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Avianca Holdings S.A. (NYSE:AVH)
Q2 2019 Earnings Call
August 15, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Avianca Holdings Second Quarter 2019 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Luca Pfeifer, Investor Relations Officer for Avianca Holdings. Thank you, Mr. Pfeifer. You may begin.

Luca Pfeifer -- Investor Relations Officer

Thank you. Good morning, everybody, and welcome. My name is Luca Pfeifer, Investor Relations Officer for Avianca Holdings. Thank you for joining us this morning to review our business results for the second quarter 2019. As on prior occasions, we will be simultaneously translating our earnings results from English to Spanish.

Joining me on the call today is our new senior management team, CEO Anko van der Werff; and CFO Adrian Neuhauser, Anko will go over the most relevant aspects that occurred throughout [audio cuts out] and Adrian will review the [audio cuts out] the floor for question-and-answers. At this point, I turn it over to our CEO, Anko van der Werff.

Anko Van Der Werff-- President

Thank you, Luca. Welcome to the Avianca Holdings Second Quarter Call. This call is especially important as it allows me to introduce myself and Adrian Neuhauser, as well as share with you an update on the most recent events regarding AVH corporate governance as well as our new strategic plan, Avianca 2021.

As you're all aware, Avianca's corporate governance strengthened over the last few weeks as a new highly experienced board was appointed, which has taken two immediate steps. First of all, to appoint new senior management -- mainly with Adrian and myself -- and secondly, to sign off on a liquidity preservation plan aimed at ensuring proper liquidity for the company. Before Adrian goes into the details of the liquidity preservation plan and the specifics of the second quarter, I want to take some time to outline the main drivers of our new Avianca 2021 strategic plan.

First and foremost, it is built around the premise that the core business of Avianca is centered on our passenger loyalty and cargo business. We are an airline first. A key focus of the plan is to build on the potential of our Bogota hub, due to its strong domestic market of over 21 million passengers, and its privileged geographical location, and strong Bogota O&D market, which positions it as a natural premier hub for the region.

Our main objective is to markedly improve the profitability of Avianca in the near future, with a goal to reach significant EBIT margins while deleveraging the company and strengthening the balance sheet. In order to achieve this, we have already taken the first of many steps to right size the company by beginning to eliminate unprofitable flying and reducing the aircraft fleet. In the next months, we will phase out a total of 39 aircraft. While through August the company is still exhibiting relevant domestic growth, the capacity reduction actions we have recently taken, and will continue to take, mean that the company will begin to show capacity discipline. And, in fact, we expect year-on-year ASDA growth to turn negative into the fourth quarter.

Another focus is optimizing the network to maximize profitability and better serve our customers. The implementation of the initial stages of the structural changes to the network will happen in the latter part of the year.

Before I turn it over to Adrian, I will spend only a brief moment more to share with you that Avianca had a particularly trying second quarter on multiple fronts, as anticipated. The team has made some very difficult decisions during the quarter to ensure our company is well positioned to achieve the goals established within our 2021 plan. I am therefore pleased with the progress made since the changes to the board and management related to the key pillars of Avianca's 2021 turnaround plan. Having recently joined the team, I'm optimistic of the company's future and look forward to lead our company to its full potential.

More importantly, the actions we've taken, with the benefit of a revitalized board, new and experienced senior management team, and strengthened corporate governance have given Avianca a fresh start to position us to drive future success, which we expect will begin to resonate in the second half of the year.

In further support of our Avianca 2021 plan, Kingsland and United Airlines have advised that they would extend financing of up to $250 million to Avianca Holdings once certain conditions are met. We view this as an important vote of confidence in the company, and in the actions, we have begun to take.

And with this, I turn it over to Adrian.

Adrian Neuhauser -- Chief Financial Officer

Thank you very much, Anko. Before we go into the details of the operational and, frankly, disappointing financial results of the second quarter, I want to spend a couple of minutes providing you with an update on the recent initiatives we have taken. At the end of June, the company took the difficult decision to suspend and reschedule our debt amortization as well as operating lease payments in order to preserve the company's liquidity levels.

We began conversations with our key stakeholders, essentially requesting deferrals of between 3-9 months, depending on the specific counterparty, with the target amount of deferrals in excess of $200 million. Bear in mind that we are asking for this short grace period, and we will be paying all outstanding amounts, including interest in full, over the next three years. We are progressing well with our counterparties in these negotiations and are hopeful to close them out by the end of September. It's important to point out, of course, that the day-to-day operations of AVH remain completely unaffected as result of this process.

Specifically, with regards to our May 2020 bond, which is the most important short-term maturity that we have, we yesterday launched a bond exchange offer. Essentially, it consists of an offer part exchange in which the company offers to exchange the note for a note with the same current coupon of 8.375% and maturity of May 2020, but providing certain collateral to the current bondholders. The new exchange notes will automatically convert into a new extended bond with a 9% coupon and a May 2023 maturity if United and Kingsland extend the $250 million financing that Anko referred to, to Avianca Holdings.

