LATAM Airlines group filed for bankruptcy protection in the US on Tuesday so that the company can organize the payment of its debts without affecting the operation of the flights. To passengers, the airline justified the action by “allow companies like LATAM to operate their business as usual while they reorganize. LATAM will continue flying, paying its employees, meeting benefit obligations, and paying critical suppliers, as well as respecting LATAM Pass miles and flight reservations as we work through the Chapter 11 reorganization process.”
LATAM currently had debts of $7.6 billion of which $460 million are loans from the Brazilian subsidiary. However, LATAM Brasil is not part of the bankruptcy protection process, the group revealed. “Our entities incorporated in Brazil, Argentina, and Paraguay are not, due to the nature of their debt structure and current financial status,” explained the group.
The company said it secured an investment of $ 900 million from its partners, including the Cueto and Amaro families and also Qatar Airways. Delta Air Lines, which had bought 20% of the shares last year, was not included at first. LATAM is also laying off about 1,800 of its 40,000 employees already as part of the cost containment measures.
COVID-19 pandemic spreads in Latin America
LATAM is the second Latin American airline to file for bankruptcy protection in the US, after Avianca. But, unlike the Colombian company, the group based in Chile has better financial health, with profits in recent years.
In the statement sent to its customers, LATAM made a point of mentioning that the major US airlines have already gone through the same process and “emerged successfully”.
“We are looking ahead to a post-COVID 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,” said LATAM CEO Roberto Alvo.
Despite the optimism, the task will not be easy. Latin America has become the epicenter of the COVID-19 pandemic, with thousands of cases of the disease appearing every day in countries like Brazil, Chile and Peru. This means that resuming flights in this region may take longer and further damage revenues.
In Brazil, LATAM has been more restrained in plans to expand its network. The company announced last week that it will start operating in June with 9% of its pre-crisis capacity, against just 5% in May. The goal is to reach 18% in July with an increase to 13 international destinations. Next month, the company plans to operate flights to 74 domestic routes, but without detailing which destinations will be resumed.
Like Azul and Gol, LATAM is also seeking a loan from the Brazilian government. In the group, more than two thirds of revenues from international flights come precisely from LATAM Brasil and are the most affected in the pandemic.
At the same time, LATAM is faced with another problem, the return of four Airbus A350-900 jets that were leased to Qatar. The new generation aircraft returned to Brazil last week and have an uncertain destination, according to the company. “The operational plan for these planes is not yet defined and will depend on how the pandemic evolves,” said the company in a note sent to Airway.