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 (NYSE:DAL) 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.