Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Latam Airlines Group Plunged Today

By Lou Whiteman – May 26, 2020 at 5:30PM

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 COVID-19 pandemic has pushed Latin America's largest airline into a bankruptcy filing.

What happened

Shares of Latam Airlines Group (NYSE: LTM) fell 34% on Tuesday after the Latin American airline filed for Chapter 11 protection in New York. The pandemic has created an extraordinarily tough operating environment for airlines, and it seems unlikely the current equity holders of Latam will get much, if anything, from the reorganization.

So what

Airlines around the globe have been hard hit by the COVID-19 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%.

A plane landing at night.

Image source: Getty Images.

The cuts were not enough. South America's largest carrier said it has received $900 million from existing shareholders and Qatar Airways to help fund its operations in bankruptcy, where it will attempt to rework its debt and emerge as a stronger company.

Delta Air Lines (DAL -1.34%) was one of Latam's largest shareholders prior to the bankruptcy, investing nearly $2 billion in the airline just last year. Delta is not involved in the rescue package, but still hopes to complete an alliance with the company to coordinate flights between the Americas.

Now what

Investors should know that stockholders are near the back of the line when it comes to Chapter 11 reorganizations. It is not unheard of for shareholders to recover some value in bankruptcy proceedings, though it is rare. And I'd be surprised if there is anything left for investors once this case is done.

Latam shares, which began the year trading at more than $10 apiece, closed Tuesday at $1.68. Even at that price, the stock is no bargain. Stay away.

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 10/02/2022.

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.