Tame airlines will soon be no more than a memory in Ecuador

Published on September 30, 2020

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Back in 1962, Tame (Transportes Aéreos Militares Ecuatorianos) was launched in Ecuador as a military airline. Tame began commercial flights—including international flights to places such as Panama, Havana and Santiago de Chile—in the late 1960’s, operating under the administration of the Ecuadorian Air Force.

Now, 58 years later, the terms of its sale will mean that it will become yet another airline that disappeared as the industry created an environment that required strict cost controls, attention to customer loyalty, increasing fees for luggage and route changes, and an adaptation to route demands.

Unfortunately, the state-owned airline was never really able to meet those challenges after becoming a commercial entity in 2011, during the Correa government.

Long-term financial problems doomed airline

After accumulating cumulative losses of $311 million, President Lenin Moreno announced on May 9, 2020, that the airline would be entering a liquidation process. The airline had lost money in 9 of the last 12 years, and the impact of the coronavirus pandemic was an additional stress that pushed the government’s decision.

When Moreno announced that the airline would be liquidated, he had promised that the routes that connected places that do not have alternatives with private companies, would be preserved.

However, as the pandemic raged thru the country, and commercial airline travel came to a halt nationwide, Tame operated only for humanitarian flights—and wiped out 65% of its planned revenues for the year.

In recent years, Tame had closed routes and returned planes it had leased or purchased in an attempt to cut costs. One of the routes that it suspended was the Quito-New York trip, which operated with only one plane, an A330, which it eventually returned to its owner. It also suspended its international flights to Bogotá and Lima and its national flights to Salinas.

With a staff of over 950 people (as of December 2019), the airline needed more than $1.13 million each month just to cover salaries. Most of its employees—with salaries ranging from $547 to $4,133 a month—were protected under the Organic Law of Public Companies (LOEP).

At the time of the announcement of its liquidation in May, Tame had regularly scheduled national flights to Quito, Guayaquil, Manta, Cuenca, Esmeraldas, Loja, the Galapagos, Lago Agrio, Coca, and Santa Rosa and international flights to Cali, Colombia and Fort Lauderdale.

Potential employee buyers forced to wait

While the pandemic became the focus of the Moreno government, potential buyers of Tame were forced to wait to see when the sale would occur, what would be included, and how the process would work.

Early on, one of the first groups to express interest in buying the airlines assets, name and routes was the “Justice for Tame Collective,” made up of 700 former employees of the company. The Collective initially proposed to the Government that they be allowed to the reactivate Tame, but this was quickly rejected according to Tame Captain Andrés Muñoz, a spokesman for the group.

“We proposed the issue of the reactivation of Tame to the Government, thru Minister Martínez, and he told us that this was no longer possible and that Tame was going directly to a legal death, that is, to disappear,” said Muñoz.

After this response, Muñoz said the group decided to formalize their interest in acquiring part of the company’s assets with two letters of intent delivered to the President, in early August.

Muñoz explained that the project was born in May and has the financial backing of a group of investors from the United States with experience in the aeronautical business (later disclosed to be The Jet Network and ATS).

“It is a feasible, viable project, to the point that it has attracted many groups of investors, we have had meetings with several, but in reality, these investors were the only ones with whom we reached a final agreement,” said the spokesperson. He announced that the plan was that the investor group would run the economic part of the venture and that they would put up for sale a certain group of shares so that all Tame employees could invest in the project.

“We do not know for how many, hopefully there will be 100 or 150, with that we will have already achieved our objective,” said Muñoz.

He also pointed out that one thing that had changed between the May announcement and the discussions in August, was that the government had decided that it would not be selling the name, certifications or routes of the airline.

Muñoz said the intention of the group was to buy the entire company (including the name, certifications and routes), but they were told by the Undersecretary of Transportation and Public Works, Pablo Galindo, that the sale would be solely for the hard assets of the company.

Also, since their initial letters of intent were sent to Moreno’s office, Muñoz’s group learned that the liquidation process in Ecuador can be long and more complex when it comes to a public company, because it is governed by legislation covering the sale of State assets.

As part of the process, Tame’s board of directors had to first be formally made aware of the legal processes and then to appoint a liquidator, determine the value of the assets, construct a plan to pay creditors and employees, and then publicly tender a liquidation sale.

Making matters worse for any potential buyers, the first step in the process, the “pre-liquidation phase,” was extended due to the COVID-19 pandemic from its initial time frame of 60 days to 120. This pushed the liquidation event out to late September.

Millions in unrefunded tickets

While the Muñoz group and other potential buyers waited for the government’s “pre-liquidation” phase to end, two passenger groups representing individuals who bought tickets from Tame that went un-honored, held protests demanding the return of monies paid for trips that didn’t happen.

According to the passenger groups, there were more than 1,000 tickets that the airline sold that needed to be refunded, suggesting that the estimated amount of unrefunded tickets came to $250,000.

In fact, Tame puts the number of tickets that need to be refunded because of the company’s liquidation, closer to $10 million. This figure includes refunds that must be made to individuals, public entities, and companies that purchased corporate tickets. Tame says that they have received about 5,000 emails requesting refunds and that they are being processed.

However, refunds will only be addressed once the assets of Tame are sold. Furthermore, the order of priority for the use of the monies from the sale of the assets will be, payments to former employees, then to State entities, and then to ticket refunds and suppliers.

Hilda Cajas, a spokeswoman for a group of passengers, asked that an oversight group be formed to guarantee the return to those affected as soon as possible. She indicated that there are passengers who were in debt with credit cards, because they bought more than one ticket.

Proposals for Tame planes are reviewed amid complaints from former workers

Tame’s pre-liquidation term extension ended last week and the company has finally entered the liquidation phase. The last 106 employees remaining at the airline were laid off on Friday, with the exception of Roberto Córdova, the former Manager of Tame, who was named as the liquidator by the company. Córdova will have to occasionally hire employees to help in the liquidation process.

On Monday, Tame announced that it had received eight proposals for the assets of the airline after the call for tenders was made.

Within the groups are those interested in one or more of the planes and those seeking the entire Tame fleet of three ATRs, two Embraers and two Kodiaks.

According to Córdova, the tender call was made to “sound out the market;” he added that with the proposals in hand, Tame can now define the mechanism for the process that will follow, within the parameters established by law.

“We have shown the interested parties the aircraft, signing a confidentiality agreement,” said Córdova, who added that the Justice for Tame Collective, made up of former workers, also had access to review the aircraft.

The group, however, abstained from presenting a proposal in conjunction with The Jet Network and ATS, two American companies interested in the process. Andrés Muñoz, spokesman for the group, said that they went to check the aircraft at the Quito and Shell airports, but did not have access to documentary information, such as technical information on the planes.

“It is not an adequate process, the assets have not been appraised by an expert,” Muñoz said. Because of this, the group has decided not to bid until there are clear parameters. “With clear rules we will continue to participate,” Muñoz said.

The next step for Tame will be to value the aircraft. The Public Companies Coordination Company (EMCO), indicated that there are several offers to make the expert valuation of Tame’s aircraft.

From the preliminary data available, Tame’s aircraft package could range from $16 million to $17 million. “This must be supported in order to make a sale with a technical study,” Cordova said.

Experts in the aeronautical market said that Tame is facing a difficult time to sell the planes, considering that they have not flown for months and, due to COVID-19, the sector has contracted, with dozens of planes on the ground.

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