Avianca Chairman German Efromovich talks to Latin Trade about his vision and future plans..

Efromovich: The Avianca Turnaround
Published in Latin Trade magazine, May/June 2011



SÃO PAULO – As planes take off and land right outside his transit office next to the Congonhas airport in the middle of São Paulo, German Efromovich eagerly talks about what drives him most:
“I love being in contact with people,” he tells Latin Trade. “At the [airline] counter, the person comes to check their suitcase. Whenever they have a problem, a genuine problem, it gives me great satisfaction when I can make them happy.”
He can happily spend hours at an airport, getting to know people and different cultures. Customers and staff alike at Colombian flagship carrier Avianca are getting used to seeing Efromovich at the El Dorado airport in Bogota, stepping in to board people or at other parts of the operation.
Combine that with a keen sense of business opportunities and risk taking, and you have the key ingredients behind the success at Avianca, which he acquired in 2004.
When the Efromovich family bought the airline, it was a mess, bleeding money and suffering from a bad reputation among its customers.  In 2003 the once-proud airline — the first on the American continent — filed for bankruptcy.
Buyers weren’t exactly standing in line, and the airline’s future was highly uncertain. Efromovich surprised many when he bid for the company. He paid $64 million for a majority stake and later bought the whole company. At the time, many observers thought he was taking a major risk.
“He sees opportunities where others only see crisis,” says Fabio Villegas, CEO of Avianca and its holding company, AviancaTACA.
The gamble paid off. Today, the 92-year-old Avianca reports healthy profits, is expanding beyond its borders and is hugely popular among both customers and its employees. Its future as the world’s second-oldest airline in continuous operations is secure. (KLM was founded two months before Avianca.)
Avianca has Latin America’s best food and beverage service and on-time performance, according to this magazine’s latest reader survey among business travelers in Latin America.
“The Latin Trade survey [shows that] if people like good food, you have to find them good food,” Efromovich says.
Meanwhile, morale among employees at Avianca has dramatically improved. Executives such as Villegas say they most value Efromovich’s personal touch, his accessibility and the confidence he instills.
Efromovich’s turnaround of Avianca has earned him widespread praise among Colombians at all levels. He was named Businessman of the Year in 2009 by Colombian business newspaper La Republica and receives lavish praise from people such as former president Alvaro Uribe.
“German Efromovich is a great person and on that basis a formidable businessman,” Uribe tells Latin Trade. “For Colombia it has been a blessing to count on German Efromovich as a businessman and as a human being. … He’s an example to follow for the new generations.”
Maria Elvira Pombo, Colombia’s ambassador to Brazil and a former head of Colombia’s investment agency ProExport, also is a big admirer. “German Efromovich’s impact in Colombia can be seen in different areas — from the job creation that the expansion of his business generated to the recovered confidence among Colombians in what was a national symbol.”
Efromovich’s merger of Avianca with El Salvador-based TACA airlines helped stir up the aviation sector in Latin America. The merger, announced in 2009 and implemented in February 2010 after regulatory approvals, will provide cost savings of more than $214 million during its first two years.
Today, the Avianca group is clearly seen as the top rival for the new LATAM holding of Chile’s LAN and Brazil’s TAM (which is pending approval).

THE NUMBERS
AviancaTACA reached revenues of $3.1 billion and a net income of $50 million last year.  The revenue figure represents a 19.2 percent increase from the combined revenues of Avianca and TACA in 2009 and twice the sales they had in 2005. The number of passengers went from 11.6 million in 2005 to 17 million last year.
In April, AviancaTACA raised $250 million in a successful IPO on the Bogota Stock Exchange. Demand was five times higher, giving the company good reason to be bullish on future share issues.
This year, the company estimates revenues of $3.5 billion and a net income of $165 million. However, it believes it can sustain even stronger growth the next four years after that. In 2015, AviancaTACA should see revenues of $5.7 billion and a net income of $438 million, it predicts.
Part of the reason is a diversification of revenues by segment and country markets. While non-passenger revenues (mainly from cargo) currently account for 14.5 percent of revenues, AviancaTACA plans to boost non-passenger revenues to an 18.4 percent share.
Meanwhile, it plans to boost market share and the number of destinations in North America and South America, strengthen its routes to Europe and boost domestic traffic in markets such as Peru and Ecuador.
Last, but not least, the company will continue investing in new planes. It plans to acquire 50 new aircraft over the next four years and an additional eight after 2015.
The improved numbers at AviancaTACA also are good news for Synergy Group. Efromovich expects the group to go from $3.5 billion in revenues in 2010 to $5 billion this year as a result of rising oil prices, growing demand for shipbuilding and AviancaTACA’s growth. Last year’s results were an improvement over 2009 thanks to the AviancaTACA merger, while the rest of the businesses were stable.
The result is more competition for LATAM. Experts believe LATAM and AviancaTACA will be the two dominant players in the Latin American aviation market over the next few years.
“They both have the right approach and are strong throughout the region and will be even more so as they develop their joint venture and expand throughout the region,” says Bob Booth, chairman of U.S.-based consultancy AvGroup Inc.
Ronald Pantin, CEO of Colombia’s fast-growing oil producer Pacific Rubiales, goes one step further:  “We have seen the transformation of Avianca into a great airline, [and] I am sure that AviancaTACA will be the most important airline in Latin America,” he says.