Turning to our second quarter results, I want to explain some of the one-time events that have affected our P&L this quarter. The most relevant effects are related to our plan to phase out inefficient aircraft types, such as our Embraer E190s and Airbus A318s. Although these transactions have a one-time P&L book loss of $285 million, they are actually expected to have positive cash impact in the second half of 2019 of between $90-100 million, and are part of the rightsizing and increasing the inefficiency of our fleet going forward that Anko mentioned earlier.

Moving on to the actual second quarter results, the total capacity deployed throughout our network has continued to grow, and our ASKs have expanded to 4.7%. And again, as Anko mentioned, this is above the capacity that we wish to deploy throughout the entire year. While we were able to achieve load factors of almost 82%, transporting a total of 7.5 million passengers, as we will shortly note, this growth impacted unit revenue. And, in the latter part of the year, we will manage our capacity aggressively to reduce unprofitable flying further and right size the network.

From a revenue perspective, our top line decreased by 6.9% year-on-year as a result of currency weakness and capacity outgrowing demand, which drove our average fare to be reduced by 8.4%. Adjusted for one-time events, our CASK ex-fuel decreased by 6.7% year-over-year as the company began optimizing expenses and we will look at this in more detail in the following slide.

On the next slide, looking at our current fleet status, as mentioned by Anko, we have already made progress on the fleet strategy. In the second quarter, we have divested our non-feeder local operations in Costa Rica and Nicaragua, reducing our fleet by 15 aircraft. We have grounded six Embraer E190 aircraft to prepare them for sale. And as a result of these changes, closed the second quarter with a total of 170 operational aircraft in our fleet. We expect to phase out the remaining four Embraers and 14 Airbus A320 family aircraft, including the 318s we mentioned before, during the second half of the year.

Next, we would like to have a more detailed look at the operational numbers for the second quarter. While capacity grew a big slow in the second quarter as compared to the expansion, we showed in the first quarter, it remained aggressive. This, in connection with an overall weak macroenvironment across our network, has significantly impacted our passenger yields, as currency depreciation effects purchasing power of Latin American travelers and thus, of course, our demand. Our yields, therefore, came in at 8.4 cents, which represent a 9.2% year-on-year decline.

As a consequence of deterioration in yields, our profitability was sharply affected for the second quarter. Adjusted for one-time events, we are reporting an EBITDA margin of 10.5% and a negative EBIT margin of 3.2%. While this marks a low point in profitability for the company, we believe the Avianca 2021 plan will put us on the right track to improve the company's performance going forward. As we remove underperforming capacity from our network, as well as structural inefficiencies, we will improve both the fixed and variable cost structure of the company, which in turn will lead to sustainable margin expansion and cash generation.

Before we take a closer look at the operational side of the business, I would like to go -- spend a minute to go through the most relevant effects on second quarter P&L. Jet fuel price grew year-on-year, and our fuel consumption increased by 5.5%, which resulted in the net increase in fuel expenses for the company. In addition, maintenance and repair expenses increased, mainly due to higher expenses and return condition provisions. These, and other expenses, grew mainly due to a non-cash provision we recorded regarding an investment in 2018 in Aeromar.

On the passenger side, we were able to leverage efficiencies, which allowed us to reduce costs by 4.3%. Furthermore, air traffic expenses were reduced as we improved our schedule completion and on-time performance, leading to a decrease in passenger compensation payments. Finally, looking at salary, wages, and benefits, we are beginning to realize some of the benefits from rightsizing the company in addition to positive effects driven by the Columbia peso exchange rate.

Looking at overall capacity and remand across our network, evidences of the weak macroeconomic environment especially effects our intra Latin America traffic. On the other hand, we continue to exhibit strong demand from our North American as well as European runs. Despite the reduction in RPKs in the Columbian domestic market, we continue to hold the No. 1 spot, moving more than 50% of domestic travel while maintaining our top position across key international markets.

Moving on to look at our business units, I would like to start off by reviewing the performance of our cargo business unit. Despite a shrinking global cargo market, we have managed to improve the total transported tons year-on-year while maintaining our load factors relatively stable. And therefore, we are seeing only a modest decline in year-over-year revenues. In addition, we continue to be the most relevant player out of Bogota, the biggest air cargo hub in Latin America, and we remain a close third at Miami airport.

I'd next like to focus on LifeMiles, our loyalty company. The program continues to exhibit healthy membership growth at 10.7% year-on-year, and we've reached the total of 9.2 million members. This strong membership base allows us to become more relevant to our commercial partners as we continue to sign new partnership deals and incentivize customers to earn and redeem miles across our partner network. We are excited about the new growth opportunities that LifeMiles is working on and are especially happy to launch a new co-branded credit card retailer which will allow the bank's customers to earn miles on every credit card transaction.

