Lawsuit Filed by Avianca Shareholder to Stop Investment by United Airlines

A  motion has been scheduled for Tuesday, March 28, 2017 at the Supreme Court of the State of New York, New York County for Anil C. Singh — a justice at the court — to hear the case by Kingsland Holdings Limited to block United Continental Holdings, Incorporated from investing approximately $800 million in Avianca Holdings SA as a loan from which United Airlines could benefit in the form of an estimated annual profit of greater than $75 million.

Earlier this week, approximately 25 attorneys piled into court on the motion by the plaintiff for a preliminary injunction.

Lawsuit Filed by Avianca Shareholder to Stop Investment by United Airlines

The lawsuit — which was filed on Tuesday, February 28, 2017 — alleges that Synergy Aerospace Corporation was setting up a potential secret deal for its own benefit at the expense of other shareholders and hurt minority investors. German Efromovich — who is the chairman and controlling shareholder of Avianca Holdings SA — is forcing the airline into this potential deal for his own personal benefit and to supposedly shore up his other business concerns, which are described in the lawsuit as “financially strapped.”

The complaint asked the court to issue an injunction putting a halt to the planned equity infusion and strategic partnership by United Airlines with Avianca — which was pursuing an investor partner to address its financial issues and liquidity needs; and had supposedly obtained two better offers from major international airlines — unless the defendants first comply fully with their fiduciary responsibilities to the other stakeholders of Avianca.

The injunction — if granted — would also prevent the defendants from interfering with the search of Avianca for an investor; calls for full accounting; and monetary damages of a minimum of $500,000.00. according to the lawsuit, which is 52 pages long and alleges that the planned deal would benefit Efromovich while simultaneously harming the company and its other shareholders.

Kingsland alleges Efromovich is forcing the company to take the United deal and not the two other better offers because his other business concerns also need cash, and the United deal would siphon the “vast majority” of United’s payment for the partnership to Efromovich’s “financially shaky affiliates’,” according to this article written by Daniel Siegal for Law360. “Avianca reportedly traded away much of its economic interest and potential upside in Avianca to others, giving Efromovich the incentive to extract as much cash as he can from Avianca without considering the long-term effects.”

“Efromovich has had to pledge or trade away a substantial part of the upside from the shares and would get little benefit from a deal that substantially increases Avianca’s value,” according to this article written by Christine Jenkins and Chris Dolmetsch for Bloomberg. “He’s also made the company enter into at least 30 related-party transactions over the past two years to benefit him and his affiliated companies, including an unnecessary order with Airbus in order to induce Airbus to renegotiate Synergy’s obligations and defaults.”

The Players

Controlled by the family of Roberto Kriete, Kingsland Holdings Limited is the second largest shareholder of Avianca Holdings SA — which is based and headquartered in Bogota and is one of the largest airlines in Latin America — with 22 percent of the voting shares and 14.5 percent of the total shares of the airline. Taca and Avianca were combined in 2010 under Kingsland.

Synergy Aerospace Corporation — which is the majority shareholder of Avianca Holdings SA with a 78 percent voting stake and 51.5 percent of its total shares — is a holding company controlled by German Efromovich.

United Airlines announced that it was working with both Avianca Holdings and Avianca Brasil to enhance and deepen commercial and strategic ties, according to this press release — but without mentioning any terms. Oceanair Linhas Aereas — which operates as Avianca Brasil — is a separate airline controlled by José Efromovich, who is the brother of German Efromovich.

Elliott Management Corporation had provided a loan backed by the shares of Avianca owned by German Efromovich, according to the

Summary

This case appears to be another questionable business relationship for United Airlines, which found itself in the middle of the controversial bribery case that involved federal and internal investigations associated with the Port Authority of New York and New Jersey whose former chairman — now 77 years of age — was suspected to have allegedly used his prominent position to demand favorable treatment or personal benefit from United Airlines. David Samson ultimately avoided jail time.

The process and outcome of the case of Kingsland Holdings Ltd. v. Syndergy Aerospace Corp. et al., case number 651035/2017, in the Supreme Court of the State of New York for the County of New York should be quite interesting…

Source: the Supreme Court of the State of New York for the County of New York.

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