BROAD EMPIRE
However, Avianca is not the only airline Efromovich runs. AviancaTACA includes TACA airlines and its units Lacsa in Costa Rica and TACA Peru. It also includes smaller airlines that serve domestic routes, such as Aeroperlas in Panama, Isleña in Honduras and Aerotaxis La Costeña in Nicaragua. Meanwhile, his Synergy Group (which controls AviancaTACA) also owns Colombian carriers SAM and TAMPA. And OceanAir in Brazil has been rebranded Avianca Brasil.
Synergy Aerospace (the holding company for Synergy’s majority shares of AviancaTACA) also runs Colombian-based Helicol-PAS (which operates a helicopter and small aircraft service) as well as other companies that offer helicopter service, air taxi service, aircraft and private jet maintenance.
Although the holding company uses the name AviancaTACA and its units use several brands, Efromovich doesn’t rule out that Avianca may be used as the sole brand in the future.
Contrary to media reports, Efromovich did not invest in the Mexicana airline in Mexico. “We looked at it [but] didn’t even reach a memorandum of understanding,” he says.
OceanAir did fly to Mexico at one point, but had to stop because of the market conditions. Efromovich doesn’t rule out that he will re-enter Mexico at some point.
“You can never say that you are not interested in a market,” he says.
Meanwhile, Synergy also is involved in various other businesses, including oil, shipbuilding and technical inspections, radiochemistry, radiopharmaceuticals, agriculture and hospitality.
Yet airlines are clearly Efromovich’s passion. Latin Trade counted more than 20 model airplanes in his São Paulo office.
“The least lucrative [business, but] the one that I am most passionate about is aviation,” he says.
British mogul Richard Branson once famously was asked how to become a millionaire. Easy, he said. You start by being a billionaire, and then you buy an airline.
“Branson is absolutely right,” Efromovich says.


THE OIL FACTOR
The rising oil prices have been a mixed blessing for Efromovich. While oil prices go up, he benefits as an oil investor, but hurts as an airline investor. “It’s the perfect hedge,” he jokes, before adding, “Extremes are not good.”
High peaks and cycles of high and low prices are not good in general. The key is that all his businesses are profitable, Efromovich says. He defines prices above the high $90s a barrel as a “red zone” even for oil producers themselves.
In addition to his oil services business, Efromovich was one of the first investors in Pacific Rubiales and remains a board member today.  “Pacific Rubiales … has a bright future and a first-class management team,” he says. Within the next 30 years, he predicts, it could become the next Exxon Mobil. “They meet all the requirements to do so.”
In addition to Pantin, a Venezuelan who once worked at Venezuela’s state oil giant PDVSA, Pacific Rubiales’ management team also includes other former PDVSA executives who left when the firm became politicized under President Hugo Chávez.
“It’s a pity for Venezuela,” Efromovich says. “The greatest capital a country has is not its currency, but its people. It’s a pity that Venezuela has lost a great deal of talent, not only in oil.”
Venezuela has Latin America’s highest level of brain drain and also is one of the worst worldwide, according to a Latin Business Chronicle analysis of an executive opinion survey from the World Economic Forum.


​HARD WORK AND A VISION
Among the key words that come up again and again by those who know Efromovich is that he is a hard worker with attention to details and a passionate visionary.
“I would emphasize that he has vision, and to bring that to reality he’s a tireless worker that doesn’t forget any details,” Uribe says.
Pombo agrees: “He’s a visionary and pragmatic person with clear objectives,” she says. “His knowledge of the business allows him to adjust his actions on a permanent basis without losing the sight of those objectives. He has a long-term vision that allows him to be flexible. He’s disciplined [and] has a huge capacity for work. He’s an exceptional human being that imprints on his companies a value of social responsibility that benefits the country.”
Pantin also singles out Efromovich’s hard work and vision and adds a third factor: “He can provide insight on both the operating details and the strategic issues of a company,” he says.
Another key characteristic is his passion.
“German Efromovich transmits passion for his work,” Pombo says.
Efromovich acknowledges that hard work is part of the reason for his success. “There’s no menu or formula for success,” he says. “I think it’s a combination of many [factors], including persistence, passion, loving what you do and work, work, work.”
Meanwhile, he also acknowledges that his focus on service has been key to Avianca’s success. His ideal is Asia, where people believe that serving is both a duty and a pleasure. Latin Americans in general have a service mentality and especially so Colombians, he points out. “That helped a lot in the case of Avianca,” Efromovich says. However, what the staff needed was someone who could end the uncertainty and help them look forward, he adds.
In contrast, the United States lags when it comes to airline service, he says. “I think the United States lost its sense of service,” Efromovich says.  U.S. airlines have “become so crowded, it’s like riding a bus.”