In summary, the closing quarter proved to be difficult, as evidenced by our challenging margin evolution. In addition, the company has taken $285 million of one-time events. Although we are convinced that the company has started to take the right steps to return Avianca to the top for long-term profitable margin expansion, we recognize that we are at the beginning of the implementation of the Avianca 2021 strategic plan. Therefore, we are reducing our EBIT guidance for the full year 2019 to a range of 4-6%.

With that, I turn it over to Anko for closing remarks.

Anko Van Der Werff-- President

Yeah. Thank you very much, Adrian. And before we begin the Q&A session, I'd like to close with reiterating that, of course, as we have seen, Avianca had a particularly trying second quarter of 2019 on multiple fronts, as expected. The actions we have taken, however, with benefit of a revitalized board, new and experienced management team, and strengthened corporate governance have given Avianca a fresh start to drive future success. And we continue to progress on the implementation of our turnaround plan, which we expect to begin resonating in the second half of this year.

I dare to look to the future with confidence as we commit to an unwavering focus of transparency. And I look forward to sharing more of our updates and results with you in the upcoming occasions. Last, but certainly not least, I'd like to thank the entire Avianca team -- and especially our frontline employees -- who are the face of Avianca and provide a world class service to our customers on a daily basis.

...

And with that, we conclude today's presentation and we'd like to open the floor for questions and answers.

Questions and Answers:

Operator

Thank you. At this time, we will conduct a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participation using speaker equipment, it may be necessary to pick up your handset before pressing the * keys. Once again, that's *1 to ask a question at this time. One moment, while poll for our first question. Our first question comes from Michael Linenberg with Deutsche Bank. Please proceed with your question.

Matt Fallon -- Deutsche Bank Securities, Inc. -- Analyst

Hey, team. This is actually Matt Fallon on for Mike. Just two question from me. First one is, what is the ideal number of airplanes to maximize profitability and returns at Avianca? And which airplane types will be key to that right size franchise going forward?

Anko Van Der Werff-- President

Hi, Matt. This is Anko. So, we're currently targeting something in the range of around 155. And I think what you will note is that we are working, and we will be sharing, of course, in the near future, more on that. But that means rightsizing both in wide bodies and in narrow bodies. There, we're still working on several elements and we'll share more going forward. But it will require, of course, a further reduction of aircraft, as we have shared earlier on.

Matt Fallon -- Deutsche Bank Securities, Inc. -- Analyst

Great. And as a follow-up, just with respect to Avianca 2021, what about the plan will investors be able to see right away to get comfortable with the equity story? And what opportunities going forward is the market not giving you credit for as a part of this plan, or maybe not?

Anko Van Der Werff-- President

Yes, so I think -- first of all, let's recognize that every turnaround starts, like we've said, with capacity reduction, capacity discipline, and then the strong focus on executing a plan. And that's exactly what Adrian and I are here to do. Now, if you look at that plan, first of all, we have a strong reason to exist, right? I mean, if you look at the solid home base that we have -- not just in Columbia, of course, but in that part of the world -- a very privileged geographical position with a strong base, of course, in Bogota, a loyal customer base, and strong strategic partners. And I think that is something -- I -- in a way, the past of the past. Here we are. This is the future. Here is forward thinking. We will be a rational and disciplined player going forward, and a trusted partner, right? And that is exactly what Adrian and I are here to do.

Adrian Neuhauser -- Chief Financial Officer

From a balance sheet perspective, you're going to see a clearer focus in increasing weighted average life. You're going to see us carrying more cash to ensure that we can bear shocks and be more solid. And you're going to see us strongly focused -- I guess, both from the operational side and the balance sheet side -- and continuously leveraging to get this company where it needs to be in terms of leverage over time. And you'll see that happening quickly.

Matt Fallon -- Deutsche Bank Securities, Inc. -- Analyst

Thanks for taking my questions.

Operator

Our next question comes from Camilo Roldan with Davivienda Corredores. Please proceed with your question.

Camilo Roldan Romer -- Davivienda Corredores -- Analyst

Oh, hi, everyone. Thank you for the presentation. I would like to do two questions in relation from the communication additions you sent yesterday about the bondholders and the capitalization from United and Kingsland. So, I will like to know -- first one, is that in the communication you said that United and Kingsland are not required to do the capitalization if the bondholder -- the 50% of the bondholders accept the new offer of the exchangeable bonds. But I will like to know which metrics are United and Kingsland taking into account to make the capitalization.

And the second one is that now that we know that you're making some advance in negotiation between the bondholders, I would like to know what about the other creditors, about the -- from the company.

Adrian Neuhauser -- Chief Financial Officer

Yes, it's Adrian Neuhauser. Let me take that. Look, I think with respect to United and Kingsland, the key -- their key focus is in ensuring that when they carry out this investment the company is on a stable path from the balance sheet, right? So, as you acknowledged in your second question, there are broader negotiations with all of our creditors and the key trigger here is going to be ensuring that we have achieved sufficient success with the bond deferral and with our other creditors for people to feel that this investment puts the company on solid footing balance sheet wise.

