In the last two months, the two most important airlines in Latin America, LATAM and Avianca, have filed for Chapter 11 bankruptcies. Additionally, the third most important airline in the region, Aeromexico, was linked to a possible Chapter 11. And, to make things even darker, two carriers have disappeared in the last few weeks. How is Latin America’s air industry going to look after the coronavirus pandemic? Let’s investigate further.
What’s going on with Aeromexico?
On Friday, Aeromexico published a statement denying it is considering filing for bankruptcy. According to some newspapers in Mexico, Aeromexico was closing a Chapter 11 filing in the US. Yet, the airline stated that it is identifying additional sources of financing. It added,
“We are also analyzing different alternatives to achieve successfully, in the short and medium-term, an orderly restructuring of financial commitments, without affecting or disrupting operations.”
While the Mexican carrier is denying the reports, what it said in the statement resembles very closely a Chapter 11. The United States Bankruptcy Code allows a company under Chapter 11 to restructure its financial commitments without disappearing.
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Aeromexico should file for Chapter 11
For Aeromexico, Chapter 11 is the natural next step as the Mexican law is not as flexible with restructuring procedures as in the US. And Aeromexico has had red numbers since 2017.
In 2017, Aeromexico lost 69.2 million pesos (approximately US$3.05 million). The next year, the carrier had losses of over 1.87 billion pesos (over US$83 million). Finally, in 2019, Aeromexico lost 2.36 billion pesos (nearly US$105 million).
During the first quarter of 2020, Grupo Aeromexico toppled the net losses of the three previous years. In one quarter alone, the carrier lost 2.5 billion pesos, over US$110 million. It is in deep financial trouble: currently, it burns approximately US$50 million per month.
When are things going back to “normal”?
Latin America is currently the epicenter of the coronavirus pandemic. Numbers keep on growing in South American countries. Last week, Brazil became the second country with over a million cases, after the US. On Sunday, Mexico had the most significant death toll worldwide with over a thousand deceased.
The uncertainty regarding the pandemic has led South American Governments to push back its opening dates. For example, Panama expected to reinitiate commercial flights today. But now, the idea is to open up the skies on 22 July. Copa Airlines plans to fly again on 7 August.
On Saturday, LATAM Airlines informed of the opening dates in the markets it flies. Brasil and Chile still have restrictions for foreign travelers. Ecuador opened the domestic market back on 15 June, but the international routes are still closed.
According to LATAM, Peru plans to relaunch the domestic markets on 1 July and the international routes on 1 August. Colombia will open up until 1 September, both domestically and internationally. Finally, Argentinian carriers can’t operate until 1 September.
Who else is on thin ice?
Every airline in Latin America is currently on thin ice. Most carriers grounded their operations back in March and haven’t flown since. Only Copa Airlines has a robust financial margin that allows it to keep grounded a few more months. But even the Panamanian carrier is running on fumes at the moment.
Earlier this month, the International Air Transport Association (IATA) published a statement pleading for Government help in Latin America. It said,
“Border closures and travel restrictions have severely impacted aviation for more than three months, and with COVID-19 still very much present in the region, a restart of the industry in many countries seems months away. This situation is unsustainable and risks the collapse of the entire sector.”
Peter Cerdá, IATA Regional vice president for the Americas, added that most airlines are on their “last chance to survive this crisis.”
In Mexico, small carriers like Magnicharters and Aeromar could be on thin ice. Interjet is also in a tricky situation. In Argentina, every airline but Aerolíneas Argentinas could be looking for a miracle at the moment.
What do you expect to happen in Latin America? Let us know in the comments.