SOLID TEAM
Efromovich’s success also was built by surrounding himself with widely respected people.
Villegas, who was hired as CEO of Avianca in 2005, is a former managing director for the Colombia operations of Deutsche Bank and the Rothschild Group. He headed up Colombia’s financial services association ANIF, served as advisor to the Luis Carlos Sarmiento Angulo Organization (owner of Grupo Aval) and also served in public-sector roles, including as interior minister, secretary general to then-president Cesar Gaviria and ambassador to the Organization of American States.
Another key executive is Alexander Bialer, a Brazilian native and longtime executive at GE Brazil who serves on the board of AviancaTACA as well as companies such as Sabesp (Brazil’s largest water company), Brazilian industrial manufacturer Romi and Pacific Rubiales.
Meanwhile, Alvaro Jaramillo — a former president of Avianca and Colombia’s top bank, Bancolombia — is one of the six independent members of the 11-member board of AviancaTACA.
Efromovich also counts on help from his brother Jose, who is president of Synergy Aerospace. They have been partners for more than three decades, he says.


UNIQUE BACKGROUND
Efromovich is not your typical airline executive. In fact, his foray into aviation happened by accident.
“A client owed us money and paid with an airplane,” he says. “That airplane transformed into 180 airplanes.”
Efromovich’s personal background is unique. He was born in Bolivia to Polish immigrant parents, raised in Chile and then in Brazil, where he arrived when he was 14 years old.
He earned a degree in mechanical engineering from FEI University in Brazil. His career includes selling encyclopedias, dubbing Mexican movies into Portuguese and teaching. However, the oil sector laid the foundation for what evolved into the Synergy Group.
“The story of his life has been the intense struggle for a victory that was achieved through hard work and talent,” Uribe says.  “He’s an example of push and innovation.”
It was Uribe who, in November 2005, presented Efromovich with his formal documents of nationalization, making him a dual Brazilian and Colombian citizen.
“I am Latin American, Colombian-Brazilian,” Efromovich says.
What explains Efromovich’s love for Colombia? “As he himself has stated, Colombia is a country with opportunities for business,” Villegas says. “Parallel with that is the quality of human resources. The commitment by people to follow through on what they are expected to do. All of that has created an infinite wavelength with both his business and personal goals. I believe these are the elements that explain German Efromovich’s strong identification with Colombia.”

LULA AND DILMA
Efromovich’s teaching job was at an adult school, where in the 1980s he taught a union leader named Luiz Inácio Lula da Silva, who later became one of Brazil’s most popular presidents.
“He was a good student,” Efromovich says. “It is an honor for me that he became president.”
He praises Lula’s eight-year administration and keeps a photo of him with the former president in his São Paulo office. Governments do some things well and some things badly, he says. In Lula’s case, there were more things good than bad.
“We’re doing well,” Efromovich says about Brazil’s economy, which last year grew at 7.5 percent, its best result in 24 years.
Efromovich also is pleased with Lula’s successor, who assumed Brazil’s presidency in January.  “I believe President Dilma [Rousseff] is doing very well and taking advantage of the legacy that [Lula] left,” he says.
However, he does complain about Brazil’s infrastructure. “We have to modernize faster,” Efromovich says.

DIFFERENT STYLE
Efromovich’s style is different than most executives in the airline industry, where characteristics like smooth and polished dominate.
Efromovich is neither. He answers questions directly. “Who said we wanted to enter the airline business?” he replies when we ask him why he entered the sector. More often than not, he is seen without a tie, and he acknowledges that he would rather be helping airline passengers at the airport than dealing with investors or government bureaucrats.
“His simple work style and clear dedication to improve the attention to service in one of his companies [Avianca], in large part through the example of his own work, has made Colombians feel important,” Pombo says.
Efromovich’s office has a fantastic view of the Congonhas airport, but it is surprisingly small for someone running a fast-growing empire. But that’s OK. He spends most of his time these days in Colombia or on the road.
Key to his energy is a combination of good sleep and the fact that he loves his work. “I sleep well,” he says. “I have a good conscience.”
So what drives him to get up in the morning? “That another day beckons,” he says. “To do business … creating and looking for challenges.”
Despite his hectic agenda, Efromovich doesn’t feel the need to recharge his batteries.
“First of all, it’s difficult to say that I’m working,” he says. “I don’t work. I do what I enjoy, not what I have to do. I do my hobby.”
But when he doesn’t do his “hobby” or sleep, he enjoys spending time with his grandchildren, he says.
Meanwhile, Efromovich is expected to continue putting his mark on Latin America’s business.
“Without doubt, German is a leader with capacity to reinvent himself to be at the top of each situation, large or small, which you need to on a permanent basis in the world of business,” Villegas says.