Earlier today, LATAM Airlines Group filed for Chapter 11 bankruptcy protection in the United States. While this decision will change a lot for the South American carrier, one of the main questions that remain is its joint venture with Delta. What will it happen? Let’s investigate further.
Could Chapter 11 accelerate the joint venture?
According to The Points Guy, LATAM Group plans to use the Chapter 11 process to accelerate approvals of its joint venture. Both airlines signed their joint venture at the beginning of May. The deal will have benefits such as codeshare agreements, smoother airport connections, new frequent flyer benefits, and lounge agreements.
Currently, Delta Air Lines owns a 19.99% stake in LATAM. Qatar Airways also owns 10% of the LATAM and is set to provide a $900 million loan along with the Amaro and Cueto families.
About the recent announcement by LATAM, Delta said in a statement:
“We’ve developed the utmost respect for and confidence in the LATAM leadership team,” said Ed Bastian, Delta’s CEO. He added that the carrier is firmly committed to the partnership with LATAM.
But, how can Chapter 11 accelerate the approvals? Under Chapter 11, the debtor usually proposes a reorganization plan to keep its business alive and pay creditors. LATAM will argue the importance of the joint venture with Delta to improve its presence worldwide.
So, at the moment, things will stay the same, but we could see in the near future tighter scrutiny of the alliance between both carriers.
The two leading airlines in Latin America went into Chapter 11 – Why?
First, Avianca declared bankruptcy and filed for Chapter 11. Then LATAM did the same. In a matter of weeks, the two main airlines in Latin America went into Chapter 11.
In 2019, LATAM transported 74 million passengers, an increase of over 5.4 million compared to the previous year. Meanwhile, Avianca had over 30.5 million passengers last year.
While both airlines entered 2020 in different financial positions, they share some similarities. For instance, both Avianca and LATAM had branches in several Latin American countries. Avianca operates in Colombia, El Salvador, and Peru, mainly. LATAM has offices in Chile, Peru, Colombia, Ecuador, Argentina, Brasil, and Paraguay.
With the current crisis due to the coronavirus pandemic, both airlines had the most to lose. Governments in every Latin American country but Brazil, Chile, and Mexico closed their airspaces and forbade commercial aviation.
The crisis hit Avianca and LATAM on many fronts. They were challenged to balance their operations with almost zero demand in places like Brazil and negotiate more accessible regulations in other countries like Argentina and Colombia. And, at the same time, they have to maintain their balance sheets and operative costs in many countries.
The Latin American and Caribbean Air Travel Association (ALTA) said to Simple Flying that LATAM’s decision is “a brave measure that requires strong leadership to reorganize its structure and liquidity flux.”
Latin America doesn’t provide financial aid
Governments in the region have denied airlines access to loans continuously. According to the International Air Transport Association, of the $123 billion in government financial aid, Latin American Governments have provided just $0.3 billion.
Latin American carriers have had to raise money from other sources. Aeromexico, for instance, acquired $100 million via the company that operates its Salon Premier at Mexico City Airport. Copa Airlines raised liquidity with a US$350 million bond offering.
LATAM and Avianca both have said that they will become smaller airlines after bankruptcy. For instance, LATAM will return 19 leased aircraft: one Airbus A319, one Airbus A320, 11 Airbus A321, two Airbus A350-900, and four Boeing 787-9. Avianca will get rid of 14 aircraft and will stop its operations in Peru. While LATAM hasn’t announced it, we can expect it will exit Argentina and Paraguay. Both branches were not involved in the Chapter 11 filing.
What do you think will happen with LATAM and Avianca? Let us know in the comments.