Please ensure Javascript is enabled for purposes of website accessibility

South American Giant Latam Airlines Files for Bankruptcy Protection

By Lou Whiteman – May 26, 2020 at 8:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The airline's Chapter 11 filing could have ramifications for a number of major U.S. comapnies.

Latam Airlines Group (NYSE: LTM) has filed for Chapter 11 protection in New York as South America's largest carrier tries to work through a drop in demand caused by the COVID-19 pandemic.

Latam is based in Chile but has affiliates in Brazil, Paraguay, and Argentina. The airline said it has received $900 million in debtor-in-possession financing, funds that allow it to sustain operations while in bankruptcy, from existing shareholders the Cuetos and Amaro families, as well as from Qatar Airways.

An airplane flying over the clouds.

Image source: Getty Images.

Airlines around the globe have been hard hit by the pandemic, and Latin American airlines in particular have suffered due to bans on international travel. Latam earlier this month announced plans to cut more than 1,800 jobs, and the airline has reduced its total schedule by about 95%. Latam is the second major South American airline to fly into bankruptcy in May, following Colombia's Avianca Holdings

"Latam entered the COVID-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand and has not only brought aviation to a virtual standstill, but it has also changed the industry for the foreseeable future," CEO Roberto Alvo said in a statement. "We have implemented a series of difficult measures to mitigate the impact of this unprecedented industry disruption, but ultimately this path represents the best option to lay the right foundation for the future of our airline group."

The filing creates additional uncertainty for a number of U.S.-based companies as well. Delta Air Lines (DAL -1.34%) is a Latam shareholder, investing nearly $2 billion in the airline just last year. Delta is likely to see that equity stake wiped out but will need to maneuver carefully to try to retain a key partner in the region.

Airlines can also use bankruptcy to cancel plane leases and trim their order books. Although Latam has not yet disclosed its future fleet plans, the airline had more than 300 aircraft prior to the pandemic and has more than two dozen new planes on order from Boeing and Airbus.

Lou Whiteman owns shares of Delta Air Lines. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$28.06 (-1.34%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.