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What’s Going on With Latam Airlines?

Latam Airlines (OTC:LTMAQ) Group is an airline born in 2012 from the merger between the Chilean Lan and the Brazilian Tam, with headquarters in Santiago and subsidiaries in Brazil, Colombia, Ecuador, Peru and the United States, which in May 2020, as a result of the COVID-19 pandemic, applied for Chapter 11 of the United States Bankruptcy Code, that allows companies operating in the American country reorganize under the protection of the law to deal with financial problems.

In June of this year, they signed letters of commitment of financing for the exit of its bankruptcy process with seven banking entities (JPMorgan Chase (NYSE: JPM) Bank, Goldman Sachs (NYSE:GS) Lending Partners LLC, Barclays (LON:BARC) Bank PLC, BNP Paribas (EPA:BNPP), BNP Paribas Securities Corporation, and Natixis (NYSE:99V33V1Z3=MSIL) New York Branch), which meant that the company had a committed line of credit worth US$500 million. And on June 18, 2022, the Bankruptcy Court of the Southern District of New York confirmed the group’s Reorganization and Financing Plan to exit the Chapter 11 process, foreseeing with this plan to be able to recover in the last quarter of this year.

This plan was recently updated according to a statement to the Financial Market Commission (CMF), increasing cost savings by more than US$ 1,000 million, with which they estimate to reach pre-pandemic levels by 2024, about US$ 11,500 million. The company’s CEO, Roberto Alvo, expressed that “this updated business plan reflects how the Latam Group is better prepared to face future challenges, with a more competitive and flexible cost structure, with a more complete offer for customers and moving towards a more sustainable aviation.”

In this second quarter of 2022, Latam Airlines registered revenues of US$ 2,226 million, which represents an increase of 150.5% compared to the same period in 2021, although the figure was 6.1% below the levels of 2019. The strength of the national markets stands out, with Brazil, Colombia and Ecuador being the first to recover, which were later joined by Peru. Chile and the international market are moving at a slower pace, but still well on the way.

Despite the concern about the social and political situation, and especially about the price of fuel, there is optimism for the recovery of this airline that is today the number 12 in the world. It has been attacked on several fronts and with great care to expand the market, recover income levels and reduce costs to the maximum, while still providing a quality service.

Among the strategies implemented, they plan to reach carbon neutrality by 2050, which is why LATAM announced in April that it will seek to achieve a 5% sustainable fuel use by 2030, prioritizing production in South America. In turn, the group announced in July its intention to explore opportunities for the elimination of CO2 through the direct air carbon capture and storage system (“DACCS” for its acronym in English). This announcement was made collaboratively and in partnership with other industry players after signing a letter of intent with Airbus.

The “Recycle your Trip” program was also implemented in the Peru subsidiary and later in Colombia, which consists of segregating the waste generated on board and was already operational on domestic flights of the Chile and Ecuador subsidiaries. Finally, LATAM added new alliances to its Solidarity Airplane program by signing cooperation agreements with ANIQUEM in Peru and Firefighters in Chile.

It has been a complex process, but the recovery is on track. Roberto Alvo, CEO of the company commented in this regard: “We ended a second quarter with significant progress in our Chapter 11 reorganization process and we expect to complete it during the last quarter of this year. Despite the fact that the group has made progress in the operational recovery, we continue to maintain cautious optimism for the coming months, closely following fuel prices and macroeconomic variables, since the sector is still in a very dynamic environment.”

Despite being the only one of the three Chapter 11 airlines that have failed to emerge from bankruptcy protection (Avianca did so last December and Aeromexico in January of this year), it remains cautiously optimistic in view of the results obtained so far and the projections made.

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