Undoubtedly, the current pandemic is set to result in a lot of airlines struggling for survival. However, the list of carriers who declared their insolvency or bankruptcy is quite short for now. Out of major companies around the world, only Avianca (AVHOQ) and Virgin Australia have entered administration in order to reorganize their businesses.
However, another South American airline joined the list on May 26, 2020, as LATAM Airlines, the largest carrier in the continent, announced that it has filed to reorganize under Chapter 11 protection in the United States.
LATAM will continue to operate as much as is possible during the current pandemic, while continuously working with its creditors and stakeholders to reduce its debt and “address commercial challenges” as an airline group. LATAM has seven subsidiaries throughout various South American countries.
Its companies in Argentina, Brazil and Paraguay are exempt from the filing. The group stated that this is due “to the nature of their debt structure and current financial status.”
In September 2019, Delta Air Lines and LATAM Airlines signed an agreement to form a strategic partnership between the two parties. The former agreed to invest up to $2.2 billion into the partnership, including a 20% stake in the latter. Included in the partnership was a deal for Delta to acquire four Airbus A350 XWB aircraft, in addition to taking over a further 10 A350s that were still on order.
With the recent announcement, the two sides have altered the agreement – the United States carrier canceled the purchase of the four Airbus aircraft for a penalty of $62 million, reported Forbes. The new agreement also included a condition that prohibits Delta from terminating the partnership with LATAM as it entered Chapter 11 bankruptcy proceedings.
Falls of major South American airlines
LATAM, the largest airline in South America, is already the continent’s second major air carrier to file for Chapter 11 bankruptcy protection. Latin America’s second-largest carrier, Avianca Holdings, announced the step on May 10, 2020. Avianca (AVHOQ) , which is also the second oldest continuously operating airline, also motivated the move by necessity to navigate the devastating COVID-19 crisis outcomes. While trying to keep the better part of its continent-wide operations, the airline group already began liquidation procedures of its Peruvian subsidiary.