That leads into the second question, which is the negotiations with the broader creditors. The negotiations with the broader creditors are going very well. It is obviously -- as we've said, as we've disclosed, we have unilaterally entered a default situation with them, so these are obviously difficult negotiations -- and not the ones that we would've liked to start our tenure with, but we believe it's in the best interest of everyone to ensure that the company continues to have an adequate liquidity position as we have these conversations. All of our creditors are being constructive. All of our creditors have engaged in negotiations. And we are in the process of agreeing to terms with the vast majority of them. So, it's going reasonably well.

Camilo Roldan Romer -- Davivienda Corredores -- Analyst

Okay. Thank you. But I will like to know if the -- about the capitalization of United and Kingsland. They have already set a price for the shares if they decided to change this debt to -- for the market cap? Or they don't have any guideline of the price of the share that they will convert this debt to shares?

Adrian Neuhauser -- Chief Financial Officer

Well -- so, we are finalizing negotiations with them on the exact terms, and we will disclose that in due course.

Camilo Roldan Romer -- Davivienda Corredores -- Analyst

Okay. Okay. Thank you so much.

Operator

Our next question comes from Germán Cristancho with Davivienda. Please proceed with your question.

José Germán Cristancho -- Banco Davivienda -- Analyst

Hi. Good morning. Thank you for the presentation. I have one question, is that in the report I read that the total deferrals Avianca has made amount to $270 million. But I will like to know in what case this constitutes and event of default in terms of time. I understand you have about 60 days before this constitutes and event of default. But also, I understand that the whole amount could not be higher than $50 million. So, is -- my question is, is this an event of default for the company or what could be this trigger for the cross default event in the company?

Adrian Neuhauser -- Chief Financial Officer

So, a couple of things. With $270 million -- and it's slightly less than that -- but the $270 million is the deferral over the entire program, right? And as we've said, we are asking people for three-, six-, and nine-month deferrals. So, we're nowhere near that amount today. The cross default threshold -- and that includes leasing as well, which is an operational payment and not a financial payment for purposes of the bond cross default. The bond cross default threshold is $50 million of cash nonpayment on principle when due on loans. We are not near that threshold today. We have obtained standstill letters from some of our creditors, which removed amounts from that amount, and we -- and obviously, as we continue to defer on some other loans, that amount grows. But as of today, we are not near that threshold. Obviously, we monitor it on a daily basis.

José Germán Cristancho -- Banco Davivienda -- Analyst

Okay. Thank you.

Operator

Our next question comes from Rogerio Araujo with UBS. Please proceed with your question.

Rogerio Araujo -- UBS Group -- Analyst

Yeah, hi, and good morning. Thanks for the questions. So, what -- if you could provide us a breakdown of ASK. How deals are behaving in each region that Avianca is at in terms of international market and domestic market -- maybe Columbia, Peru. What are the regions that has been more impacted by competitive pressure? What are the regions that -- and the routes that has a good ASK at this moment? Thank you.

Anko Van Der Werff-- President

Yeah, so thank you for the question and I understand the question. However, we don't break that down per regions on these calls and going forward in earnings calls. What we can say is the following -- and I think that is the most relevant part for now as well -- when you look at the RASK growth, as we said, in the first half of the year has simply been too much, right? We -- Adrian and I have been very clear from the moment we joined, this has got to come down. So, we're taking the capacity out. The first effect, and the first positive impacts on that, in terms of RASKs are beginning to show, right?

So, if you look at August, August is actually -- for the first time in quite a while -- is turning positive. And we, of course, expect with further capacity reductions by the end of the year, stuff that we're going to take out more -- for instance, you've seen yesterday that we're taking out two lines of flying in Peru, two lines of flying out of Lima. So, we do expect, of course, that trend of RASK turning into positive territory that we'll continue to exhibit.

Rogerio Araujo -- UBS Group -- Analyst

Yep, that -- thank you. What about domestic market and international? Is there a segment that is worse than the other, or are you -- you see similar RASK perspectives on them?

Anko Van Der Werff-- President

Yeah, again, so we're not going to break that out to the fullest detail for you. What we can say, and it's something that we already shared this morning -- the Latin American economies, of course, with the FX pressure, rate of exchange pressure, are of course -- they're under pressure. But the North American market, for instance, still remains solid.

Rogerio Araujo -- UBS Group -- Analyst

Okay. Sounds good. Thanks very much.

Operator

Our next question comes from Victor Mizusaki with Bradesco BBI. Please proceed with your question.

Victor Mizusaki -- Bradesco BBI -- Analyst

Hi. Thank you. I would like to understand a little bit more about your cash liquid plans. I mean, you give a lot of details about what you're trying to do with the liability management. But, I mean, think about your cash position. It is very low, so I would like to understand what can we expect going forward and what the targets think about your Avianca plan forward 2021?

