This week, Latin America’s largest airline LATAM became the latest in a string of carriers to seek voluntary restructuring in the wake of the corona-crisis. Having already canceled an order for ten new A350s from Airbus, the airline has also identified 19 leased aircraft to be cut from its fleet directly.
Fleet reductions and order deferrals have become commonplace in commercial aviation news of late. No more so than when a major airline has failed to keep its nose above the clouds. Filing for bankruptcy protection under US Chapter 11 on Tuesday, LATAM Airlines has already identified the 19 aircraft that will be the first to leave its fleet as the airline settles in for restructuring.
19 jets of mixed models from Chile and Brazil
The carrier has decided it will cut six long-haul widebody jets. Two of these are Airbus A350s, and the remaining four are Boeing 787-9 Dreamliners. The other 13 are comprised of various narrowbody Airbus models.
Ten of the jets are registered in Chile and nine of them in Brazil. If you have been following the LATAM bankruptcy story, you know that the filing does include the airline’s Chilean branch, but not its associate in Brazil. All the same, the latter has the lion’s share of aircraft, with just over half of LATAM’s 320 strong fleet.
According to FlightGlobal, the airline has already requested rejection of the leases from May 26th, except for the 787s for which it is seeking rejection from June 1st.
Almost all of LATAM’s aircraft are leased
The airline said in the filing with the bankruptcy court that it has been undertaking a review of the fleet to account for the current crisis and future demand. LATAM further added that it has identified several “excess aircraft,” incurring unnecessary maintenance and insurance costs.
The filing states that 213 of its 320 aircraft are under finance leases, 98 under operating leases, and only nine are unencumbered.
A financial lease is where all the risk and return related to the asset get transferred to the lessee. On the other hand, under an operating lease, the risk and return remain with the lessor.
Still flying under varying conditions
LATAM is still flying, such as the market is, during the restructuring proceedings. The travel bans and regulations across South America range from mild restrictions in Bolosonaro’s Brazil to the total ban on any commercial flight tickets until September in Argentina. A decision which, when it was announced in April, sparked an industry outcry.
LATAM also recently received a return of four A350s that were on lease to Qatar. And in turn, it makes sense that when reducing fleets, the first aircraft to go are those from other lessors. In the case of LATAM, those make up almost its entire fleet.
How small a fleet do you think LATAM will end up with before the restructuring is complete? Let us know your thoughts in the comments.