LATAM Could Receive An Additional $250 Million Investment

LATAM Airlines Group announced it could receive an additional US$250 million investment as part of its Chapter 11 filing in the US. This amount could come from shareholders in Chile, the carrier said. Let’s investigate further.

LATAM Airlines has obtained over US$2 billion in investments. Photo: Getty Images

How much money has LATAM obtained?

The South American giant is currently under Chapter 11 in the US. LATAM Argentina and LATAM Paraguay are the only branches left out of the reorganization process. Meanwhile, the company has received separate financing proposals, which amount to over US$2 billion in investments.

The first investment, presented as Tranche A of its Debtor-in-possession (DIP) financing proposal amounts to US$1.3 billion. The company Oaktree Capital Management L.P.and its affiliates committed this amount.

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After that, the second investment is known as Tranche C. Qatar Airways, and the Cueto and Amaro Families promised an additional US$900 million in May 2020. So where is the extra money coming from?

According to a press release seen by Simple Flying, on July 29, LATAM accessed more favorable conditions to its DIP financing. It said,

“An offer was presented by the investment bank Jefferies Group LLC, in addition to an updated proposal from existing shareholders.”

LATAM said that in the latest Tranche C financing proposal, there’s an option for shareholders in Chile to subscribe for up to US$250 million in additional financing.

Currently, Judge James Garrity of the Court of the Southern District of New York is deciding how the Tranche C will be financed.

LATAM Airlines Group
LATAM’s Chapter 11 filing was a way to slash labor costs and reduce debt. Photo: Getty Images

How’s LATAM Chapter 11 looking?

The three most important airlines in Latin America are under Chapter 11 procedures at the moment. Avianca was the first, followed by LATAM and Grupo Aeromexico. Nevertheless, the reorganization process of LATAM is far along in a better position than the other two carriers.

Rene Armas Maes, a consultant of the Latin American air industry, said that LATAM’s filing was a strategic management move. He added that LATAM needed to cut costs and size to stay afloat.

“LATAM filing will allow the carrier to slash labor costs, make significant progress to reduce debt, cancel aircraft orders while divesting assets more swiftly,” he said.

On the other hand, Avianca’s and Aeromexico’s filings happened because they had a high financial leverage position. They also have higher costs and had financial losses in the years before coronavirus.

LATAM Airlines Brasil Boeing 777
During the year, LATAM has dismissed over 5,000 contracts and ceased operations in Argentina. Photo: Getty Images

What changes will we see in LATAM?

Despite the good track of its Chapter 11 filing, we will see a few changes in LATAM Airlines Group. Some already have happened. For example, LATAM is trying to wind down its Argentinian branch.

The carrier also temporarily suspended 23 routes from Chile. These are mainly domestic ones as LATAM can’t compete with low-cost airlines like Sky Airline.

Over the year, LATAM has dismissed 5,550 contracts. In May, when the carrier filed for Chapter 11, it fired 1,850. A month later, in June, an extra thousand people were laid off in Chile, Colombia, and Peru.

Now, this week, local media reported that the carrier is planning to lay off 2,700 crewmembers. If the airline goes through with this, it will eliminate 40% of its crewmember staff. The threat came after these LATAM employees rejected a decrease of between 40 and 50% of its monthly wages.

To avoid the firings, the National Union of Aeronauts (SNA) will try to reach an agreement with LATAM, El Mostrador said. Nevertheless, the Union announced that it is unlikely that both parties will reach an agreement.

What do you think of LATAM’s Chapter 11? Let us know in the comments.