Adrian Neuhauser -- Chief Financial Officer

Sure. So, you're right. Our cash position is very low. The company has, for a long time, run itself with a tight cash position. That's why, unfortunately, we were forced to take unilateral action to preserve cash. What I can say is, we are monitoring cash very tightly. We are being very cautious with cash as we go through the exercise of formalizing these deferrals with our creditors. Obviously, until we do, we don't have access to incremental financing. So, we're very careful with what we're doing. But part of our thesis and part of our plan is to make sure that this is not a situation that we're in again.

So, as we look forward to our projections, once we exit this reprofiling, with the investment coming in from United and Kingsland -- which we expect to happen -- plus an incremental offering that we expect to do to minority shareholders to allow them to participate on the same terms, plus some incremental financing that we expect to be able to do that was already in the plans for this year but then unfortunately was unable to be executed prior to the current situation, we expect to very rapidly get the company up to about $750 million of cash. And that's about 15% of trailing revenue. And that's where we expect to hold the company in the future. We think that's a healthy level to be running the company.

Victor Mizusaki -- Bradesco BBI -- Analyst

Okay. Thank you.

Operator

Our next question comes from Luisa Arce with SURA Asset Management. Please proceed with your question.

Luisa Fernanda Arce Zamudio -- SURA Asset Management -- Analyst

Hi. Thanks for the call. I just want to know which conditions are necessary, or would be enough, to carry out the stakeholders' investment by United and Kingsland for the next month? Thank you.

Adrian Neuhauser -- Chief Financial Officer

We haven't disclosed the key conditions, but the main trigger -- the most important thing, and this is reasonably obvious -- is that -- because we are in default across our capital structure, and we reflected that in our balance sheet where most of our debt is shown in the short-term, right, we need to stabilize that and formalize the deferrals that we have put in place before we can ask United and Kingsland to move forward with an investment. While we are absolutely comfortable that that investment, plus the other liquidity measures that we intend to take, consistent with the previous question we had, are going to get our cash balances up to where they need to be, obviously, we need the creditor base to hold steady and roll forward. So, we need the bond exchange to be successful. We need our negotiations with our creditors to be concluded successfully. And we think those are the key triggers to getting this to move forward.

Operator

Our next question comes from Pedro Pascal with JP Morgan. Please proceed with your question.

Pedro Pascal -- JP Morgan Chase & Co. -- Analyst

Good morning, guys, and thank you for taking my question. I saw on Bloomberg that you are conducting internal probe regarding potential violations of the FCPA. I know this is a sensitive topic, especially that the news say that you will voluntarily disclose that to the SEC and DOJ this week. But if you could provide any more color, this would be super helpful. Thank you.

Adrian Neuhauser -- Chief Financial Officer

Yeah. Look, we're -- it's obviously, like you said, a sensitive topic. So, we're loathe to provide more detail than what's in the document. But -- and there is disclosure in a 6K that was filed today on that. The company has had in place for a while an investigation regarding certain business practices around tickets that were given out. And we are in the process of ensuring that none of those violated FCPA laws when they were given out.

Pedro Pascal -- JP Morgan Chase & Co. -- Analyst

And if I may --

Adrian Neuhauser -- Chief Financial Officer

This is a legacy issue. Additional controls have been put in place. And it's not -- it doesn't target some -- it doesn't target business practices that are occurring today.

Pedro Pascal -- JP Morgan Chase & Co. -- Analyst

Perfect. And if I may, just a quick follow up. The news mentioned the potential involvement of members of the management team and the board. The people related to this potential corruption issues, are they still at the company or not?

Adrian Neuhauser -- Chief Financial Officer

Look, I don't -- there's an implicit assumption in your statement, which is complicated to address. I'm not trying to take a position that something did or didn't happen. The investigations that have taken place to date have not identified wrongdoing. And so, this is -- again, we first need to figure out if there was wrongdoing to then figure out if people that were involved in wrongdoing were -- are still or not with the company, right?

Pedro Pascal -- JP Morgan Chase & Co. -- Analyst

Yeah. That's perfect. Super helpful. Thank you.

Operator

Our next question comes from Ricardo Sandoval with Bancolombia. Please proceed with your question.

Ricardo Andres Sandoval Carrera -- Grupo Bancolombia -- Analyst

Hi. Thank you for the call. I will like to know -- we have talk about in margins and you talk about Avianca 2021 plans is it focused margins. But I will like to know, what can we expect in terms of revenues? Taking into account two things -- first, the contraction of the fleet is going to be significant and the macroenvironment is quite challenging for Latin airlines. So, I would like to know, if we can expect maybe a two-digit contractions percentage in revenues in 2020 against 2018, or what can we expect in revenues? Thank you.

Anko Van Der Werff-- President

Yeah. Thank you very much. I'll take that. This is Anko. So, I think there will be three things that we would like to point out here. As I mentioned, with capacity coming out, with unprofitable flying coming out, two things will undoubtedly happen. First of all, unit revenue, RASK, we will see going up. As I said, August is the first month that is positive and we expect, of course, going forward with more unprofitable flying that you're going to take out, that we actually are going to see a positive momentum on RASK.

