LATAM Group, like every other airline in Latin America, is facing economic struggles and uncertainty due to the coronavirus pandemic. While the airline will operate a few more flights during the next few months, it is undoubtedly in a tight spot due to its dealings with different South American countries. Let’s investigate further.
There’s still no final deal in Brazil
LATAM Brazil, GOL, and Azul are looking for a US$683 million bailout to weather the current crisis. Brazil is one of the few countries in the region to have done something to help its aviation industry. Unfortunately, financial aid is far from getting into airline bank accounts.
Also, this bailout is less than what the airlines initially expected. At the beginning of negotiations, the three domestic Brazilian airlines asked for a total of ten billion reais (approximately US$1.8 billion). What they got is six billion – or two billion reais per airline.
According to local sources, 75% of these bailouts come in the form of a debenture. The extra 25% could be converted into company stakes.
“This instrument was designed to give a financial break to the airlines until the first quarter of 2021. It is good news for the airlines,” said media outlet O’Globo. In the meantime, the three airlines have joined forces to ask for Government assistance.
In June, LATAM plans to operate some flights from Brazil and Chile to Europe and Miami. The following month, it hopes to add an extra 13 international routes.
Domestically, LATAM will fly 74 routes in Brazil and 12 in Chile. Nevertheless, these are just two countries. What are the plans for the other countries it operates in? The answer isn’t good…
LATAM Argentina is in deep trouble
Argentina is currently stopping all its domestic and international flights until 1 September. This government decision is terrible for airlines like LATAM, Aerolíneas Argentinas, Flybondi, Sky Airline, and others.
The International Air Transport Association (IATA) has repeatedly said that this decision could do more harm than good. Members of IATA have talked with the local authorities trying to convince them to open up the skies in July rather than September.
LATAM already published a statement saying that it does not expect to fly to and from Argentina until September.
The airline asked its passengers not to worry, as they could reschedule its re-launch for this year or the next. Still, LATAM Argentina could be in deep trouble. In March, Rosario Altgelt, LATAM Argentina’s CEO, said that the branch will have its fourth consecutive year with financial losses in 2020.
The LATAM branches in Peru and Ecuador are working to operate in June. Meanwhile, the Colombian wing expects fo fly in July, but this depends heavily on the Government approval.
The airline didn’t repay bonds on time – what does this mean?
On 15 May, LATAM Group was supposed to pay two coupons with bonds that expire between 2023 and 2027. These coupons have aircraft as collateral, and now the airline has until mid-June to pay them.
The coupons are worth US$1.2 million and US$7 million, according to local newspaper La Tercera. On the other side, the bonds, which expire between 2023 and 2027, are worth US$175.6 million and US$845.2 million.
LATAM put, as collateral, 17 airplanes composed of 11 A321, two A350-900, and four Dreamliners.
Also, this week Fitch Ratings downgraded LATAM Airlines from a BBB to BB. Previously, the airline lay off 1,400 employees across the region and received back four A350s that had been leased to Qatar Airways.
There is one possible outcome. According to Chilean newspaper El Mostrador, LATAM Group might be considering filing for a Chapter 11 bankruptcy in the US, a similar move to Avianca. While this is news that would shock the region, it is not yet certain.
What do you think of current LATAM challenges? Let us know in the comments.
We contacted the airline for a statement. At the time of publication, we had yet to receive a response.