September 26, 2020

The dizzying fall of Latam airline to bankruptcy



In just under three months, the airline Latam has gone from celebrating the good operational and financial results achieved in 2019 to declaring bankruptcy this Tuesday due to the impact of the coronavirus crisis.

The global economic uncertainty generated by the spread of COVID-19 and the travel restrictions imposed by various governments in the region to slow the advance of the pandemic, with the consequent drop in demand, have gradually drowned the airline, which was born of the merger between Chilean Lan and Brazilian Tam in 2012.

The company has filed for Chapter 11 bankruptcy in the United States, which implies that it is viable, that it can continue to operate while carrying out a process of reorganization and restructuring of its debt, and that creditors do not they can sue her.

Considered as a “strategic” company by the Chilean Government, the bankruptcy announcement puts the Executive presiding over Sebastián Piñera before the dilemma of whether to come to their support in the midst of a social crisis in which millions of families ask for help in order to feed themselves after losing their jobs to the coronavirus.

Since the first case of coronavirus in Chile was confirmed on March 3 until Latam declared bankruptcy on this day, these have been the key points of the dizzying drop in spin of the most important airline in Latin America:

1.- RISING BENEFITS AND PASSENGER RECORD IN 2019

On March 4, just one day after the first case of coronavirus was announced in Chile, Latam reported that in 2019 it registered a net profit of 190.4 million dollars, representing an increase of 4.7% compared to at 182 million in 2018.

The company then celebrated an operating margin of 7.1% and having transported 74 million passengers in 2019, the highest figure since Latam was created.

The group, which is listed on the Santiago and New York stock exchanges, then employed more than 42,000 people, operated about 1,400 daily flights to 145 destinations in 26 countries and had a fleet of 332 aircraft.

2.- THE CORONAVIRUS BEGINS TO IMPACT: REDUCTION OF OPERATIONS

On March 9, when there were only around 100 cases of COVID-19 in Latin America, Latam offered its clients flexibility in changing the date and destination on international flights, given the imitations imposed by governments around the world to stop the spread of the coronavirus.

Given the intensification of these restrictions and the advance of the pandemic, on March 12 Latam announced a reduction of its international flights by 30%, which four days later increased to 70% and that by April 2 was already 95 %, maintaining only 39 domestic routes in Brazil, 13 in Chile and four international routes, a situation that it decided to maintain during May.

It should be noted that between April 13 and 30, the company went one step further and stopped operating all its international flights.

3.- COLLAPSE IN STOCK EXCHANGE FUTURE

On March 16, the same day that it announced that it was reducing its operations by 70%, Latam’s shares fell 26.47% on the Santiago Stock Exchange, being the most damaging of a fateful day in the Chilean parquet, which experienced its worst day in 30 years.

Two days later, the airline’s shares plummeted even more, by 44.01%, and on Tuesday they closed with a drop of 35.5% after falling as much as 51% during the day.

In addition, on this day the company’s American Deposit Receipt (ADRs) fell 34.88% and the company’s dollar-denominated bonds suffered a downgrade in their risk rating by Fitch (from “B-” to “CC “), Moody’s (from” Ba3 “to” B1 “) and S&P (from” CCC + “to” CCC- “).

4.- MASS DISMISSALS FOR THE COMPANY TO SUBSIST

With only 5% of operations active, on May 15 the CEO of Latam, Roberto Alvo, announced the dismissal of 1,400 workers belonging to subsidiaries in Chile, Colombia, Ecuador and Peru as an “inevitable” measure to ensure continuity of the company.

“Despite all the efforts we have made to take care of jobs, we are forced to make this difficult decision. The impacts of COVID-19 are profound and it is inevitable to reduce the size of the Latam Group to protect its sustainability in the medium term,” Alvo said.

5.- BANKRUPTCY, REORGANIZATION AND RESTRUCTURING

The last step so far to try to save the company came Tuesday with the announcement of a voluntary process of reorganization and restructuring of its debt under the protection of chapter 11 of the bankruptcy law of the United States.

Latam reported that it will continue operating, that it has $ 1.3 billion in cash to deal with the situation and that it has the financial support of its main controllers, the Cueto and Amaro families and Qatar Airways, who are planning to inject 900 million Dollars.

The company would also be in talks with the governments of Chile, Brazil, Colombia and Peru in order to obtain additional financing from them.

In the case of the Chilean Government, although at first they refused the possibility of help for the company, the Finance Minister, Ignacio Briones, left this Tuesday the option of state financing for the airline, considering that it is of “a strategic company for Chile” because it generates 10,000 direct jobs and 200,000 indirect jobs “.

By virtue of this chapter 11, which prevents dividends from being distributed to shareholders while a company is engaged in the renegotiation of its liabilities, Latam reported that it will not distribute the dividends corresponding to the 2019 financial year, which were expected to be paid on May 28, 2020.

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