With the capacity coming out, obviously the total top line will contract, right? So, that is -- of course, it's logical when you're going to take capacity out, we're going to have less top line. And that is absolutely fine because it's unprofitable. So, again, it starts with capacity reduction and capacity discipline and that's what we're going to do.

I think, when you talk about revenues, there is an important thing also to mention, something that has been implemented pretty much worldwide -- every single mature airline, and something that Avianca really hasn't done yet, it's the implementation of branded fares. We're going live in Ecuador in September. We're going live in Colombia by the end of the year. And so, we're going to roll that out, right?

And we've seen -- in my experience, in other airlines, and we've seen of course in the industry, that that is actually a fantastic program, right, allowing us to compete better in a low cost environment. But also, and I think that's much more important for us, to monetize the premium elements that we have, right? So, if you look at a business class, if you look at our product, then of course, we are a premium airline and we will remain the premium airline. And through branded fares, we will be able to manage up more clearly than we have been able to in the past.

Ricardo Andres Sandoval Carrera -- Grupo Bancolombia -- Analyst

Okay. Thank you, Anko. But I don't know if you may be -- if you may give us some kind of guidance. I mean, after this whole plan is complete, I don't know if you have any target on revenues in dollars or as the fleet contraction is going to be seen -- as the fleet contraction is going to be significant. Can you give us may be any -- some guidance of it?

Adrian Neuhauser -- Chief Financial Officer

We are not yet providing guidance into 2020. We expect to do so later in the year. At least, that's part of what Anko mentioned before, was we are finalizing what the fleet looks like. And obviously, that will that plus our final network design will drive --

Anko Van Der Werff-- President

Will get through -- yeah.

Adrian Neuhauser -- Chief Financial Officer

-- a large portion of the question you're asking.

Ricardo Andres Sandoval Carrera -- Grupo Bancolombia -- Analyst

Okay. Okay. Thank you.

Operator

Our next question comes from Yuri Pereira with Citibank. Please proceed with your question.

Yuri Pereira -- Citigroup Global Markets, Inc. -- Analyst

Thanks very much for the opportunity. The first question is what percentage of having does now you generating in Argentina, or in time in Venezuela? The second one is regarding the shutdown of Avianca Brasil. If -- did that process provide any benefits, such as the return of subleased aircraft? And the third one is, if we could expect more bond exchange offers going forward? Thank you.

Anko Van Der Werff-- President

Yeah. I'll take the first two parts of your question and then I'll hand over to Adrian. So, to be honest, I don't know exactly the percentage of our Argentinean flying, but what I can tell you is that it's very small. But our exposure to the Argentinian market definitely compared to our peers is much smaller. And in the case of Brazil, the market conditions, at least of Brazil -- what we have seen for ourselves -- I mean, last year was in a way the low point for us. So, we're now seeing solid year-on-year improvements. And that, of course, is also important for us, right? Brazil is in that sense bigger to us than Argentina. So, at least for Avianca Holdings, right, we see now year-on-year improvements in the sales in Brazil. And that's, of course, positive going forward.

Adrian Neuhauser -- Chief Financial Officer

Regarding the question you asked about the subleased -- yes, there are two aircraft that we had subleased to Avianca Brasil, to OCEANAIR. And we are recovering those aircraft. Those aircraft, as you would expect, are not -- we already recovered on. We're in the process of recovering another. But those aircraft are not in the greatest maintenance conditions. So, we have to figure out whether we're going to redeploy them into our fleet or not. And that's an exercise that we're going through now.

The bond exchange -- look, this is our key security. We have other parts of our financing that are more addressable on a one-to-one basis with creditors, and that's what we've been doing with the rest of the capital structure. This is the key capital markets transaction that we're going to carry out.

Yuri Pereira -- Citigroup Global Markets, Inc. -- Analyst

Thank you.

Operator

Our next question comes from Roberto Paniagua with Corficolombiana. Please proceed with your question.

Roberto Paniagua -- Corficolombiana -- Analyst

Hi, gentlemen. Good morning. I have a few questions about the bond exchange. The first one, I want to know, or to understand, how much of the offer above the 50% United and Kingsland needs to be done to invest the $250 million?

Adrian Neuhauser -- Chief Financial Officer

Okay, thanks. Again, this is a little bit of a recurring question, and I'm not trying to dance around it. I just want -- we all need to understand this. What we believe United and Kingsland need in order to agree to move forward is to feel that the capital structure has been stabilized, right? So, obviously, if we were to only get 50.1%, we would still have a $275 million maturity coming in May, which nobody would feel is stable unless we had another plan to address it. So, the short answer is we have plans to address small residuals around that exchange. We need participation to be significant for us to be comfortable, and therefore, we would believe for United and Kingsland to be comfortable.

