LATAM files for Chapter 11 bankruptcy protection

The Chilean carrier seeks court protection from its creditors after the coronavirus shut down 95% of its flights.

By Bloomberg News, May 26 2020
LATAM files for Chapter 11 bankruptcy protection

LATAM, Latin America’s largest air carrier, has sought bankruptcy court protection in New York after the Covid-19 pandemic grounded flights across the region.

The Chapter 11 petition allows Latam to keep operating while the Chilean carrier works out a plan to pay creditors and turn around the business.

LATAM, whose shareholders include Delta Air Lines and which earlier this month left the Oneworld alliance, continues to operate on a reduced schedule and it has commitments for a bankruptcy loan of up to US$900 million, with about US$1.3 billion in cash on hand.

Airlines the world over – and those in Latin America in particular – have been hit hard by the coronavirus outbreak, which triggered travel bans and made people reluctant to fly. Avianca, the largest air carrier in Colombia, filed for Chapter 11 bankruptcy earlier in May, burdened by the sharp drop in fliers and its own onerous debt load.

LATAM's affiliates in Brazil, Paraguay and Argentina aren’t part of the bankruptcy case, which was filed in the Southern District of New York.

Still, the impact will be felt widely, with Santiago-based LATAM previously serving more than 70 million passengers a year on more than 300 aircraft. It also carried more than US$7 billion of debt.

Latam has already eliminated more than 1,850 jobs in Chile, Colombia, Ecuador and Peru in recent weeks from its global workforce of about 40,000 people, after cutting 95% of its passenger operations. In some bankruptcy scenarios, an airline can reject aircraft leases, and LATAM has more than 20 jetliners on order from Airbus and half a dozen from Boeing.

“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,” Chief Executive Officer Roberto Alvo said in a statement.

So far, LATAM hasn’t had access to government bailout packages designed help offset virus-related distress. Talks are underway with governments in Chile, Brazil, Colombia and Peru about additional financing and assistance, the airline said.

The task was made more urgent this past weekend by U.S. President Donald Trump’s order to restrict non-U.S. citizens arriving from Brazil to slow the spread of the coronavirus. Brazil accounts for about a third of LATAM revenue.

LATAM traces its roots to LAN Airlines, founded in Chile in 1929 and privatized in 1989 during the last years of the Pinochet dictatorship. LATAM was born in 2012 after Lan announced plans to merge with TAM for about $3.3 billion two years earlier.

Last year, LATAM signed a US$2.25 billion pact to sell a stake to Delta Air Lines, expanding Delta’s footprint in South America. The Chilean carrier has been planning to gradually ramp up flights over the next two months, with the goal of reaching 18% of pre-crisis capacity in July.

This article is published under license from Bloomberg Media: the original article can be viewed here

Singapore Airlines - KrisFlyer

14 Jan 2014

Total posts 318

Another one bites the dust!! We not gonna have any airlines (hyperbole I know) left at this rate.. well, with the exception of the Gulf carriers who will not be allowed to fail by their Sheikhdoms

AT
AT

Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 328

Legal question to those in the know, why does an airline based out of Chile file for bankruptcy protection proceedings in New York City USA? Wouldn't they do that in Santiago Chile?

Qantas - Qantas Frequent Flyer

25 Sep 2013

Total posts 1243

I'm curious about this myself.

ji
ji

14 Jan 2013

Total posts 13

This would be to provide protection over any assets registered in the US. Much the same as VirginAustralia has done - although I believe they filed for a Chapter 15 and not 11.

I may be wrong but I believe that it would also stop people confiscating non-US assets when they landed into the country.

LATAM has a very complicated ownership structure across many jurisdictions including Delta's 20% stake. I believe in many of the holdings companies such as LATAM Chile they would have also filed locally. They have also excluded some companies from the proceedings, for example in Brazil.


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