LATAM Files For Chapter 11 Bankruptcy Protection

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Latin America’s largest airline LATAM has today filed for Chapter 11 bankruptcy protection in the US. The company, along with its affiliates in Chile, Peru, Colombia, Ecuador, and the US, have applied for the voluntary protection. However, its associates in Brazil, Argentina, and Paraguay are not included in the filing. The airline has said it will continue to fly, and that its Pass miles program and held flight vouchers will not be affected.

LATAM bankrupt
LATAM has filed for Chapter 11 bankruptcy protection. Photo: Getty Images

LATAM looking to ensure ‘long-term sustainability’

In a press release issued today, LATAM has said that it is undertaking a voluntary reorganization and restructuring of its debt under Chapter 11 bankruptcy protection in the US. This comes as aviation faces its toughest challenge in history in the wake of the coronavirus crisis.

Chapter 11 provides a legal framework under which LATAM and its included affiliates in Chile, Peru, Colombia, Ecuador, and the US will be able to restructure and right-size their operations. Debts will likely be restructured to give the airline breathing room and will enable the airline to ensure what it is calling ‘long term sustainability. Roberto Alvo, CEO at LATAM, commented in a statement,

“LATAM entered the COVID-19 pandemic as a healthy and profitable airline group, yet 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.

“We have implemented a series of difficult measures to mitigate the impact of this unprecedented industry disruption, but ultimately this path represents the best option to lay the right foundation for the future of our airline group. We are looking ahead to a post-COVID-19 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.”

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LATAM will continue to fly throughout the process. Photo: Getty Images

LATAM says it will continue to fly as conditions permit throughout the process. The airline states that its passenger and cargo operations will not be affected and that vouchers, reservations, and LATAM Pass miles will remain valid.

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Qatar and Cueto step in to help

The group states that it has secured support from its major shareholders, which include the Cueto and Amaro families as well as Gulf carrier Qatar Airways. Between them, these stakeholders will be providing up to $900m in debtor-in-possession financing.

However, there’s no word yet on whether its largest shareholder, Delta Air Lines, with 20% of the company, will step in to help. The airline noted in its statement that,

“To the extent permitted by law, the group would welcome other shareholders interested in participating in this process to provide additional financing.”

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There’s no word from Delta on support for its Latin American partner. Photo: Getty Images

That’s a clear nod to Delta to come forward with additional support for its new joint venture partner. Ed Bastian, CEO of Delta, had previously said to Simple Flying that “our commitment to this joint venture is as strong as ever.” However, Delta’s track record for helping out its joint venture partners is not the best, as Virgin Atlantic still remains in trouble and empty-handed.

The airline is reportedly burning through $7m is cash a day. Although it had $1.3bn in the bank in April, that nest egg is surely dwindling amid the enormous travel downturn and struggles with closed borders that the airline is facing. In mid-March, LATAM cut 90% of its flights, and by April was down to just five routes.

Just over a week ago, it said it would lay off 1,400 of its employees, representing 3% of the company’s workforce. However, with today’s news of the Chapter 11 filing, those job losses could increase substantially as the company looks to restructure its operations.

LATAM joins fellow South American airline Avianca in Chapter 11 status, as well as Australia’s number two airline Virgin Australia who also entered voluntary administration last month.

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