Roberto Paniagua -- Corficolombiana -- Analyst

My second question is related -- what is a stable bond rating level to retire the bonds collateral that you talk about the in news yesterday?

Adrian Neuhauser -- Chief Financial Officer

Sorry. I didn't quite --

Anko Van Der Werff

Can you repeat your question? Sorry?

Roberto Paniagua -- Corficolombiana -- Analyst

Yes. What is a stable bond rating level to retire the bonds collateral? The new bonds collateral.

Adrian Neuhauser -- Chief Financial Officer

Your question is when does the collateral drop off the bonds?

Roberto Paniagua -- Corficolombiana -- Analyst

Yeah. You -- in yesterday, when you published information about the bond exchange, one part you talk about that maybe the collateral can be liberated if some credit rating level of the bond are achieved. So, I want to know, which is that rating level that you are expecting to --

Adrian Neuhauser -- Chief Financial Officer

Yeah. There is a ratings level. It was the subject of much discussion. Give us one sec. We're going back to what we ultimately came up with. So --

Roberto Paniagua -- Corficolombiana -- Analyst

Okay.

Adrian Neuhauser -- Chief Financial Officer

-- give me one minute. If you don't mind, we'll just move onto the next question but I will come back and answer that in a minute.

Roberto Paniagua -- Corficolombiana -- Analyst

Yes. Yes. Yes. My next question is -- give me a second, please. I want to know the $250 million investment United that you talked in the bond exchange is apart from previous news that we read about in the investment of United in the company, or is that amount included in previous negotiations?

Adrian Neuhauser -- Chief Financial Officer

No. That is the same amount.

Roberto Paniagua -- Corficolombiana -- Analyst

Oh, OK. In the beginning of the -- yesterday news communicate about the bond exchange, you talk about primary exchange. You talk that it could have a $5 prime over the value of the outstanding. If all of the bondholders decide to accept the exchange before August 27, or before September -- excuse me -- the new bond outstanding could be 5% larger than the previous one of $550 million? Or how would that --

Adrian Neuhauser -- Chief Financial Officer

No. That's a misunderstanding. So, the bond exchange is open for a 20-day period. There's a 10-day early bird period. During the 10-day early bird period the exchange is a par-for-par exchange. So, during the first 10 days, for every $100 you have you'll receive $100 of the new bond. If you participate in the non-early bird period in the remaining 10 business days, you will receive $0.95. So, it actually goes in the other direction.

Roberto Paniagua -- Corficolombiana -- Analyst

Okay. If you don't do it quickly, you will receive less than $100?

Adrian Neuhauser -- Chief Financial Officer

That's exactly right.

Roberto Paniagua -- Corficolombiana -- Analyst

Okay. That's important.

Adrian Neuhauser -- Chief Financial Officer

That's -- Sorry, you're going to go back to -- the ultimate ratings trigger that we decided on was BB flat, stable.

Roberto Paniagua -- Corficolombiana -- Analyst

Actually, can you repeat the last thing, please?

Adrian Neuhauser -- Chief Financial Officer

Yeah, no. I was answering your previous question. What we ultimately decided on was a BB stable -- flat stable ratings trigger to drop the collateral off.

Roberto Paniagua -- Corficolombiana -- Analyst

Okay, OK. Thank you. And my last question, excuse me for all this time, is -- I want to know and to understand if the exchange of the bonds and the new coupon of 9% are conditionate to the United and Kingsland investment of $250 million or it is apart from that?

Adrian Neuhauser -- Chief Financial Officer

Right. So, the exchange is actually done in two parts. In the first step, everyone who participates will remain with their current maturity of May 2020 with their current coupon of 8.375%, but will obtain collateral. That's the first thing that happens. And then, there's -- the cross default covenant is changed for cross acceleration covenant. Those are the initial changes.

When and if the United money and Kingsland money comes in, then those new bonds will automatically exchange into another new bond and that new bond will be a 2023 bond with a 9% coupon with the collateral, with the new covenant package, and with some call protection of half a coupon in the first year and a quarter coupon in the second year. So, the extension only happens once the money comes in, but the collateralization happens immediately.

Roberto Paniagua -- Corficolombiana -- Analyst

So, just to summary that answer, if United and Kingsland doesn't invest the money, the exchange can be done, but the coupon is stay stable, right? But you also have the collateral --

Adrian Neuhauser -- Chief Financial Officer

[Crosstalk] If United and Kingsland don't put in the money, the exchange happens. The coupon -- if the closing conditions are met, then the exchange happens, the coupon remains stable, then maturity in 2020 remains stable, and you receive collateral. You only extend, and you only receive the increased coupon, when the United and Kingsland investment happens.

Roberto Paniagua -- Corficolombiana -- Analyst

Okay. That's perfect. Thank you very much.

Luca Pfeifer -- Investor Relations Officer

Thank you. Now, we'd like to move on to other people. As you've noticed, there's a lot of questions. So, please, take the next.

