LATAM Files For Bankruptcy In the U.S., Seeking Chapter 11 Reorganization
In airline news today, South America’s largest airline LATAM files for Chapter 11 bankruptcy protection in the U.S. LATAM has had a busy past few months and had many plans, which they expect to honor. However, the COVID-19 pandemic and massive reductions in travel have created problems for numerous airlines. LATAM has endured a shortage of funds due to reduced travel and filed for Chapter 11 bankruptcy today. Here’s what we know.
LATAM’s Busy Start To 2020
Delta purchased a 20% stake in LATAM, South America’s largest airline, at the end of 2019. Because of this, LATAM left oneworld and made plans to join SkyTeam. Award bookings and codeshares went live recently, and LATAM had plans to increase its footprint and offerings to customers through new partnerships.
Financial Troubles Due to COVID-19
Due to severe reductions in travel during the COVID-19 pandemic, airlines around the world are facing severe problems. LATAM is not the first airline in South America to file for bankruptcy, as Avianca did the same last week. In a statement, LATAM acknowledged their problems and cited filing in the U.S. as different from how things would proceed in other countries.
“The U.S. Chapter 11 financial reorganization process provides a clear and guided opportunity to work with our creditors and other stakeholders to reduce our debt, address commercial challenges that we, like others in our industry, are facing as a group. It is very different from the concept of bankruptcy in other countries and is not a liquidation proceeding.”
It appears that LATAM chose to file for U.S. Chapter 11, even though its headquarters are on another continent, in order to preserve its business operations. This avoids liquidation. LATAM’s CEO Roberto Alvo said that upcoming bookings, flight vouchers from cancelations, cargo operations, and even employee pay should remain unaffected. They plan to continue business as usual as much as is possible. A statement on LATAM’s website says this filing includes “affiliates in Chile, Peru, Colombia, Ecuador and the United States”. Notably, it does not include LATAM subsidiaries in Argentina, Brazil, or Paraguay.
This shouldn’t come as much of a surprise. Numerous airlines will declare bankruptcy, take out loans, or enter government protection. Massive reductions in the number of people traveling, plus airlines needing to refund thousands of passengers at once, created cash shortages for airlines. LATAM plans to continue operations. As LATAM files for bankruptcy, it appears they specifically chose U.S. Chapter 11 proceedings to avoid liquidation and continue business as usual — as much as is possible with the current situation.