RIO DE JANEIRO, BRAZIL – LATAM, the largest airline company in Latin America, filed for bankruptcy protection in the US on Tuesday, due to the dramatic drop in activity caused by the Covid-19 pandemic, the company announced in a statement. The Chilean-Brazilian-owned company is appealing to the US bankruptcy law (Article 11) to reorganize and resize itself according to new demand conditions after the pandemic.
The company stated that it has the support of its main shareholders, who will inject US$900 million (R$4 billion). Last month, the company said it had reduced its operations by 95 percent due to the global health crisis, and in early May it announced hundreds of layoffs.
According to the company’s statement, both the parent company, LATAM Airlines Group S.A., with shares traded on the New York and Santiago Stock Exchanges, and its subsidiaries in Chile, Peru, Colombia, Ecuador, and the US, are subject to the provisions of Article 11 to initiate “a voluntary process of reorganization and restructuring of its debt”.
The subsidiaries operating in Brazil, Argentina and Paraguay are not included in the bankruptcy, as Latam has been negotiating a rescue loan program from Brazil’s Economic and Social Development Bank (BNDES).
Article 11 of the U.S. Bankruptcy Law provides for a company unable to pay its debts to reorganize itself free of pressure from its creditors. LATAM’s goal is to “work with the group’s creditors and other interested parties to reduce its debt and secure new sources of financing, providing it with the tools to convert the group according to this new reality”.
The airline added that it will continue flying through its debt restructuring and will “honor” tickets, miles and other benefits already purchased by customers, as well as ensure the payment of its suppliers “on time and per the stipulated terms and conditions”, as well as the salaries of its employees. In 2019, the company carried 74 million passengers, 5.4 million more than in 2018, to 145 destinations in 26 countries, a total of 1,400 daily flights.
Latam says it has already secured the financial support of its main shareholders, the Cueto and Amaro families, owners of LAN (Chilean), and TAM (Brazilian), whose merger gave rise to the group, and Qatar Airways. Together, they will inject US$900 million to cover part of the debt. In addition, the company says that it is open to new shareholders “to the extent that the law allows” and has US$1.3 billion in cash to address the situation.
It also states that it is negotiating with the governments of Chile, Brazil, Colombia, and Peru to seek their financial support and to continue operating.
“Faced with the greatest crisis in the history of aviation, and having examined all the alternatives available to ensure the group’s sustainability, the board approved this path for the future. Just as we have adapted to new realities that arose in the past, we trust that LATAM will be able to succeed, in the post-covid-19 context, in continuing to serve Latin America and connect the region to the world,” Ignacio Cueto, chairman of the board, said in a statement.
The Covid-19 crisis “has changed the industry for the future,” adds Chief Executive Roberto Alvo. “We have our sights set on a post-Covid-19 future and we are focused on adapting the group to a new way of flying, where our passengers and staff’s health and safety are the primary goals,” he adds.
Source: El País