LATAM becomes largest airline so far to be pushed to bankruptcy by COVID-19

The airline said it would continue to fly through its bankruptcy restructuring.
The airline said it would continue to fly through its bankruptcy restructuring. Photo credit: LATAM Group

LATAM Airlines Group, South America's largest carrier, has filed for U.S. bankruptcy protection, becoming the world's largest carrier so far to seek an emergency reorganisation due to the coronavirus pandemic.

The filing highlights the financial weakness of South America's carriers, following a similar bankruptcy earlier this month by the region's second largest airline, Avianca.

But unlike Avianca, which experienced management turmoil and losses, Chile's LATAM posted profits for the last four consecutive years totaling more than US$700 million. LATAM had also approved a dividend payment this year, in contrast to other carriers that have halted payouts.

South American governments, many under severe budget constraints themselves, have been reluctant to bail out their key airlines, in contrast to the United States and Europe.

Most recently, Germany bailed out Lufthansa for a 20 percent stake.

Chile's economy minister, Lucas Palacios, said on Tuesday he would not rule out a bailout, although he did not propose one.

"Lufthansa's case is completely different," Palacios said. "LATAM is an international airline, its shares trade in the United States."

In a separate statement, Chile's finance ministry said LATAM is a "strategic company for Chile" and that the government would "consider" how it could contribute to LATAM's restructuring.

In Brazil, LATAM has been negotiating a bailout of up to US$367.45 million, but that has yet to materialise.

LATAM's Brazil unit is not part of the bankruptcy, and the company said it might file for bankruptcy there as well if the negotiations for aid fall through.

Delta Air Lines last year paid US$1.9 billion for a 20 percent stake in LATAM, becoming the second largest shareholder in the company.

"We remain firmly committed to our partnership with LATAM and believe that it will successfully emerge a stronger airline and Delta partner for the long term," Delta CEO Ed Bastian said in a statement.

LATAM said its bankruptcy filing would seek to expedite the timeline for the necessary antitrust approvals for it and Delta to coordinate flight routes between South America and the United States. The plans still need approval from the U.S. Department of Transportation, as well as regulators in Chile, Brazil, and a few other countries in South America.

In the lead-up to the bankruptcy filing, LATAM laid off 1,800 employees out of more than 40,000 in total.

"This path represents the best option," Chief Executive Roberto Alvo said in a statement regarding bankruptcy.

LATAM said it would continue to fly through its bankruptcy restructuring.