Latam Airlines flies in consultants for Chapter 11 work

US-based investment advisory firm PJT Partners is supporting Chilean airline Latam with its Chapter 11 bankruptcy restructuring. The airline plans to remain operational through the proceedings.

Latam has disclosed more than $7 billion in debt, which includes over $400 million attributed to its Brazilian subsidiary. The airline has confirmed that it has appointed PJT Partners – a Blackstone Group spin-off that specialises in financial and strategic advisory services – to oversee its debt restructuring efforts. The Brazilian subsidiary is not be part of the turnaround.

The consulting firm PJT Partners was founded in 2015, and offers a wide range of services spanning strategy, corporate finance, restructuring, private fund advisory and fundraising services.

The airline has struggled with dwindling revenues resulting from the Covid-19 crisis, which pushed it to cut nearly 2,000 of its staff in recent months. According to Chief Executive at Latam Roberto Alvo, bankruptcy is the “best option” for the airline at present. The announcement saw the firm’s share dip by more than 40% in the US.

So far, the airline has raised $900 million in bankruptcy support from its major shareholders, namely Latam’s controlling holders – the Cueto family – as well as Qatar Airways. A government bailout is being considered, although Chile’s government is hesitant to initiate one.

Much like economies across Latin America, Chile’s government is grappling with a tight economy, and has little cash at hand to bail out airlines. This is among the reasons why the aviation sector in Latin America is expected to take up to six years to fully recover from the current crisis, two years longer than the recovery path of the global aviation sector.

Latam joins Avianca – the airline’s biggest competitor in Latin America and the world’s second oldest airline – in filing for bankruptcy amid the fallout of travel demand induced by the Covid-19 pandemic. Avianca brought consulting firm Alvarez & Marsal on board to support with the process, as it seeks to work its way through large piles of debt and poor cash reserves.

Latam is comparatively better off than Avianca in that it has been posting profits for the last four years, and has cash reserves of more than $1 billion. The airline even cleared a dividend payout recently, which is a unique move under the circumstances. Nevertheless, the demand shock has put considerable financial strain on the airline, and a “controlled” bankruptcy is considered the best way forward.