Roberto Paniagua -- Corficolombiana -- Analyst

Yes.

Adrian Neuhauser -- Chief Financial Officer

Yeah, thank you.

Operator

Our next question comes from Victor Mizusaki with Bradesco BBI. Please proceed with your question.

Victor Mizusaki -- Bradesco BBI -- Analysts

Hi. Thanks. Just a last one here. I'm trying to understand how your debt profile will look like after all this debt restructuring. So, the exchange offer you'll be concluding in August. But, I think, about the other creditors, when do you expect to conclude the negotiations? Is this something that can happen still in the third quarter, or this is something that you'll likely be closing in Q4?

Adrian Neuhauser -- Chief Financial Officer

We're targeting September 30th to document, which puts us right at the edge, right? So, any delay will move it into early Q4. But it's somewhere between late September and early October, is what we currently hope is achievable.

Victor Mizusaki -- Bradesco BBI -- Analysts

Okay. Thank you.

Operator

Our next question comes from --

Adrian Neuhauser -- Chief Financial Officer

Oh, and -- sorry. And as Anko was reminding me -- and we are tracking for that. So -- OK?

Operator

Our next question comes from Ted Nuzen with Anatomy Capital. Please proceed with your question.

Ted Nuzen -- Anatomy Capital -- Analyst

Hi, guys. Thanks for taking my question. It seems that a big part of getting to Avianca '21 is going to be driven by the bond exchange. Just one simple question. Are there any kind of restrictions, either in the existing credit agreements with other creditors, non-bond creditors, or in the standstill agreement, or in the "boxed up agreement" with United and Kingsland that would prevent you from improving the terms of the bond exchange, either in terms of increased coupon, additional collateral, additional guarantees, to really just ensure that the exchange gets done?

Adrian Neuhauser -- Chief Financial Officer

Yeah. Look, I think we're very positive that the exchange gets done the way it's structured. The exchange is designed in a way that -- what we're asking people to do right now is very little. We are giving people collateral today to ask them to participate in exchange for not much. And so, in the scenario where you simply exchange today, you haven't given much. And then when you -- if the bonds ultimately do extend, they have extended into a company that has a substantial improved credit with an investment Kingsland and United and with call protection to allow creditors to benefit from that.

So, we think we've put together a more than a fair deal. We don't have other collateral to provide. And yes, we have a lot of other limitations. So, it's -- this has been threading a needle to find something that we think is fair and attractive and good for everyone. And, frankly, we're very pleased with the feedback so far.

Ted Nuzen -- Anatomy Capital -- Analyst

Got it. So, just one quick follow-up. So, pledging the equity in LifeMiles, for example, that is not allowed under whatever existing agreements you have.

Adrian Neuhauser -- Chief Financial Officer

That has a lot of other limitations that we cannot address.

Ted Nuzen -- Anatomy Capital -- Analyst

Understood. Thanks.

Adrian Neuhauser -- Chief Financial Officer

The other thing that's important just as framework here, right, is we are looking to extend this. We are also looking to fix the capital structure of the company going forward, right? So, part of the limitations are limitations in documentation we have. Part of the limitations are -- the financing plan going forward requires other structures to be refinanced, other things to be done, that we need to have the ability to do or else we will trade a short-term problem for a medium-term problem.

Operator

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comment.

Anko Van Der Werff-- President

Thank you very much. Just really wrapping it up. Thank you. Thank you for your time today. It's very clear that all your questions also constitute a great interest in Avianca Holdings, which of course, we appreciate fully. Once again, we have a very clear plan to start executing now, both Adrian and myself. The plan is in place. It starts with a capacity reduction. It's being disciplined in deploying capacity, and of course, very strong focus on executing a plan. We will be rational going forward, a disciplined player, and Adrian and I are here to deliver exactly on that.

So, thank you very much for your time today, and we'll speak to you very soon. Thank you.

Adrian Neuhauser -- Chief Financial Officer

Thank you all for all your questions.

...

Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Duration: 60 minutes

Call participants:

Luca Pfeifer -- Investor Relations Officer

Anko Van Der Werff-- President

Adrian Neuhauser -- Chief Financial Officer

Ricardo Andres Sandoval Carrera -- Grupo Bancolombia -- Analyst

Pedro Pascal -- JP Morgan Chase & Co. -- Analyst

Camilo Roldan Romer -- Davivienda Corredores -- Analyst

José Germán Cristancho -- Banco Davivienda -- Analyst

Ted Nuzen -- Anatomy Capital -- Analyst

Victor Mizusaki -- Bradesco BBI -- Analysts

Luisa Fernanda Arce Zamudio -- SURA Asset Management -- Analyst

Matt Fallon -- Deutsche Bank Securities, Inc. -- Analyst

Roberto Paniagua -- Corficolombiana -- Analyst

Yuri Pereira -- Citigroup Global Markets, Inc. -- Analyst

Rogerio Araujo -- UBS Group -- Analyst

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