Yesterday, LATAM Airlines Group published its financial results of 2020’s second quarter. Between April and June, the South American company had limited operations due to the travel restrictions across the company. It also filed for a Chapter 11 reorganization in the US on 26 May. So, how is the airline right now? Let’s take a look.
LATAM reduced 30% of its workforce and more than 20 aircraft
As many airlines across the world, LATAM had to reduce its workforce to adjust better to the current demand. First, to preserve liquidity, the company proposed a voluntary salary reduction of 25% for executives and 20% generally for July, August, and September. Approximately 95% of the group’s total employees accepted this proposal, said the carrier.
Nevertheless, during the second and third quarters, LATAM also decreased its headcount by 30%. By June, the company had fired up to 5,500 employees, and by August, it added 7,096 additional former employees.
Before the pandemic, LATAM Airlines Group had approximately 122 full-time employees per aircraft. This number was high even to pre-pandemic standards, according to regional specialist René Armas Maes. In comparison, last year Delta Air Lines operated 102 full-time employees per aircraft.
“Looking at LATAM fleet of 342 aircraft in 2019, it was operating with an ‘extra’ headcount structure of 6,840 employees,” wrote Armas Maes.
That’s not all. LATAM also is decreasing its fleet size. The group has rejected 23 aircrafts’ leasing contracts and is in the process of dismissing nine more. Before the pandemic, LATAM had a fleet of 340 airplanes.
What about its finances?
During the second quarter, LATAM had total revenues of US$571.9 million, a decrease of 75.9%. The airline group also posted a 93.9% fall in passenger revenues. Nevertheless, LATAM saw an 18.4% increase in cargo revenues as freighter operations rose by 28%.
In total, LATAM Group had a net loss of US$890 million.
The group ended the second quarter with over US$1.4 billion in cash and cash equivalents. It also reduced its financial debt by US$803.6 million but increased its leverage from 4.0x to 5.8x.
Due to the current uncertainty in South America, LATAM has been unable to operate in many countries. During most of the second quarter, LATAM flew domestic routes only in Chile and Brazil, while keeping cargo operations across the world. On 15 June, it restarted its flights in Ecuador and one month later in Peru. Nevertheless, Colombia and Paraguay are still closed, and the company ceased operations in Argentina.
What type of financing will LATAM get?
As an essential part of a Chapter 11 reorganization, LATAM Airlines Group can access different means of financing. It currently has secured commitments for US$2.2 billion in Debtor in Possession Financing, which is composed of a three-tranche structure.
The Tranche A, proposed by Oaktree Capital Management LLC, seeks to raise US$1.3 billion.
Meanwhile, the Tranche B targets the financing that governments can commit, said LATAM. It expects to raise US$750 million, and the governments will receive the payment for their investment after Chapter 11.
Finally, Tranche C was committed by Qatar Airways and some other companies. It is worth US$1.15 billion. This final Tranche will be subject to a 15-month minimum hold period.
Currently, the Southern District of New York is reviewing the DIP Financing. About its Chapter 11 reorganization, LATAM said,
“The group is fully focused on overcoming this crisis and restructuring the group in order to thrive in a post-COVID world, making LATAM a more agile, resilient, and sustainable group of airlines in the long term.”
What do you think of LATAM’s second quarter? Let us know in the comments.