LATAM Airlines receives financing offers for USD 5 billion and requests an extension for its reorganization plan

Just before the deadline, LATAM Airlines today filed a request to the bankruptcy court to extend the exclusivity period to present its reorganization plan until October 15, and its subsequent approvals until December 15, 2021, as expected by the market.

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The leading Latin American airline group also announced having received «several offers from its main claimholders and majority shareholders, each of which provides more than US$5 billion of new funds, reaffirming the market’s confidence in LATAM». This contemplates the issuance of new debt and equity and if approved, would result in a substantial dilution of existing shares.

In the presentation of the five-year business plan, the group presented a projection of recovering profitability to pre-crisis levels by 2024, when capacity (ASK) will also be recovered. By 2026, a 7% growth in capacity versus 2019 is expected, driven by a full recovery of the domestic market in 2022 and international in 2024.

By 2026, the group’s total revenues would reach USD 11,764 million, 13% higher than in 2019, passenger revenues would grow 8% and cargo revenues 59%.

«Cost reduction initiatives during Chapter 11, which include efficiency improvements thanks to digital transformation, renegotiation with suppliers and fleet restructuring would total over US$900 million annually and have allowed LATAM to structurally modify its cost base. The fleet costs alone will score over 40% annual cash savings compared to 2019,» LATAM said in a statement.

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«The group also expects to improve its passenger CASK (cost per ASK) ex-fuel, which before the impact of inflation, is estimated at US$3.3 cents in 2024, with certain domestic operations even below that figure. At the same time, the group managed to variabilize its costs from 65% in 2019 to 80% in 2021-2022, which will allow it to better adapt to the non-linear recovery in demand,» they continued.

By 2026, the operating margin (EBIT) would reach 11.2%, the highest since 2010.

«Despite the dramatic crisis we have faced, we have made the most of our restructuring, not only becoming substantially more efficient but also consolidating a better value proposition for customers, which has been reaffirmed by the strong interest we have received in providing exit financing,» commented Roberto Alvo, CEO of LATAM Airlines. «We will emerge from this process as a highly competitive and sustainable airline group, with a very efficient cost structure, taking care of the unparalleled connectivity that LATAM offers in the markets it serves,» he added.

Fleet
The business plan also projects a gradual growth of the fleet from 286 aircraft in 2021 to 331 in 2026 (after being reduced from 340 aircraft). Fifty-seven will be wide-body and 254 will be single-aisle. The average age will be 12.8 years (today it is 10.5).

LATAM also highlighted that it is soliciting expressions of interest from potential lenders to provide a credit facility under Tranche B, provided for within the DIP (debtor-in-possession) financing, for up to USD 750 million. This would be in addition to existing facilities of USD 1.3 billion under Tranche A and USD 1.15 billion under Tranche C, of which it still has USD 424.5 million and USD 375.5 million respectively.