Latam Airlines seeks bankruptcy protection as travel slumps

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Latam Airlines, South America’s biggest carrier, sought U.S. bankruptcy protection Tuesday as it grapples with a sharp downturn in air travel sparked by the coronavirus pandemic.

The Chapter 11 bankruptcy filing underscores the severity of the financial challenges facing the travel industry as a result of the lockdowns, quarantines and other measures taken by governments the world over to stem the spread of the virus that causes COVID-19.

Passenger and cargo flights will continue to operate during the reorganization, and employees will still be paid, the Santiago, Chile-based airline said. Travelers with existing tickets and vouchers can still use them.

Chief Executive Roberto Alvo said Latam was profitable before the pandemic brought most of the world’s flights to a halt, but is now facing a “collapse in global demand.”

“We are looking ahead to a post-COVID-19 future and are focused on transforming our group to adapt to a new and evolving way of flying, with the health and safety of our passengers and employees being paramount,” he said in a statement announcing the bankruptcy filing.

Latam Airlines said that it and several of its affiliated companies launched the Chapter 11 reorganization effort in the United States in a bid to reduce its debt and find new financing sources.

Air travel has plunged to a fraction of the levels it was just months ago as the virus spread from China to countries around the globe, prompting growing alarm in the aviation industry. The International Air Transport Association last month predicted that airlines’ revenue from hauling passengers would drop $314 billion this year, meaning they could bring in less than half of what they did in 2019.

Latam’s move comes little more than two weeks after another major Latin American airline, Avianca Holdings, filed for bankruptcy protection in New York. Australia’s second-largest carrier, Virgin Australia, sought bankruptcy in its home market last month.

Latam and Aviance are part of a years-long trend of foreign companies filing for bankruptcy in the U.S., which is more friendly to debtors and usually lets management stay in control. To file, foreign companies need only show that they have assets or operations in the U.S.

The International Air Transport Association has warned that other airlines could fail without government support. On Tuesday, the global airline trade group said the industry’s total debt could jump to $550 billion this year, a $120 billion increase since Jan. 1.

“Government aid is helping to keep the industry afloat. The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating,” said the trade group’s CEO, Alexandre de Juniac.

Among U.S. carriers, American Airlines is widely seen as facing the greatest risk of bankruptcy, but Washington approved up to $50 billion in grants and credit for the industry, buying it some time. On Monday, Germany agreed to provide 9 billion Euros ($9.8 billion) to help Lufthansa. Air France-KLM has received billions from the French and Dutch governments.

Others are scrambling. Richard Branson is seeking help from the U.K. government and selling shares in his space company to prop up troubled Virgin Atlantic and other travel holdings. Analysts have been watching some discount airlines including Norwegian Air.

Latam’s bankruptcy filing includes parent company Latam Airlines Group S.A. and its affiliated airlines in Colombia, Peru and Ecuador, as well as its businesses in the U.S.

The company is not including its affiliates in Argentina, Brazil and Paraguay in the turnaround effort. It says it is talking with the Brazilian government about how to proceed with its operations there.

Latam is South America’s largest carrier by passenger traffic. It operated more than 1,300 flights a day and transported 74 million passengers last year.

The airline had more than 340 planes in its fleet and nearly 42,000 employees, according to its more recent annual report. It reported a profit of $190 million in 2019.

It said the reorganization effort has the support of two prominent shareholders — the Cueto family in Chile and Brazil’s Amaro family — as well as Qatar Airways, which owns 10% of the company.

Those three shareholders have agreed to provide up to $900 million in financing as Latam makes its way through the bankruptcy process. It currently has $1.3 billion on hand, it said.

This article was originally published on finance.yahoo.com/news/.

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