Yahoo Finance Latam Airlines Is Looking to Grow After Emerging From Bankruptcy
(Bloomberg) -- Seventeen months after exiting bankruptcy proceedings, Santiago-based Latam Airlines Group SA is feeling confident enough with its finances to seek new transactions and declare itself “open to opportunities,” according to its top executive.
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“The pandemic and the Chapter 11 process was very hard for Latam and for its shareholders that lost everything, but they allowed us to resurface as a group that is financially much stronger than before the pandemic,” Chief Executive Officer Roberto Alvo told Bloomberg News in Santiago. “And these days we have the financial capacity to jump on opportunities, grow and invest.”
He also used one of his first interviews since a Latam flight suffered a mid-air plunge over New Zealand last month to voice confidence in embattled US planemaker Boeing Co.
Two opportunities the company is actively studying are relisting its shares on the New York Stock Exchange, as it announced April 3, and refinancing dollar bonds due in 2027 and 2029 as soon as October, when they become redeemable. Those bonds were issued as part of the debt and ownership restructuring of the carrier.
The company still has to choose the right time for the relisting, Alvo said. “We see an interesting alternative to refinance that debt because Latam’s risk premium is lower, there is more clarity about what we have achieved, about our track record, and yields are also a little bit lower.”
It’s a strong turnaround for South America’s largest carrier, which initiated bankruptcy proceedings in 2020 after the Covid pandemic prompted lockdowns, closed borders and grounded flights. Its losses that year and in 2021 totaled about $4.9 billion. Since then, it slashed its debt by about $3.6 billion and has been able to post positive net income in the last five quarters. Analysts now see it reporting profit of $178 million in the first quarter of this year, according to data compiled by Bloomberg.
The bankruptcy proceeding led to a drastic change of ownership. The local Cueto family, which owned 16.4% before the pandemic through its holding company Costa Verde Aeronautica SA, saw its stake fall to about 5%. Its biggest shareholder now is San Francisco-based Sixth Street Partners with nearly 28%.
Latam’s cleaner balance sheet coincides with a recovery in demand in its most important domestic and international routes. Its ASK — available-seat-kilometer, an industry term to measure transport capacity — has already surpassed pre-pandemic levels in its home markets and it should reach that milestone internationally by the end of the year, Alvo said.
“Domestic markets started to recover in the second half of 2022 and international markets were lagging behind,” Alvo said. “The pace of recovery in international demand really began in the last 12 months.”
Bloomberg Intelligence agrees the CEO has reason to be optimistic.
“Latam’s strong balance sheet helps and compares favorably to other airlines in the region, allowing for growth opportunities,” BI analyst Francois Duflot said by email. “Still, growing capacity through 2025 could pressure fares and yields.”
Latam operates a fleet of 333 aircraft with an average age of about 11.5 years. It’s comprised of 256 narrowbodies from France’s Airbus SE, plus 57 widebodies and 20 cargo freighters built by Boeing, according to its 2023 annual report.
The carrier has plans to receive 111 Airbus A320 over the next five to six years, which are partly replacing older models. It also recently announced an order for five more Boeing 787 Dreamliners, which are the “backbone” of Latam’s international growth plans, Alvo said.
Airlines are experiencing deepening uncertainty from the Virginia-based aviation giant as its deliveries remain muted while the manufacturer faces increased scrutiny of it’s operations.
Boeing asked 787 Dreamliner operators for further inspections after a Latam flight en route to Auckland had a mishap in March, injuring multiple people on board. Chilean regulators said in a preliminary report that the captain’s chair began to move forward on its own and that other steps of the investigation are pending. Alvo declined to comment on the process.
Regarding Boeing’s issues, Alvo said he’s confident the company will be able to leave its problems behind. “Boeing produces fantastic planes,” Alvo said. “We operate those planes without any concerns.”
Deliveries and Delta
One issue that’s plagued the industry, though, is delays in deliveries. “It has been difficult to recover the whole production chain,” Alvo said. “An aircraft has millions of parts and there are thousands of suppliers involved and recovering all this since the pandemic has been difficult for both Airbus and Boeing and this is generating delays.”
Latam announced a flight-sharing agreement with Delta Air Lines Inc. in 2019 through which Delta acquired a 20% stake in Latam. That stake was diluted to 10% after the bankruptcy process.
Regarding that joint venture, Alvo said the alliance has been maturing quickly. “We grew a lot in 2023 together with Delta, partly due to the natural recovery after the pandemic, but it also allowed us to open important new international routes,” Alvo said. “We will see strong results from this alliance in 2025.”
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