Latam Airlines files bankruptcy

Virus lockdowns weaken Latin America’s largest carrier

A passenger sits near the empty check-in counter for Latam airlines Tuesday at the Arturo Merino Benitez airport in Santiago, Chile. South America’s biggest carrier is seeking U.S. bankruptcy pro- tection as it grapples with a sharp downturn in air travel sparked by the pandemic. More photos at arkansasonline.com/527latam/ 
(AP/Esteban Felix)
A passenger sits near the empty check-in counter for Latam airlines Tuesday at the Arturo Merino Benitez airport in Santiago, Chile. South America’s biggest carrier is seeking U.S. bankruptcy pro- tection as it grapples with a sharp downturn in air travel sparked by the pandemic. More photos at arkansasonline.com/527latam/ (AP/Esteban Felix)

Latam Airlines Group SA, Latin America's largest air carrier, sought bankruptcy court protection Tuesday in New York after the coronavirus pandemic grounded flights across the region.

The Chapter 11 petition allows Latam to continue passenger and cargo flights, and employees will still be paid, the Santiago, Chile-based airline said. Travelers with existing tickets and vouchers can still use them.

The airline is South America's largest carrier by passenger traffic. It operated more than 1,300 flights a day and transported 74 million passengers last year.

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Latam, whose shareholders include Chile's Cueto family and Delta Air Lines, continues to operate on a reduced schedule, and it has commitments for a bankruptcy loan of up to $900 million.

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Airlines the world over -- and those in Latin America in particular -- have been hit hard by the coronavirus outbreak, which triggered travel bans and made people reluctant to fly.

Latam's bankruptcy filing, which was filed in the Southern District of New York, includes parent company Latam Airlines Group S.A. and its affiliated airlines in Colombia, Peru and Ecuador, as well as its businesses in the U.S.

The company is not including its affiliates in Argentina, Brazil and Paraguay in the turnaround effort. It says it is talking with the Brazilian government about how to proceed with its operations there.

Latam has already eliminated more than 1,850 jobs in Chile, Colombia, Ecuador and Peru in recent weeks from its global workforce of about 40,000 people, after cutting 95% of its passenger operations.

"Exceptional circumstances have led to a collapse in global demand and has not only brought aviation to a virtual standstill, but it has also changed the industry for the foreseeable future," Chief Executive Officer Roberto Alvo said in a statement.

Latam listed assets of more than $21 billion and total liabilities of almost $18 billion in its bankruptcy petition.

So far, Latam hasn't had access to government bailout packages designed help offset virus-related distress. Talks are underway with governments in Chile, Brazil, Colombia and Peru about additional financing and assistance, the airline said.

The task was made more urgent this past weekend by President Donald Trump's order to restrict non-U.S. citizens arriving from Brazil to slow the spread of the coronavirus. Brazil accounts for about a third of Latam's revenue.

Latam traces its roots to Lan Airlines, founded in Chile in 1929 and privatized in 1989 during the last years of Augusto Pinochet's dictatorship. Latam was born in 2012 after Lan announced plans to merge with Tam for about $3.3 billion two years earlier.

The Cueto family -- which is Latam's largest shareholder and holds two seats on its board of directors -- acquired a stake in 1992 and control of the business in 1994. At that time, another major shareholder was current Chilean President Sebastian Pinera, who sold his own 26% stake early in his first term as president in 2010.

Last year, Latam signed a $2.25 billion pact to sell a stake to Delta Air Lines, expanding Delta's footprint in South America. The Chilean carrier has been planning to gradually ramp up flights over the next two months, with the goal of reaching 18% of pre-crisis capacity in July.

Latam's move comes little more than two weeks after another major Latin American airline, Avianca Holdings, filed for bankruptcy protection in New York. Australia's second-largest carrier, Virgin Australia, sought bankruptcy in its home market last month.

Latam and Avianca are part of a years-long trend of foreign companies filing for bankruptcy in the U.S., which is more friendly to debtors and usually lets management stay in control. To file, foreign companies need only show that they have assets or operations in the U.S.

The International Air Transport Association has warned that other airlines could fail without government support.

"Government aid is helping to keep the industry afloat. The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating," said the trade group's CEO, Alexandre de Juniac.

Among U.S. carriers, American Airlines is widely seen as facing the greatest risk of bankruptcy, but Washington approved up to $50 billion in grants and credit for the industry, buying it some time.

Information for this article was contributed by Jeremy Hill and Eduardo Thomson of Bloomberg News and by Adam Schreck and David Koenig of The Associated Press.

Business on 05/27/2020

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