Coronavirus in Chile ECONOMY

The Future of LATAM Airlines: Bankrupt or Bailout?

SANTIAGO – LATAM Airlines has applied for Chapter 11 bankruptcy protection in the United States, making it the largest carrier to do so during the Covid-19 pandemic. With it being the main airline carrier in Chile, the move has already impacted the Chilean economy and manner of travel to and from the country. 

Following quickly after a similar filing from Colombia’s Avianca Airline, LATAM applied for Chapter 11 bankruptcy protection in the United States after Covid-19 put a halt to the majority of its flights and shares fell 40%. The company also fired almost 2,000 of its employees.

Chapter 11 bankruptcy is appealing to companies outside the U.S. because the resulting judgment usually absolves the filer of a great portion of its debts. Additionally, the United States rarely forces management readjustments after granting such protections. To file, a company only needs to have operations and assets in the United States.

Financially Successful History

Before the pandemic, LATAM was seeing successful profit margins, posting profits four years straight totaling more than US$700 million. Delta, one of the major airlines in the United States, had only recently invested in LATAM in 2019, becoming one of the largest shareholders in the company with a 20% stake. For its part, Delta has continued its support for the airline and even applied with LATAM for a codeshare agreement, allowing the companies to share flight plans. 

Congress Wrestles With Economic Effects Of The Pandemic

What To Expect From LATAM

While the bankruptcy case proceeds, LATAM has assured its customers that it will continue to offer flights as well as benefits through its frequent flyer program. Many flights, however, are being rescheduled or canceled, so flyers should remain on high alert. Argentina and Colombia, two major hubs for the airline, have also banned LATAM flights until at least September. 

As of now, the carrier has already raised US$900 million in support from several of its airline shareholders such as Qatar Airways. In addition, there is also a possibility that LATAM will receive a bailout from the Chilean government, though this remains uncertain. Brazil, which is still highly associated with the airline (even though it has been eight years since Chile’s LAN airline completed its takeover of Brazil’s TAM airline to create LATAM), is also trying to negotiate a bailout without much progress. The Brazilian affiliate is not, at this moment, associated with the bankruptcy. 

For its part, the airline claims that it will return to 18% capacity as soon as July. One indicator of this is the recent spike in investments in LATAM stockholdings. Investors assume that they will receive high rewards for their investments as Covid-19 becomes less of a threat. Yet despite all of these moves both financially and commercially, LATAM remains over US$7 billion in debt. With that amount of debt, plus unpaid loans borrowed from affiliates, it seems bankruptcy might only be a small step towards recovery.

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