Photo: Daniel Martínez Garbuno
This year marked the end of an obscure era for Aeromexico and LATAM Airlines, two of the largest South American companies. Both airlines emerged from Chapter 11 bankruptcy after lengthy and painful processes, which began in 2020, at the zenith of the COVID-19 pandemic. Let’s continue our 2022 in review: Aeromexico and LATAM’s Chapter 11 exits.
A new Aeromexico
On February 4, 2022, the Bankruptcy Court entered an order approving Aeromexico’s joint plan of reorganization. As explained by Davis Polk, the lead counsel to the airline with their Chapter 11 proceedings, “the cornerstone of the plan was an exit financing facility that provided Aeromexico with $720 million of new equity capital through the issuance of new equity and up to $762.5 million of new debt capital through the issuance of senior secured first-lien notes.”
Aeromexico finally emerged from bankruptcy on March 17, 2022. Aeromexico overhauled, updated, and restructured its aircraft fleet through the bankruptcy proceeding. This resulted in almost $2 billion in savings on ongoing fleet obligations. The airline also reached comprehensive settlements with all its unionized labor groups (around 70% of its employees).
Aeromexico emerged slimmer and more prepared to compete against rising Mexican ultra-low-cost carriers, Volaris and Viva Aerobus.
A new LATAM
Last month, LATAM Airlines announced it was emerging from Chapter 11 bankruptcy protection. The airline was the last to emerge from these proceedings, following Avianca in late 2021 and Aeromexico in March.
LATAM emerged with over US$2.2 billion of liquidity and approximately US$3.6 billion less debt on its balance sheet (equivalent to a 35% debt reduction from the pre-filing period).
LATAM also completed the issuance of $5.4 billion in new securities, which were offered to prepetition shareholders via preemptive rights offerings and backstopped by certain unsecured creditors and prepetition shareholders, explained Davis Polk.
What’s next for the iconic South American carriers?
Both airlines are moving forward. Aeromexico has already rebounded in terms of carried passengers in 2022. The Mexican flag carrier has grown by around 4% this year versus 2019 levels.
Nonetheless, the economic performance of Aeromexico has been impacted by global economic uncertainty and rising fuel prices. In the first three quarters of the year, the airline posted a consolidated net loss of 3.8 billion Mexican pesos (around US$193 million). The airline is also constrained in its growth; Mexico is currently downgraded to Category 2 by the Federal Aviation Administration in the United States.
Despite this, things seem to be looking good for Aeromexico in the next few years. The airline now has a sizeable and young fleet (which could become younger if Aeromexico opts to renew its Embraer planes). Aeromexico has also been opening new routes, both domestic and international (Mexico City-Rome is set to be launched in March next year).
Meanwhile, LATAM has not fully recovered its pre-pandemic traffic levels. Nonetheless, it is currently projecting to close the year operating at 85% of its 2019 capacity levels. Next year it will launch 36 new routes.
LATAM Airlines and Delta Air Lines have set in motion an exciting joint venture agreement, which will begin with the launch of the São Paulo-Los Angeles route next year.
Moreover, LATAM has a sizeable narrowbody order with Airbus. LATAM entered into agreements with Airbus to acquire by 2029 a total of 87 A320neo family aircraft. LATAM included several Airbus A321XLR in this order. It will become the third operator of the extra-long-range variant in the Latin American region, after JetSMART and Sky Airline.
