LATAM’s Chapter 11 Business Plan

    Earlier this week, released its five-year business plan as part of its financial reorganization. The South American airline group is forecasting when it will recover the profitability and how the market will behave in the coming years. Let’s review LATAM’s Chapter 11 Business Plan. 

    Back to profitability

    Prior to the -19 pandemic, LATAM Airlines Group had revenues of more than US$10 billion and a sound business in South America. Nevertheless, the crisis has overthrown everything and had to begin a Chapter 11 bankruptcy process in the United States. 

    The carrier has moved forward, and now it expects it will return to 2019’s profitability by 2024. Moreover, the company expects an operating margin (EBIT) of 11.2% in 2026, which would be the highest since 2010. 

    Total revenues are projected to increase 13% by 2026, with passenger revenues growing 8% and cargo revenues increasing 59% compared to 2019, said the airline in a statement. 

    All of this will be achieved because LATAM was able to reduce its cost base by US$900 million annually. The company also expects to improve its CASK ex-fuel by 3.3 cents in 2024. 

    Airlines Group CEO, Roberto Alvo, said, 

    “We will emerge from this process as a highly competitive and sustainable group of airlines, with a very efficient cost structure, all the while maintaining the unparalleled network and connectivity that offers in all the it serves.” 

    new financing offers

    The South American giant has also received several offers from stakeholders, which would provide more than US$5 billion of new funds. 

    Each proposal contemplates raising the money through the issuance of new debt and equity. In consequence, if approved and implemented, it would result in the substantial dilution of existing shares. In the last few weeks, Avianca’s shares have been in decline due to this same reason. 

    is also considering getting a possible additional third debtor-in-possession financing worth US$750 million. This money would come in addition to the existing US$1.3 billion Tranche A facility and the US$1.15 billion Tranche C facility, none of which are fully drawn. 

    The airline said, 

    “Given the currently favorable market conditions, LATAM is soliciting interest from potential lenders in providing a Tranche B Facility and will consider proposals to determine whether it is able to borrow funds at a more competitive rate than under the existing Tranche A and C facilities.”

    What about LATAM’s demand recovery?

    LATAM’s Chapter 11 business plan also included a vision of the demand recovery and operational projections through 2026. 

    The Group forecasts a return to pre-pandemic capacity by 2024 and a growth of 7% by 2026, compared to 2019. LATAM expects domestic to recovery by 2022 and international ones by 2024. 

    LATAM Airlines Brazil would lead the Group’s recovery. It is currently working at 77% of its pre-pandemic capacity, and LATAM expects to surpass 2019 levels earlier next year. 

    Meanwhile, the domestic in Colombia, Ecuador, Peru, and Chile are already at 72% of their pre-pandemic capacities. 

    Finally, LATAM is looking to extend the period of exclusivity to file a plan of reorganization through October 15, 2021. Additionally, the voting period would go all the way through December 15. LATAM and Aeromexico are facing similar timelines at the moment. 

    Originally published here.


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