Photo: Brian Bukowski (BriYYZ) via Wikimedia Commons
The LATAM Airlines Group’s unsecured creditors’ committee in its Chapter 11 proceedings alleged this week that Delta Air Lines and Qatar Airways took advantage of LATAM’s precarious position in 2020. The committee stated that these two carriers perpetrated fraud against LATAM. Today, both Delta and Qatar filed objections against LATAM creditors’ claims of fraud. What is going on?
What are the creditors saying about Delta?
The Committee filed a motion on June 10 asking the bankruptcy court to grant its standing to prosecute fraudulent transfer claims from Delta and Qatar. Both actions happened before LATAM filed for a Chapter 11 bankruptcy in May 2020.
But first, let’s go back a little bit further. In November 2019, Delta agreed to purchase four A350 airplanes for LATAM. Then, after the COVID-19 pandemic hit, the value of widebody airplanes declined. According to the creditors, Delta wished to avoid its obligations to pay the original price for these planes, so it asked LATAM to terminate the contract.
On the eve of filing for Chapter 11, LATAM terminated the contract and accepted US$62 million in return.
According to the creditors, Delta agreed to buy four A350-900 from LATAM to avoid paying pre-crisis prices for these planes. LATAM received less money than it should have, impacting its Estate. This gave rise to fraudulent transfer claims against Delta, reads the creditors’ filing.
What are the creditors saying about Qatar?
At the beginning of 2020, LATAM was subleasing five Airbus A350 airplanes to Qatar Airways. When the COVID-19 pandemic hit, Qatar grounded LATAM’s fleet. Then, prior to LATAM’s Chapter 11, the South American carrier relieved Qatar of its contractual obligation to pay for the original lease of this long-haul fleet.
Similarly to Delta, these facts give rise to fraudulent transfer claims against Qatar. According to the creditors, “Qatar is extraordinarily solvent; there was never any reason to think that Qatar would have been unable to pay its rent as it became due”.
The creditors asked LATAM to pursue fraudulent transfer claims against Qatar and Delta; nevertheless, the South American company refused; Therefore, now the Committee is seeking to pursue these claims on behalf of LATAM.
What are Qatar and Delta saying?
Today, both Delta and Qatar Airways filed objections against LATAM creditors’ claims of fraud. Delta said that the immediate cash infusion of US$62 million and its commitment to remain as LATAM’s business partner “was well worth the Debtor’s monetization of a right.”
The US carrier added that the Committee’s claims are neither plausible nor colorable. LATAM, prior to its Chapter 11, “pursued all available options to raise desperately needed liquidity,” said Delta. Among other things, LATAM negotiated an immediate infusion of US$62 million by terminating the A350 purchase agreement. In return, LATAM received the money and a “firm commitment from Delta to waive enforceable rights to terminate the framework and joint venture agreements.”
Qatar Airway’s arguments are similar. The Middle East carrier also states that LATAM was looking “for creative ways to increase its liquidity.” Among other strategies, both airlines began discussing what to do with the five subleased aircraft. After a few negotiations, LATAM approved the early redelivery of the A350 subleased fleet for an undisclosed amount of money.
This story is far from over. We can expect the Committee’s claim to drag on for a few more months. LATAM’s Chapter 11 is proving to be the most controversial among Latin America’s three bankruptcy processes.
