Chile’s LATAM Airlines files for US bankruptcy protection

LATAM, Latin America’s largest carrier, said it would continue to fly through its bankruptcy restructuring.

Latam airlines
Latam Airlines, its planes seen at Guarulhos International Airport, near Sao Paulo, Brazil, was born in 2012 through a merger between Chile's LAN and Brazil's TAM [File: Amanda Perobelli/Reuters]

Chile’s LATAM Airlines Group filed for United States bankruptcy protection on Tuesday, becoming the world’s largest carrier so far to seek an emergency reorganisation due to the coronavirus pandemic.

The filing highlights the financial weakness of Latin America’s carriers and follows a similar bankruptcy reorganisation earlier this month by its main rival, Colombia’s Avianca Holdings.

But unlike Avianca, which experienced management turmoil and losses, Chile’s LATAM posted profits for the last four consecutive years totalling more than $700m.

LATAM, which has about $1.3bn cash on hand, recently approved a dividend payment, in contrast to other carriers that have halted payouts amid the crisis.

LATAM said it would continue to fly through its bankruptcy restructuring.

Latin American governments, many under severe budget constraints themselves, have been reluctant to bail out their key airlines, in contrast to the US and Europe. Most recently, Germany bailed out Lufthansa for a 20 percent stake.

Chile’s Economy Minister Lucas Palacios said on Tuesday he would not rule out a bailout, although he did not propose one.

“Lufthansa’s case is completely different,” Palacios said. “LATAM is an international airline, its shares trade in the United States.”

In a separate statement, Chile’s finance ministry said LATAM is a “strategic company for Chile” and that the government would “consider” how it could contribute to LATAM’s bankruptcy reorganisation.

In Brazil, LATAM has been negotiating a bailout of up to 2 billion reais ($367.45m) that has yet to materialise.

LATAM’s Brazil unit is not a part of the bankruptcy, and the company said it might file for bankruptcy as well.

A source close to Latam’s negotiations in Brazil said that bailout talks were continuing.

Shares sank up to 41 percent in premarket trading in the US before trading was suspended, a common practice when companies file for bankruptcy. Trading was also suspended in Santiago until noon.

Delta Air Lines last year paid $1.9bn for a 20 percent stake during better times for the industry, becoming one of the largest shareholders in the company.

LATAM laid off 1,800 employees out of more than 40,000 in the lead-up to its bankruptcy filing.

“This path represents the best option,” Chief Executive Roberto Alvo said in a statement regarding bankruptcy.

Troubled merger 

LATAM is an instantly recognisable brand for South Americans, dominating international air travel in the region, as well as a leading domestic flight operator in Brazil, Colombia, Chile, Argentina, Peru and Ecuador.

In addition to Brazil, subsidiaries in Argentina and Paraguay are also not part of the bankruptcy process.

LATAM said it raised up to $900m to support operations through its bankruptcy reorganisation from major shareholders, including the Cueto family which controls the airline and Qatar Airways.

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.

It has since dropped many plane orders but maintains 44 with Airbus and seven with Boeing Co. LATAM said it would seek to cancel several of those orders, but did not provide details.

LATAM did disclose that Delta cancelled the planned purchase of four Airbus A350s from LATAM, and paid $62m to break the deal.

LATAM said that as of Tuesday, it had $7.6bn in debt, including $460m in loans tied to its Brazilian subsidiary which is not part of the bankruptcy process.

The airline was downgraded by S&P and Fitch on Friday after the company did not pay interest and principal on $1bn worth of debt tied to the financing of new aircraft purchases.

Source: Reuters