LATAM Airlines Files for Bankruptcy

The global pandemic and subsequent economic crisis claimed another victim in the aviation industry as LATAM Airlines, the largest carrier in the region, files for bankruptcy protection in a US court.

The COVID-19 outbreak has brought the aviation industry to its knees. With a virtual halt in operations across the globe, airlines are suffering unprecedented losses in what the International Air Transport Association (IATA) has referred to as the worst crisis the industry has faced in recent history. The association warns that airlines are expected to see US$314 billion loses in revenue during 2020, with those in Latin America losing US$18 billion. “The impact on airlines in the region for this crisis continues to be brutal. Passenger traffic has ground to a halt and revenue streams have dried up,” says Peter Cerdá, Regional Vice President for the Americas at IATA. During March and April, the association urged governments in the region to provide relief to the industry in the form of direct financial support, loans and other tax relief measures. “No amount of cost cutting will save airlines from a liquidity crisis that is imminent and severe. This will have detrimental effects on countries’ economies and jobs. Governments must act fast,” says Cerdá.

The crisis is having a much deeper impact on the region than expected. Two weeks ago, the second largest airline in the region, Avianca, filed for bankruptcy protection. Now, the largest airline in the region followed suit. LATAM Airlines, created in 2011 after the fusion of Brazilian TAM Airlines and Chilean LAN Airlines, filed for Chapter 11 in a US court on May 26. What is most surprising is that unlike Avianca and Virgin Australia, another airline that entered administration during the COVID-19 crisis, before filing for bankruptcy LATAM Airlines had reported profits for the previous years. “LATAM entered the COVID-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand that has not only brought aviation to a virtual standstill, but has also changed the industry for the foreseeable future,” says Roberto Alvo, Chief Executive Officer of LATAM.

The crisis was not kind to LATAM Airlines, which was forced to cancel 90 percent of its international flights and reported sharp drops in traffic. During April, the airline reported a decrease in revenue passenger kilometers of 96.6 percent and a decrease in capacity of 94.3 percent. While the airline had requested support from the governments of Chile, Brazil, Colombia and Peru, these countries have so far not approved financial relief. Lucas Palacio, Chile’s Economy Minister, dismissed LATAM Airlines’ requests saying to media “we are prioritizing people and I think it is rushed. I think it is wishful thinking for one company to be asking something of that nature.” LATAM Airlines, headquartered both in Brazil and Chile, is now the largest airline to have succumbed to the pandemic but it will continue flying while it restructures. It now flies to over 130 destinations in 24 countries including Cancun and Mexico City in Mexico. “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,” says Ignacio Cueto, Chairman of LATAM’s Board of Directors.