Aeroméxico, LATAM Bankruptcy Protection Filings Hurt Delta

Aeroméxico and LATAM Airlines’s respective filings for bankruptcy protection in the wake of the COVID-19 crisis added to the woes of their partner Delta Air Lines, forcing the latter to write down billions in its second quarter filings. All three airlines are still grappling with the prolonged fall in demand but airlines in Latin America are facing a more complex situation due to border closures and little government support.

The COVID-19 epidemic brought aviation to its lowest point in history. The crisis is expected to cost airlines across the globe US$419 billion in lost revenue during 2020 and has already led some of them to protect themselves from bankruptcy. Due to the interconnection of the sector, the losses of an airline reflect in its partners’ results. The Chapter 11 filings of Aeroméxico and LATAM Airlines costed billions to its partner Delta Air Lines. “During the June quarter, (Delta Air Lines) recorded a write-down of US$1.1 billion in its investment in LATAM Airlines and a US$770 million write-down in its investment in Aeroméxico following their financial losses and separate Chapter 11 bankruptcy filings,” said Delta Air Lines. The airline also had to write-down a US$200 million investment in Virgin Atlantic, which just signed a US$1.51 billion rescue package.

Like many other airlines, Delta reported significant decreases in traffic due to the COVID-19 pandemic, which translated to heavy financial loses. "A US$3.9 billion adjusted pre-tax loss for the June quarter on a more than US$11 billion decline in revenue over last year illustrates the truly staggering impact of the COVID-19 pandemic on our business," said Ed Bastian, CEO of Delta Air Lines.

While Aeroméxico has not released its 2Q20 report to date, the airline has reported significantly less demand during the past months, including a 90.1 percent year-on-year decrease in revenue passenger kilometers (RPK) during June. That month Aeroméxico transported only 343,000 passengers, an 86.1 percent drop from 2019’s 1.75 million, and saw its capacity shrink by 74.5 percent due to COVID-19. “(Grupo Aeroméxico) will use the advantages of Chapter 11 to strengthen its financial position and liquidity, protect and preserve its operations and assets and implement the necessary operating adjustments to face the impact of COVID-19,” said the company.

Airlines are still in a financially precarious position as the COVID-19 outbreak continues unabated and a recovery is not expected to come soon. Delta Air Lines’ Bastian explains that "Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery."