The Chapter 11 petition allows the company to continue operating while the Chilean operator develops a plan to pay creditors. LATAM, whose shareholders include the Cueto de Chile family and Delta Air Lines Inc., Continues to operate on a reduced schedule and can access a bankruptcy loan of up to $900 million.
“On May 26, 2020, LATAM Airlines Group was filed to reorganize under the protection of Chapter 11” bankruptcy law of the United States, said the LATAM representative.
The money comes from shareholders, including Cuetos, the Amaro family, and Qatar Airways, according to a company statement. LATAM also has around $1.3 billion available.
Airlines around the world, and Latin America in particular, have been hit hard by the coronavirus outbreak, which caused travel bans and made people reluctant to travel. Avianca Holdings SA, the largest airline in Colombia, filed for bankruptcy in early May, burdened by the sharp drop in business and its own burden of onerous debt.
LATAM’s partners in Brazil, Paraguay, and Argentina are not part of the bankruptcy case, which was filed in the Southern District of New York.
Still, the impact will be felt extensively, as Santiago- based LATAM serves more than 70 million passengers a year on more than 300 aircraft. He also had more than $7 billion in debt.
LATAM has already cut more than 1,850 jobs in Chile, Colombia, Ecuador, and Peru in recent weeks, after cutting 95% of its passenger operations. In some cases when filing for bankruptcy, an airline can give up buying from planes it had previously committed to, and LATAM has more than 20 aircraft ordered from Airbus SE and half a dozen from Boeing.
“Given the impact that the crisis generated by covid-19 has had on the aviation industry, LATAM has been forced to make a series of extremely difficult decisions in recent months,” said the CEO of the company, Roberto Alvo., in a video.
“LATAM Airlines Group and its subsidiaries in Chile, Peru, Ecuador, and Colombia entered into a voluntary reorganization under the protection of Chapter 11 in the United States, ” said Alvo.
So far, LATAM has not had access to rescue packages the government designed to help offset the economic effects generated by the pandemic. Discussions are ongoing with the governments of Chile, Brazil, Colombia, and Peru on additional financing and assistance, the airline said.
“The United States Chapter 11 financial reorganization process offers a clear and guided opportunity to work with our creditors and other stakeholders to reduce our debt,” said the company president.
Last weekend, the President of the United States, Donald Trump, restricted entry to the country of foreigners arriving from Brazil, in order to stop the spread of the coronavirus. Brazil represents approximately a third of LATAM’s revenues.
LATAM has its roots in Lan Airlines, founded in Chile in 1929 and privatized in 1989 during the last years of the Pinochet dictatorship. LATAM was born in 2012 after Lan announced plans to merge with Tam for about $3.3 billion.
The Cueto family, which is the largest shareholder in LATAM and has two seats on its board of directors, acquired a stake in 1992 and control of the business in 1994. At that time, another major shareholder was the current Chilean president, Sebastian Pinera, who He sold his own 26% stake at the start of his first term as president in 2010.
Last year, LATAM signed a $ 2.25 billion pact to sell a portion to Delta Air Lines. The Chilean airline has planned to gradually increase flights over the next two months, with the goal of reaching 18% of pre-crisis capacity in July.