Latin-America’s LATAM Group has reduced its workforce by almost 7.100 since the start of Q2 and is in the process of a significant reduction in fleet size as it continues to restructure under Chapter 11 bankruptcy protection. On August 18, the airline announced its Q2 and HY1 results, which confirmed the difficult state the airline is in.
LATAM Group and its affiliates in Peru, Chile, Colombia, Ecuador, and the US filed for Chapter 11 on May 26 with the New York South District court. LATAM Brazil joined on July 9, while in June LATAM Argentina was declared bankrupt.
As of August 18, its workforce stood at 29.957, a reduction of 7.096 compared to the end of March. Of its remaining staff, 95 percent has accepted voluntary salary cuts of 25 percent for executives and 20 percent of general staff. A restructuring plan is work in progress as is an ‘adequate’ fleet plan that matches the resized form of LATAM. These plans are expected to be presented to the court on or before September 23, but this date could slip if ordered by the bankruptcy court.
On January 1, LATAM’s fleet included 337 aircraft but this has been reduced to 318 on June 30. So far, leases for 23 have been rejected. These include one Boeing 767, 16 Airbus A320-family aircraft, two A350-900s, and four 787-9s. Nine more lease rejections are to follow as they were subject to a hearing on August 19. This will bring the fleet to 306. Negotiations with lessors continue about interim and long-term payment solutions that include a payment-by-hour-plan that includes aircraft on both financial and operating leases.
According to the financial statements, on June 30 LATAM had 42 A320neo’s on order for delivery between 2020 and 2024 and two A350-900s for delivery in 2026 worth a combined $5.7 billion, plus six Boeing 787-9s for delivery between 2020-2023 worth $1.8 billion.
LATAM has secured commitments for $2.2 billion in three tranches of Debtor in Possession financing that should help to see the airline through Chapter 11. This includes $0.9 billion from Costa Verde, Eblen Group, and its shareholder Qatar Airways through two investment vehicles QR Investments 1 and 2. The court still has to approve this DIP financing.
The Group has $1.4 billion in cash and cash equivalents available with debts of $6.8 billion. In its financial statements, the airline says it has negative working capital of $-4.0 billion and will need additional working capital to support sustainable business operations.
HY1-loss of $3.0 billion
The Group recorded a Q2 net loss of $-893 million, an operating loss of $-694 million, and revenues of $571 million (-75.9 percent). For HY1, the net loss was $-3.0 billion, the operating loss $-598 million on revenues of $2.9 billion (-40.3 percent).
The Group’s airlines flew only 640.000 passengers on Q2, -96.2 percent down on the same period last year, and 18.2 million in HY1 (-47.8 percent). Passenger revenues in Q2 were -93.9 percent lower to $122 million while cargo was 18.4 percent up to $318.7 million as the airline expanded its cargo-only network. Adapted passenger aircraft accounted for 29 percent of all cargo traffic.
LATAM Ecuador has been operating limited domestic operations since June 15, followed on July 15 by identical services in Peru, which has been hit hard by the pandemic. For the same reason, LATAM Colombia remains suspended until September. A restart of international services to both countries and Argentina depends entirely on the outcome of the pandemic.
In Brazil, LATAM Brazil is operating on a much-reduced schedule but benefits from the codeshare agreement signed in June with Azul. This will gradually be expanded to include 35 routes.