tuesday, 26 may of 2020

Bankruptcy

Latam Airlines files for bankruptcy after ‘collapse’ in demand: US


Latin America’s largest carrier Latam Airlines has filed for bankruptcy protection, the second airline in the region to fall victim this month to the coronavirus crisis.


Latam made a Chapter 11 bankruptcy filing late on Monday in a New York court, saying it intended to keep flying passengers and cargo, subject to travel restrictions and demand, while it restructures.

A string of travel industry groups around the world have sought protection from creditors or government bailouts as the Covid-19 crisis wreaks havoc on the sector. Colombia’s Avianca airline filed for bankruptcy protection on May 10, while Lufthansa on Monday agreed a €9bn rescue from the German government.

“Latam entered the Covid-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand [that] has not only brought aviation to a virtual standstill, but it has also changed the industry for the foreseeable future,” said Roberto Alvo, the group’s chief executive.

Latam, which was forced to cancel 95 per cent of its flights as the coronavirus pandemic hit Latin America, had only last week announced plans for a gradual recovery of capacity in its 330-strong fleet, targeting growth of 9 per cent in June and 18 per cent in July.

Analysts at JPMorgan estimated in March that Latam had only enough cash for four months if all flights stayed grounded.

Latam, which reported revenues of $10.4bn last year, said it had secured up to $900m in credit from three of its largest equity holders. The debtor-in-possession financing, a form of senior debt available to companies that have filed for bankruptcy, was provided by Qatar Airways, which owns roughly 10 per cent of the group’s equity, Chile’s Cueto family and Brazil’s Amaro family.

The Cueto family was the airline’s largest shareholder at the end of February, holding 21.46 per cent of the equity. Latam is seeking further support from its other owners. Delta Air Lines of the US, which is facing its own severe strains, is Latam’s second biggest-shareholder after buying a 20 per cent stake last year for $1.9bn.

Latam is also talking to the governments of Chile, Colombia and Peru to try to find additional financing and protect jobs. Before the pandemic, the airline was flying to 125 destinations in Latin America and the Caribbean.

Unlike governments in Europe or the United States, Latin American countries have been reluctant to provide financial support to an industry still seen in the region as providing a service mainly for the wealthy.

The political dilemma is particularly acute in Chile, where Latam is based, because its billionaire president Sebastián Piñera was a big shareholder in its predecessor airline Lan until he sold his stake ahead of the start of his first term in 2010.

Latam was formed in 2012 from the merger of Lan and Brazil’s biggest airline Tam. At the time they forged the world’s second-biggest carrier by market value.

The group said its Argentina, Brazil and Paraguay units were not included in the Chapter 11 filing. The Brazilian entity is in advanced talks with Brazil’s national development bank BNDES about an emergency financing package.

Latam carried almost 69m passengers last year and employs about 41,000 people. At the time of the bankruptcy filing, it had $1.3bn in cash on hand. At the end of last year it had $21.1bn in assets and $18bn in debt, according to the bankruptcy filing in the Southern District of New York.

Last year the company reported operating income of $742m, down from $887m in 2018. Cleary Gottlieb Steen & Hamilton and Claro & Cia are acting as Latam’s legal advisers in the bankruptcy proceeding, with FTI Consulting as financial adviser and PJT Partners as investment banker.

(Published by Financial Times, May 26, 2020)

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