfer funds
owing to the country's currency control system. Further, both
IATA and individual companies have held talks with the government
but with no results.
Although President Nicolas Maduro has assured to resolve the
issue, he has threatened to sever ties with carriers who will
suspend operations due to payment disputes. In keeping with this,
Venezuela ended commercial relations with Air Canada after it
discontinued operations in the country last week.
The airline industry is apprehensive that this debt concern
might compel airlines to reduce or even terminate operations in
Venezuela. 11 carriers serving the nation have limited their
operations by 15-78% in the last one year, confirming the
Notably, carriers require airlines to sell tickets in the
nation's currency and the permission of the state currency board
to exchange it with dollars. Previously, companies sold tickets
at the official rate of 4.3 bolivars per dollar in 2012 and 6.3
Recently, the country initiated a new foreign exchange
platform with a rate of around 52 bolivars per dollar. However,
the new rate will translate into heavy losses for the carriers
because of the substantial rate difference.
The country's government officials might argue that such
losses are part of currency risks, however, airlines like
American Airline Group Inc.
Delta Airlines Inc.
Copa Holdings SA
Avianca Holdings SA
) will have to bear significant losses which will largely hamper
their financials. Both Delta and American ended in red on
Wednesday trade. The delay in the payment settlement is
aggravating the problem, leading to suspension of air
American Airline sports a Zacks Rank #1 (Strong Buy), while
Copa holds a Zacks Rank #2 (Buy). Both Delta and Avianca
currently carry a Zacks Rank #3 (Hold).
AMER AIRLINES (AAL): Free Stock Analysis
AVIANCA HOLDNGS (AVH): Free Stock Analysis
COPA HLDGS SA-A (CPA): Free Stock Analysis
DELTA AIR LINES (DAL): Free Stock Analysis
To read this article on Zacks.com click here.