Latin America's largest airline, LATAM, files for Chapter 11 bankruptcy

Andrew Cummings
May 27, 2020

"We have implemented a series of hard measures to mitigate the impact of this unprecedented industry disruption, but ultimately this path represents the best option", CEO Roberto Alvo said in a statement regarding the filing.

The Santiago, Chile-based airline said Tuesday that it and some of its affiliated companies launched the reorganization effort in the United States.

Air travel has plunged to a fraction of the levels it was just months ago as the virus spread from China to countries around the globe, prompting growing alarm in the aviation industry.

LATAM stated that it is aiming to "transform its business" to maintain a "leading position" in Latin American air transport during recovery from the coronavirus crisis.

But unlike Avianca, Chile's LATAM posted profits for four consecutive years totaling more than $700 million. Virgin Australia sought bankruptcy protection in April, followed by Colombia's Avianca earlier this month.

Latam and Aviance are part of a years-long trend of foreign companies filing for bankruptcy in the US, which is more friendly to debtors and usually lets management stay in control. To file, foreign companies need only show that they have assets or operations in the U.S.

The airline, which has about $1.3 billion of cash on hand, recently approved a dividend payment, in contrast to other carriers that have halted such payouts amid the crisis.

"Government aid is helping to keep the industry afloat".

The group said that most of its debts are held in the United States.

LATAM and its affiliates are also in discussions with their respective governments of Chile, Brazil, Colombia and Peru to assist in sourcing additional financing. While most of LATAM's affiliates are included in the reorganization process, several entities are not, "due to the nature of their debt structure and current financial status".

LATAM was born in 2012 through a merger between Chile's LAN and Brazil's TAM, spawning a carrier with large aircraft order books and major exposure to Latin America's top economy as it went through its worst recession on record.

Latam is South America's largest carrier by passenger traffic. It operated more than 1,300 flights a day and transported 74 million passengers previous year.

The airline had more than 340 planes in its fleet and almost 42,000 employees, according to its more recent annual report.

"With Chapter 11 protection, the group's management team will remain in place and will continue to lead LATAM through the reorganization and transformation process". It now has $1.3 billion on hand, it said.

Delta Air Lines Inc previous year paid $1.9 billion for a 20% stake during better times for the industry, becoming one of the largest shareholders in the company. "Unfortunately, like so many businesses around the world, the unprecedented effects of the COVID-19 global pandemic have significantly affected LATAM's operations and its business plan".

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