LATAM And Aeromexico File To Extend Chapter 11 Plan Deadline

Today, both Aeromexico and LATAM asked the bankruptcy judge to extend the deadline to file their Chapter 11 exit plans. The Latin American carriers have to present a restructuring plan as part of the bankruptcy protection process they launched in May and June 2020. Let’s investigate further.

LATAM Airlines Group
LATAM is looking to extend its deadline until September 2021. Photo: Vincenzo Pace | Simple Flying

Not unexpected

LATAM Airlines Group is looking to extend its deadline to present the restructuring plan until September 2021. Meanwhile, Aeromexico filed the same request, looking for a new deadline on October 25.

These two petitions were expected, and we could see Avianca doing the same in the next few days.

Many carriers have filed extensions to present their plans throughout the history of airlines under Chapter 11 bankruptcy processes. Avianca did it in 2003; in the US, Delta Air Lines and Northwest Airlines did the same, as Aeromexico noted in its filing.

Meanwhile, as reported by Reuters, LATAM said in a statement,

“The extension request is a common alternative contemplated within the process and does not modify the intention of the LATAM group to exit Chapter 11 by the end of this year.”

Aeromexico Boeing 787 Dreamliner Landing In New York JFK
Aeromexico needs more time to formulate a “confirmable Chapter 11 plan.” Photo: Getty Images

Why do they need the extension?

Going through a Chapter 11 bankruptcy is not an easy process. Navigating it successfully in the midst of a global pandemic makes it even harder.

Grupo Aeromexico stated,

“The Debtors are acutely aware of the costs and risks associated with operating in chapter 11, but given the complexity and importance of the issues they face, additional time is needed to both fulfill the Equity Conversion Schedule’s requirement and formulate a confirmable Chapter 11 plan.”

Both carriers will focus on rationalizing their fleets, analyzing claims, and resolving issues with creditors in the months ahead, among other tasks.

So far, LATAM has rejected up to 53 airplanes, and Aeromexico, 26. Both airlines have reduced the size of their orders with Boeing and operate fewer flights nowadays.

LATAM is currently operating at 36% of its pre-pandemic capacity. Colombia is the market that has recovered the fastest for LATAM. In this country, the airline is running at 94% domestically, though only 23% internationally.

Meanwhile, Grupo Aeromexico is 23.6% below its 2019 passenger numbers (domestically is only 8.2% below).

LATAM Airlines Boeing 767-316(ER) CC-CXF
LATAM took out US$500 million from its remaining Chapter 11 funding. Photo: Vincenzo Pace | Simple Flying

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LATAM withdraws more money

As part of the Chapter 11 bankruptcy process, LATAM received debtor-in-possession funding of US$2.45 billion. Up to the end of 2021’s first quarter, the airline had only withdrawn half of that money.

But, today, LATAM filed a statement saying it will take US$500 million from that remaining funding.

The money will help LATAM maintain its liquidity position as it goes through the pandemic crisis. Recently, LATAM’s CEO, Enrique Cueto, said that the airline had the most significant amount of available cash among its Latin American peers.

He added that LATAM is in a good financial position and will exit the crisis strengthened, with an unbeatable cost structure.

For June, LATAM expects to operate 691 daily domestic and international flights. It will connect 114 destinations in 14 countries.  Meanwhile, the Cargo division has scheduled more than 1,000 cargo freighter flights for June, 20% more than in June 2019. All of these projections are subject to the evolution of the pandemic and travel restrictions in the countries where LATAM operates, the airline said.

Do you expect Avianca to follow LATAM and Aeromexico’s steps? Let us know in the comments.