Latam Airlines Group SA, the largest airline in Latin America, filed for bankruptcy before a New York court after the coronavirus pandemic severely affected the aviation industry.
The petition allows the company to continue operating while developing a plan to pay creditors. Latam, whose shareholders include the Cueto de Chile family and Delta Air Lines Inc., continues to fly with reduced hours and can access a loan of up to $ 900 million.
"On May 26, 2020, the LATAM Airlines Group filed to reorganize under the protection of Chapter 11" of the US bankruptcy law, the Latam statement said.
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, declared bankruptcy in early May, burdened by the sharp drop in business and its own burden of onerous debt.
Latam partners in Brazil, Paraguay and Argentina are not part of the case that was presented in the Southern District of New York.
Still, the impact will be felt broadly, as Latam, based in Santiago, 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 reduced 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 going through these kinds of difficulties, 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 company's CEO, 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.
Latam has so far had no access to government rescue packages designed to help offset the economic effects of the pandemic. Discussions are under way with the governments of Chile, Brazil, Colombia and Peru on additional financing and assistance, said the airline.
"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 the entry to the country of foreigners who come from Brazil, in order to stop the spread of the coronavirus. Brazil represents approximately a third of Latam's revenues.
The company has its roots in Lan Airlines, founded in Chile in 1929 and privatized in 1989. 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 the time, another major shareholder was current Chilean President Sebastián Piñera, who sold his own 26% stake at the start of his first term as president in 2010.
Last year, Latam signed a $ 2.25 billion deal to sell a portion to Delta Air Lines. The Chilean airline has planned to gradually increase flights in the next two months, with the goal of reaching 18% of pre-crisis capacity in July..
With information from Bloomberg and AFP
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