By Reuters
A passenger plane arrives during a general
quarantine amid the spread of the coronavirus disease (COVID-19), at the
Arturo Merino Benitez International Airport, in Santiago, Chile May 26,
2020. [REUTERS]
Business News
Latin American governments, many under severe budget constraints themselves, have been reluctant to
bail out their key airlines
LATAM Airlines Group, the continent’s largest carrier, filed for
US bankruptcy protection on Tuesday, becoming the world’s largest
carrier so far to seek an emergency reorganization due to the
coronavirus pandemic.
The filing highlights the financial weakness of Latin America’s
carriers, following a similar bankruptcy earlier this month by the
region’s No. 2 airline, Avianca Holdings.
But unlike Avianca, which experienced management turmoil and losses,
Chile’s LATAM posted profits for the last four consecutive years
totaling more than $700 million. LATAM had also approved a dividend
payment this year, in contrast to other carriers that have halted
payouts.
One of the world’s largest airlines, LATAM said it would continue to fly through its bankruptcy restructuring.
LATAM shares closed down 36 per cent after falling as much as 58 per cent in Santiago.
Latin American governments, many under severe budget constraints
themselves, have been reluctant to bail out their key airlines, in
contrast to the United States and Europe.
Chile’s finance ministry said in a statement LATAM is a “strategic
company for Chile” and that the government would “consider” how it could
contribute to LATAM’s restructuring, but it did not offer a bailout.
In Brazil, LATAM has been negotiating a bailout of up to 2 billion reais ($367.45 million) that has yet to materialize.
LATAM’s Brazil unit is not part of the bankruptcy, although the company
may file for bankruptcy there as well if the negotiations for aid fall
through.
The airline’s CEO for Brazil Jerome Cadier told Reuters on Tuesday
evening that LATAM would rather not go through a separate bankruptcy
filing in Brazil.
“The history here shows that the vast majority of companies don’t make
it out of bankruptcy restructuring because the process is too
complicated,” Cadier said.
Delta Air Lines last year paid $1.9 billion for a 20% stake in LATAM, becoming the No. 2 shareholder in the company.
“We remain firmly committed to our partnership with LATAM and believe
that it will successfully emerge a stronger airline and Delta partner
for the long term,” Delta CEO Ed Bastian said in a statement.
LATAM said its bankruptcy filing would seek to expedite the timeline for
the necessary antitrust approvals for it and Delta to coordinate flight
routes between Latin America and the United States. The plans still
need approval from the U.S. Department of Transportation, as well as
regulators in Chile, Brazil, and a few other countries in South America.
In the lead-up to the bankruptcy filing, LATAM laid off 1,800 employees out of more than 40,000 in total.
TROUBLED MERGER
LATAM is an instantly recognizable 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 $900 million to support operations through
its bankruptcy reorganization from major shareholders, including the
Cueto family, which controls the airline, and Qatar Airways.
In addition, LATAM has $1.3 billion in cash on hand.
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.
LATAM did disclose that Delta canceled the planned purchase of four
Airbus A350s from LATAM, and paid $62 million to break the deal.
LATAM said that as of Tuesday its debts totaled $18 billion.
The airline was downgraded by S&P and Fitch on Friday after not
paying interest and principal on $1 billion worth of debt tied to new
aircraft purchases.
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