Latam Bankruptcy Marks Another Covid Casualty

 - May 26, 2020, 9:57 AM
A Latam Boeing 787-9 approaches Frankfurt International Airport. (Photo: Flickr: Creative Commons (BY-SA) by oliver.holzbauer)

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Latam Airlines Group and its affiliates in Chile, Peru, Colombia, Ecuador, and the U.S. filed for Chapter 11 bankruptcy protection on Tuesday, making Latin America’s largest airline company the latest casualty of the Covid-19 crisis. The filing does not include affiliates in Argentina, Brazil, and Paraguay.

The move marks the second airline bankruptcy in South America in a little more than two weeks, following a similar Chapter 11 filing by Colombia’s Avianca on May 10.

In a statement, Latam stressed it entered the Covid-19 pandemic as a healthy and profitable airline group that will continue to operate as travel restrictions and demand permit.

“Latam Group is committed to preserving business continuity as it reorganizes – especially with respect to employees, customers, suppliers, commercial partners, and local communities,” said the company. “There will be no impact on passenger or cargo operations, reservations, vouchers, or Latam Pass miles.”

Latam said it has about $1.3 billion in cash on hand and that it has obtained a commitment of $900 million in debtor-in-possession financing from existing shareholders Cueto Group and Qatar Airways.

In its filing, Latam, whose fleet consists of 340 airplanes, said it generated $10 billion in revenues last year and saw operating cash flow after investments exceed $1 billion. It also noted it generated net profits in each of the last four years and $1 billion of cash flow during the past three.

The Covid-19 crisis has resulted in a 95-percent cut in Latam’s passenger service. Meanwhile, it has taken on more cargo business since the start of the pandemic, participating in emergency shipment of medical supplies from around the world, including Shanghai and New Delhi. Last year cargo accounted for some 11 percent of Latam’s total revenue.

In addition to Covid-19-related travel restrictions globally, Latam has seen its operations particularly affected by countries in which it operates. For example, Argentina has suspended all air travel for seven months until September, while Colombia restricted flights for four months until the end of June and international service for six months until the end of August. Peru has set no clear date for lifting both domestic and international travel restrictions in place. Latam also noted the U.S. move to bar entry of non-citizens who had traveled to Brazil within 14 days of seeking entry into the country.

Although Latam said it has engaged with certain governments of countries in which it operates regarding economic help, its relative lack of public support so far has made it more difficult to mitigate the financial effects of the Covid crisis. Speaking during a weekly conference call Tuesday, International Air Transport Association chief economist Brian Pearce referenced Latam’s plight as an example of the need for more government support in places such as Latin America and Africa.

“I think the developing countries, particularly of Latin America and Africa, are in a difficult situation, particularly as the collapse of traditional commodities industries and commodities prices will be a particular burden,” said Pearce. “Airlines are going to offer important support to those economies through exporting and tourism, and I think it is a particular concern we have…that we have seen very little support for airlines in those regions.”