LATAM Just Filed To Reorganize Under Chapter 11 Bankruptcy Protection In The U.S.

LATAM has just sent out an email informing customers that they have filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court.

LATAM is just one of the airline and travel companies that will make the way to bankruptcy court in these challenging times, but the announcement came as a surprise.

The email came just minutes ago and was sent to LATAM customers signed up for their newsletter and frequent flier program LATAM Pass.

There is already an informational website informing about the reorganization process (access here).

On May 26, 2020, LATAM Airlines Group filed to reorganize under Chapter 11 protection in the United States. 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. Click here for an infographic that explains our process moving forward.

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.

Here is the email sent out just now

… LATAM entered the COVID-19 pandemic as a healthy and profitable airline group, yet we are subject to exceptional circumstances that have led to a collapse in global demand and we are currently only operating approximately 5% of our passenger flights.

As a result, we have had to take difficult but necessary measures to ensure our long-term sustainability in these extraordinary times. We want to personally share with you that, minutes ago, LATAM filed to reorganize under Chapter 11 protection in the United States.

Whether you are flying now or will return to the skies later, we would like to assure our frequent fliers that your program category, your miles (or points), and overall benefits while flying LATAM or one of partner airlines are intact. There will be no loss in value to any points and miles you have now, and our accrual and redemption program will continue uninterrupted.

Additionally, all tickets, vouchers, gift cards, or any form of credit will continue to be honored. We will also maintain existing agency partnerships, honor corporate loyalty programs, and sell tickets through our services platform, and you can engage with our customer service operators just as you did before this announcement.

We are fully committed to keeping you updated throughout this process. If you have any questions about today’s announcement you can visit www.LATAMreorganization.com or call our dedicated hotline – (929) 955-3449 or (877) 606-3609 in the U.S. and Canada – if you have questions specific to our reorganization. Additionally, please visit our dedicated coronavirus page for more information about how we are adapting to COVID-19.

We remain committed to connecting Latin America and the world and providing you with service that is on-time, safe, and has all the warmth and quality you have grown to expect. During the COVID-19 crisis we never stopped flying, because we understand that, despite all the challenges we may face, our purpose is to serve our Latin America region and customers with currently scheduled, repatriation, or cargo flights, and that will continue uninterrupted.

Once again, we thank you for your loyalty and we look forward to seeing you onboard.

Sincerely, Roberto Alvo
CEO LATAM Airlines

There is also a Youtube video with LATAM’a CEO to explain the situation:

Sad to see yet another airline having to take this step, but I’m sure it won’t be the last.

Here’s an infographic that the airline has released about the restructuring process:

Download (PDF, 354KB)

Conclusion

These are challenging times for airlines and companies in the hospitality and travel industry. Many of them have burned through their cash reserves (if any) and are now facing a situation where they have to fight for the survival of the company. Often this includes laying off staff, not paying creditors, and being unable (sometimes unwilling) to refund customers for services not rendered.

LATAM is a strong player in Latin America, having subsidiaries Chile, Brazil, Argentina, Peru, Ecuador, Paraguay, and Colombia. LATAM’s main competitor in South America, Avianca, filed for bankruptcy protection earlier this month (read more here) and its Brazilian arm collapsed last year (read more here)

A bankruptcy or bankruptcy protection process is always the worst possible way as there will be lots of financial and personnel damage. Still, in most cases, the company comes through at the end when these drastic steps are taken.

This is likely what will wait for all airlines (BA, LH etc.)  if measures such as required downsizing aren’t taken immediately.