LATAM Airlines Group, the largest carrier in Latin America, has filed for Chapter 11 bankruptcy citing the impact of the ongoing coronavirus pandemic.
The voluntary reorganization will include LATAM's affiliates in Chile, Peru, Colombia, Ecuador and the United States but not its affiliates in Argentina, Brazil and Paraguay.
The Chile-based carrier said in a statement that the filing in the New York bankruptcy court is meant to ensure the long-term sustainability of the airline and not as a liquidation proceeding.
The global pandemic has grounded 95% of LATAM's service.
Chapter 11 will allow LATAM to keep operating while it works out a plan to pay creditors and turn around the business.
LATAM's shareholders include Chile’s Cueto family, Delta Air Lines as well as Qatar Airways.
"LATAM Airlines Group S.A. and its affiliates in Chile, Peru, Colombia, Ecuador and the United States initiated a voluntary reorganization and restructuring of their debt under Chapter 11 protection in the United States with the support of the Cueto and Amaro families and Qatar Airways, two of the largest shareholders of LATAM," it said in a statement.
Not a liquidation proceeding
LATAM noted that the bankruptcy filing will not impact cargo and passenger operations as well as existing reservations, employee pay, and flight vouchers.
"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 said.
"It is very different from the concept of bankruptcy in other countries and is not a liquidation proceeding."
The group said it has secured the financial support of shareholders, including the Cueto and Amaro families, which have lasting ties to LATAM, and Qatar Airways, to provide up to US$900 million in debtor-in-possession (DIP) financing.
It said to the extent permitted by law, the group "would welcome other shareholders interested in participating in this process" to provide additional financing. In addition, as of the filing, the group said it had approximately USD$1.3 billion in cash on hand.
LATAM's CEO Roberto Alvo cited the travel restrictions tied to the current coronavirus crisis as the main driver for the decision to seek protection under Chapter 11.
"We are looking ahead to a post-COVID future and are focused on transforming our group to adapt to a new and evolving way of flying, with the health and safety of our passengers and employees being paramount," Alvo said said.
Ignacio Cueto, Chairman of LATAM's Board of Directors sounded confident that LATAM will be able to bounce back from the crisis.
"Faced with the biggest crisis in the history of aviation, the Board has approved this path forward having analyzed all the available alternatives to ensure the sustainability of the group. As we have adapted to new realities in the past, we are confident that LATAM will be able to succeed in the post-COVID-19 context and continue to serve Latin America, connecting the region with the world," he said.
LATAM noted that after careful consideration, it is confident that the Chapter 11 reorganization process is the best path forward to achieve the group's objectives and meet its obligations while comprehensively managing its fleet and addressing its debts, most of which are held in the United States.
This is the second major airline in South America to file for Chapter 11 bankruptcy, following Colombia-based Avianca's filing on May 11 as the airline industry continues to take a hit under coronavirus travel restrictions.