Latin America’s largest carrier LATAM files for bankruptcy protection

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LATAM Airlines Group and its affiliates in Chile, Peru, Colombia, Ecuador and the US have filed for US Chapter 11 bankruptcy protection, the carrier announces today. LATAM says its affiliates in Argentina, Brazil and Paraguay are not included in the filing.

The carrier says in a statement that it has secured funding from shareholders, including Chile’s Cueto family and Brazil’s Amaro families (both long-time stakeholders), and Qatar Airways, to provide up to USD 900 million in debtor-in-possession financing.

“LATAM entered the COVID-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand and has not only brought aviation to a virtual standstill, but it has also changed the industry for the foreseeable future,” says Roberto Alvo, chief executive officer of LATAM.

The carrier group says it is confident that the Chapter 11 reorganisation process is, “the best path forward to achieve the group’s objectives and meet its obligations while comprehensively managing its fleet and addressing its debts, most of which are held in the United States.”

It also noted that the reorgansiation process gives LATAM the opportunity to work with the group’s creditors and other stakeholders to reduce its debt, access new sources of financing and continue operating while it transforms to the new reality.

Other shareholders interested in participating in this process to provide additional financing are also welcome, the carrier says. As of the filing, the group had approximately USD 1.3 billion in cash on hand.

“The LATAM group has shared its journey with the people of Latin America, thriving in times of growth and pulling together to overcome times of adversity, and like many, LATAM and its affiliates began 2020 with hopes of progress that COVID-19 has brought to a virtual standstill,” the group says.

Alvo says LATAM implemented a series of difficult measures to mitigate the impact of the unprecedented industry disruption, “but ultimately this path represents the best option to lay the right foundation for the future of our airline group.

“We are looking ahead to a post-COVID-19 future and are focused on transforming our group to adapt to a new and evolving way of flying, with the health and safety of our passengers and employees being paramount.”

The carrier also sought to reassure passengers, travel agents, suppliers and employees that its operations will continue to operate, including passenger and cargo flights, subject to demand and travel restrictions.

LATAM and its affiliates are also in discussions with their respective governments of Chile, Brazil, Colombia and Peru to assist in sourcing additional financing, protect jobs where possible and minimise disruption to its operations, the group says.

“Faced with the biggest crisis in the history of aviation, the Board has approved this path forward having analysed all the available alternatives to ensure the sustainability of the group,” says Ignacio Cueto, chairman of LATAM’s Board of Directors.

“As we have adapted to new realities in the past, we are confident that LATAM will be able to succeed in the post-COVID-19 context and continue to serve Latin America, connecting the region with the world.”

In response to surging demand for perishable foods, medical supplies, and other goods as a result of Covid-19 capacity shortages, LATAM stepped up its cargo capacity.

LATAM’ has more than 300 aircraft in its fleet, including 11 B767-300 freighters. The airline also repurposed several passenger aircraft for all-cargo flights using passenger aircraft with the seats removed.

The bankruptcy restructuring also brings a new challenge to LATAM’s pending joint venture with Delta Air Lines. The Atlanta-based carrier is paying USD 1.9 billion for a 20 per cent stake in LATAM as it seeks to expand its footprint in Central and South America. The two carriers were already cooperating on codeshares for passenger travel and earlier this month agreed on a plan for how to integrate operations once they receive regulatory approval.

“In the time we have gotten to know one another, we’ve developed the utmost respect for and confidence in the LATAM leadership team,” says Delta CEO Ed Bastian in a statement. “Airlines globally have been devastated by the COVID-19 pandemic, for which no business plan could have adequately prepared. We remain firmly committed to our partnership with LATAM and believe that it will successfully emerge a stronger airline and Delta partner for the long term.”

The International Air Transport Association (IATA) said on Monday that airlines have collectively seen a 28 per cent increase in debt levels to USD 550 billion that could hamper their ability to recover.

Chile’s LAN Airlines and Brazil’s TAM Airlines merged in June 2012, with Enrique Cueto, former CEO of LAN, becoming the CEO of LATAM while Mauricio Rolim Amaro, formerly vice-chairman of TAM, becoming LATAM chairman, at that time.

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