LATAM Airlines is the latest airline to file for Chapter 11 bankruptcy protection in the United States. This decision was clearly well planned, as the airline has already made a website available to all stakeholders, outlining the process.

Importantly, we want our stakeholders to know that we will continue to operate as travel restrictions and demand permit, paying our employees, meeting benefit obligations, and paying critical suppliers as well as respecting LATAM Pass miles and flight reservations as we work through the Chapter 11 reorganization process.

The U.S. Chapter 11 financial reorganization process provides a clear and guided opportunity to work with our creditors and other stakeholders to reduce our debt, address commercial challenges that we, like others in our industry, are facing as a group. It is very different from the concept of bankruptcy in other countries and is not a liquidation proceeding.

LATAM has put together an interesting infographic that explains “Chapter 11” in greater detail. Click here to take a look.

Why File for Bankruptcy?

According to CEO Roberto Alvo, LATAM entered the COVID-19 pandemic as a healthy and profitable airline group. So much so that Delta Airlines paid $1.9 billion (£1.55 billion) for a 20% stake in October 2019. So, what happened?

Despite the obvious cash flow difficulties the travel shutdown is presenting to airlines, LATAM is not now worthless. Instead this appears to be a strategic use of the Chapter 11 process to “right size” the fleet. In other words, LATAM is using bankruptcy court as a way to cancel aircraft leases. A tough negotiation awaits, but it is doubtful that Delta’s $1.9 billion stake (and the owners of the remaining 80%, presumably worth $7.6 billion several months ago) will be completely wiped out.

LATAM and British Airways Executive Club

You undoubtedly aren’t planning to fly on LATAM any time soon, but it’s worth noting that LATAM has now left the oneworld alliance. However, you can still earn Avios when flying LATAM, but you can no longer earn Tier Points.

Perhaps more importantly, you can still redeem Avios for LATAM flights.

The Bottom Line

LATAM’s bankruptcy filing is yet another example of an airline using the coronavirus crisis as an excuse to get out of contracts they no longer like. There is little doubt that LATAM will be flying for many more years…