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LATAM Airlines is the latest airline to file for Chapter 11 bankruptcy protection in the United States. This decision was clearly well planned, as the airline has already made a website available to all stakeholders, outlining the process.
Importantly, we want our stakeholders to know that we will continue to operate as travel restrictions and demand permit, paying our employees, meeting benefit obligations, and paying critical suppliers as well as respecting LATAM Pass miles and flight reservations as we work through the Chapter 11 reorganization process.
The U.S. Chapter 11 financial reorganization process provides a clear and guided opportunity to work with our creditors and other stakeholders to reduce our debt, address commercial challenges that we, like others in our industry, are facing as a group. It is very different from the concept of bankruptcy in other countries and is not a liquidation proceeding.
This move comes mere days after I attempted to explain the difference between bankruptcy, insolvency and liquidation. Coincidence? 😉
LATAM has put together an interesting infographic that explains “Chapter 11” in greater detail. Click here to take a look.
Why File for Bankruptcy?
According to CEO Roberto Alvo, LATAM entered the COVID-19 pandemic as a healthy and profitable airline group. So much so that Delta Airlines paid $1.9 billion (£1.55 billion) for a 20% stake in October 2019. So, what happened?
Despite the obvious cash flow difficulties the travel shutdown is presenting to airlines, I don’t believe that LATAM is now worthless. Instead this appears to be a strategic use of the Chapter 11 process to “right size” the fleet. In other words, LATAM is using bankruptcy court as a way to cancel aircraft leases. A tough negotiation awaits, but I very much doubt that Delta’s $1.9 billion stake (and the owners of the remaining 80%, presumably worth $7.6 billion several months ago) will be completely wiped out.
LATAM and British Airways Executive Club
You undoubtedly aren’t planning to fly on LATAM any time soon, but it’s worth noting that LATAM has now left the Oneworld alliance. However, you can still earn Avios when flying LATAM, but you can no longer earn Tier Points.
Perhaps more importantly, you can still redeem Avios for LATAM flights.
The Bottom Line
LATAM’s bankruptcy filing is yet another example of an airline using the coronavirus crisis as an excuse to get out of contracts they no longer like. I have no doubt that LATAM will be flying for many more years…
I actually have an Avios LATAM redemption from Santiago to Sao Paulo booked for early September.
I dont really expect it to go ahead, But its part of a bigger itinerary that cant exactly be cancelled (not that I want to but probably wont have much choice)
Im wondering what happens to those Avios tied up in the flight if Latam fail.
LATAM won’t fail. Besides that, Avios haven’t paid them for your reward flight, so your refund would be quite easy.
September is looking rather ambitious for a trip to South America. Brazil is one of the last places I’d want to be right now, and many neighbouring countries have closed their borders to Brazil because their president is acting so irresponsibly…
Agreed. Im flying to the region with BA and I dont expect them to extend the flight voucher refund right up till September.. But maybe if government advice was to avoid all unessential travel to Brazil I could claim the long haul BA flight cost from my insurance (as I booked before covid-19).
Will have to wait and see.