Fleet Financing

Latam Airlines CEO cuts costs and emissions in bankruptcy

(Bloomberg) – Latam Airlines Group chief executive wants to take his company out of bankruptcy next year with a declining carbon footprint and lower costs that can help it grow in a travel market that is still recovering from the coronavirus pandemic.

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Roberto Alvo said Latin America’s largest airline was making progress on a financing plan it would submit to a judge next month, putting it on track to exit bankruptcy protection in the first half of 2022. .

During the Chapter 11 process, which it entered last May, the company reorganized its fleet and reduced operating costs to compete with low-cost carriers. But Alvo, a two-decade veteran of the company who took over as CEO last April as the pandemic disrupted air travel, emphasizes its role as a good corporate citizen, including its commitment to reducing emissions from air travel. carbon.

Latam “will be a lot stronger financially than how he came in and very willing and able to seize market opportunities to grow,” Alvo said in an interview in Bogota on the sidelines of an airline conference. “But most importantly, the countries where we operate understand the business as an asset to the company.”

Carriers around the world, including Latam, pledge to eliminate carbon emissions on a net basis by 2050 as industry aligns with Paris Agreement target of limiting global warming . Airlines have few options to meet the target, at least in the short term, as production of more sustainable fuels remains limited.

Latam is investing in conservation and reforestation projects to offset its CO2 production, adding more fuel-efficient Airbus A320neo aircraft to its fleet and installing flight path software that will save more than 20,000 tonnes of fuel. fuel per year. Alvo said the investments will ultimately benefit the company’s bottom line as passengers recognize Latam’s work on sustainability.

“It is perfectly compatible to have a lucrative business while using your platform to help the companies in which we operate,” he said.

Demand in its five South American domestic markets will be at pre-pandemic levels next year, but international travel will be slower to return, he said. Latam expects pre-Covid profitability to return in 2024.

Floats on the ground

The Santiago-based airline has requested Chapter 11 protection after being forced to ground most of its fleet as governments seal borders and shut down airspace in an attempt to stop the spread of the coronavirus. Two other major airlines in the region, Avianca Holdings and Grupo Aeromexico, have also filed for bankruptcy.

A year and a half after the start of the process, Latam’s bankruptcy is beginning to drag on, at least in the eyes of some creditors.

The company has held talks with creditors on the outlines of a restructuring plan, but there remains a “massive economic gap” between it and a key group of creditors, creditors’ lawyers wrote in court documents this month. this. His group of lower-ranking official creditors fear they will be forced to agree to a sub-optimal plan.

A key question is whether shareholders are entitled to anything at the end of bankruptcy. In the United States, where bankruptcy is at stake, shareholders are the last to pay back and are generally devastated. But in Chile, shareholders have certain legal rights that may conflict with US rules. The main shareholders of Latam are the Cueto family, Delta Air Lines Inc. and Qatar Airways.

Latam was granted clearance last week to access a $ 750 million line of credit provided by Oaktree Capital Management and Apollo Global Management. The company still has borrowing capacity under other credit facilities obtained during its bankruptcy, but the new money is cheaper than those other options, the company said.

The company has requested a court extension to submit its Chapter 11 exit plan. If approved, it would have until Nov. 26 to file the plan, a deadline Alvo said he was “confident” the company would respect.

“The company works hard and makes sure it can negotiate something that is good for all stakeholders and complies with Chilean and US laws,” he said.

The case is LATAM Airlines Group SA et al., 20-11254, US Bankruptcy Court for the Southern District of New York (Manhattan). To view the Bloomberg Act file, click here.

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