LATAM Expects To Exit Chapter 11 Bankruptcy In 2021

Roberto Alvo, LATAM’s CEO, said that the company would exit its Chapter 11 reorganization at some point during the second half of 2021. He added that the US’s bankruptcy filing will allow LATAM to be more competitive and go one-on-one with low-cost operators. But what else do we know? Let’s investigate further.

LATAM 787 Getty
LATAM expects to exit its Chapter 11 process in the second half of 2021. Photo: Getty Images.

What did Alvo say?

During a webinar in Chile, Roberto Alvo spoke about the outlook for Chilean carriers going into 2021. He joined Estuardo Ortiz, JetSMART’s CEO, and José Ignacio Dougnac, Sky Airline’s CEO.

He said that 2021 will be a recovery year, but it will have its ups and downs. According to the airline, LATAM is operating at a 33% capacity and expects to end the year near 40%.

Meanwhile, the airline continues its process under the Chapter 11 bankruptcy in the US. Last quarter, the New York City court approved LATAM’s DIP Financing for US$2.45 billion. Among the three Latin American carriers that are under Chapter 11 bankruptcies, LATAM received the largest funding. And the airline is confident about its future. Alvo said,

“We are going to exit Chapter 11 strengthened. We will have a competitive cost structure, similar to the ones held by Sky and JetSMART, which will allow us to seize more opportunities. LATAM expects to exit its Chapter 11 reorganization during the second half of 2021.”

LATAM is reducing its cost structure to compete better against low-cost carriers. Photo: Getty Images

How is LATAM going to exit its Chapter 11?

While the company hasn’t formally presented its reorganization plan, we knew LATAM would shrink in size. It already has.

In May, LATAM announced the rejection of 19 leasing contracts. It reduced its fleet by returning six long-haul widebody jets and 13 narrow-body Airbus models. Then, in September, it was reported that the airline planned to offload 19 more Airbus A320 family leases.

Still, the final size of the fleet is unknown. In its third-quarter results, LATAM stated that it “is currently evaluating the adequate fleet needs for the following years.” LATAM ended the quarter with a total fleet of 317 aircraft. Of these, 102 are under operating leases, and 215 belong to the airline.

In the third-quarter, LATAM reduced its expenses by 55%. It managed to reduce its wages and benefits payments by 56%. The airline, like many others, has furloughed people across its several branches. It even closed its regional domestic carrier LATAM Argentina.

The average Chapter 11 process for an airline takes nearly two years. Photo: Getty Images.

How long does it take to exit a Chapter 11 bankruptcy?

According to a study made by Paul Stephen Dempsey in 2012, an airline bankruptcy process averages 714 days. If LATAM does come out of its Chapter 11 in the second half of 2021, it would do in record time, compared to the average process.

Moreover, big airlines such as LATAM have better survival rates due to the common phrase, too big to die. Dempsey wrote,

“Large airlines have an interesting advantage over small airlines in bankruptcy. Because large airlines typically have large inventories of leased aircraft and large amounts of debt owed to various creditors, those lenders have the biggest stake in the success of the bankruptcy reorganization and are most likely to provide the DIP financing and concessions necessary for reorganization. The threat of a large airline to return aircraft to lessors in a soft market can instill financial generosity in the cold heart of a lessor.”

In the post-COVID environment, the final sentence is more accurate than ever.

How do you see LATAM’s Chapter 11 progressing in the future? Let us know in the comments.