LATAM Chapter 11 Filing to Delay Brazilian Subsidiary’s Bailout

LATAM Airlines Group’s recent Chapter 11 bankruptcy filing — precipitated by the need to restructure in the midst of the massive industry shock caused by COVID-19 — will likely affect the government bailout expected to go to its Brazilian branch, Reuters reported this Friday.

According to the news agency, the bailout is likely to be pushed to “at least July” in the case of LATAM Brasil, while for fellow major airlines Azul Brazilian Airlines and GOL Airlines, the aid will likely be delayed to at least “the end of June”.

Such news comes even though LATAM Brasil, along with the group’s Argentine and Paraguayan subsidiaries, are not included in the Chapter 11 process. Sources told Reuters the filing raises questions on the viability of local airlines after the retracted demand scenario caused by COVID-19 has passed.

Also mentioned by those sources are layoffs, which could harm the bailout politically. The airline hasn’t denied there could be workforce reductions going forward, and the airline has acknowledged they will be necessary once restrictions are lifted. While two weeks ago LATAM Airlines Group announced 1,400 layoffs, none of those were in Brazil due to union agreements.

“No airline can stay the same in a 40% smaller market, which we’ll eventually see to the end of this year,” LATAM Brasil CEO Jerome Cadier said in an interview with Aeroflap. “So this can involve staff reductions, can involve longer unpaid leaves, that is, we’re analyzing with our employees and the union the best measures to set the size of the airline to this new market.”

Another source, according to Reuters, affirmed that the negotiations over the bailout are still moving forward to determine the best way to provide funds to LATAM Brasil. But extra focus is being placed on how to ensure safety for the creditors, now that the airline’s parent company has entered Chapter 11 protection.

“What we would want is for that collateral to have priority over the rest of the company’s debts,” the source said.

Besides the local bailout, one of the reasons LATAM Brasil has not been included in the bankruptcy is the concentration of many of its assets and liabilities in the Chilean headquarters. For instance, most of the aircraft operated under leases in the Brazilian branch are leased to LATAM Chile, then allocated to the Brazilian company.

Another barrier previously faced by Brazilian authorities during negotiations with LATAM is the fact that the airline stocks are not traded on the B3 stock exchange in São Paulo. This is because most of the capital to be raised is expected to come from the market through bonds and debt warrants, rather than from government credit.

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João Machado

João has loved aviation since he was six-years-old when he started visiting his home airport in Porto Alegre, southern Brazil. As he always loved writing, in 2011, at age 10 he started his very own aviation blog. Many things have happened since then, and now he is putting all his efforts into being an airline executive in the future. João currently lives in Siena, Italy, where he studies Economics and Management at Unisi.

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