LATAM Raises Over $ 5 Billion In Bankruptcy Exit Financing Offers

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LATAM Airlines Group – and some of its debtor subsidiaries in Brazil, Chile, Colombia, Ecuador, the United States and Peru – have received more than $ 5 billion in non-binding capital and financing proposals to exit from Chapter 11 bankruptcy proceedings, according to a filing with the SEC.

The airline group has also published its five-year business projection which it says marks one of the last steps before presenting its reorganization plan. LATAM projects a return to 2019 profitability by 2024 and an increase in operating income of 78% by 2026 compared to figures before the 2019 pandemic, the company said in a statement.

The offers “from its largest debt holders and majority shareholders” contemplate raising new funds through the issuance of new debt and equity in LATAM, which would be “supported by the proposing parties. “. “Further, in every exit proposal, the promoters envision that if such a proposal is approved and implemented, it would result in a substantial dilution of LATAM’s currently existing shares,” according to CEO Roberto Alvo’s filing on September 9, 2021 .

“LATAM will continue to discuss the exit proposals with their respective promoters and will continue to engage in discussions regarding its reorganization plan with these promoters and other stakeholders, some of whom have agreed to remain under nondisclosure agreements,” said he declared.

“LATAM strives to ensure that any exit strategy enables it to exit the Chapter 11 procedure with a solid capital structure, adequate liquidity and the ability to execute its business plan in a sustainable manner within the time. Any plan will be implemented in accordance with the relevant requirements of the US Bankruptcy Code and Chilean law, ”Alvo said.

An extraordinary general meeting would be called if necessary, subject to the progress of negotiations with the various stakeholders. The main shareholders of the carrier are Delta Air Lines (DL, Atlanta Hartsfield Jackson) (20%), the Cueto group (16.4%) and Qatar Airways (QR, Doha Hamad Int’l) (10%). The other shareholders hold 34.4% of LATAM’s capital.

LATAM and its subsidiaries – which entered U.S. Chapter 11 protection on May 26, 2020 – also filed a petition in the Bankruptcy Court for the Southern District of New York for an extension until October 15 of the period. during which debtors have the exclusive right to submit a reorganization plan, and until December 15 to request acceptance of a plan. The court is due to consider the petition at a hearing on September 23, 2021.

As of July 31, 2021, LATAM was declaring approximately $ 1.9 billion in cash, taking into account $ 1.1 billion in cash and cash equivalents and $ 800 million in debtor in possession (DIP) financing not drawn.

LATAM’s existing debtor-in-owner financing provides for a possible additional third tranche (the “Tranche B Facility”) of secured funding of up to $ 750 million, in addition to the existing $ 1.3 billion facility of the LATAM. Tranche A and Tranche C $ 1.15 billion, which are not fully drawn to date. Given the currently favorable market conditions, LATAM was soliciting the interest of potential lenders for the provision of a Tranche B facility and would consider proposals to determine whether it was able to borrow funds at a more competitive rate than in within the framework of the existing facilities of tranches A and C.

Meanwhile, a telephone hearing will be held in U.S. Bankruptcy Court on October 28, 2021, on a petition filed by the debtors to assume various aircraft deals and related relief in the aggregate amount of approximately $ 52.4. million dollars, according to a notice filed by the court on Sept. 10, 2021.

Along with announcing its proposed exit funding, LATAM also disclosed its financial projections from Chapter 11 through 2024, when it expects to fly a similar number of available seat miles (ASK) as in. 2019 and 7% growth by 2026, resulting from an estimated recovery in domestic markets by 2022 and international markets by 2024. However, its mix of operations would be very different. “The duration of the stage will be shortened as the domestic markets recover faster than the international one, and we will carry 12% more passengers with a lower corporate passenger mix than before the pandemic” , the airline said.

The recovery scenario has been supported by the operational ramp-up of LATAM Airlines Brazil’s domestic market to date, which reached 77% ASK in August compared to 2019 and is expected to exceed 100% of 2019 levels at the start of 2022. The domestic markets of subsidiaries in Colombia (LATAM Airlines Colombia), Ecuador (LATAM Airlines Ecuador), Peru (LATAM Airlines Perú) and Chile (LATAM Airlines) already reached 72% in August, while the international recovery group, both regional and long-haul, continued to be affected by travel restrictions.

Meanwhile, LATAM had streamlined its fleet and now operated an all-Boeing widebody fleet, creating further efficiencies. “We will be flying newly refurbished B777s from Brazil and in the next few months we will introduce the B787-9 in Brazil. We also continue to modernize the cabins of our fleet of narrow-body vehicles. ” According to advanced ch-aviation fleets ch-aviation module, the air group has a fleet of 294 aircraft spread over its various AOCs, including forty-four A319-100, 132 A320-200, twelve A320-200N, forty-eight A321-200, twenty-four B767 -300 (ER), ten B777-300 (ER), ten B787-8 and fourteen B787-9.

Cost reduction initiatives discussed during the Chapter 11 process, including leveraging LATAM’s digital transformation to improve efficiency, supplier renegotiations and fleet restructuring, saved $ 900 million. dollars per year and allowed LATAM to structurally change its cost base. He said a significant portion of his cost containment came from renegotiating his fleet, which was his biggest fixed cost. Fleet costs alone indicate annual cash cost savings of over 40% compared to 2019. “We have already obtained court approval for all new conditions affecting 95% of our fleet. These new conditions will allow us to reduce the more than 40% during the forecast period compared to 2019. We have also entered into interest-only or variable usage-based payments, extending through 2022 for 60% of our narrow body fleet and until 2023 for 50% of our wide body fleet. “Its MRO facilities in Brazil and Chile would allow it to internalize most of its maintenance.

LATAM Group said it has secured slots to convert passenger planes to freighters, which has enabled it to increase cargo capacity by 80% by 2024. By 2024, before inflation, we expect our Total available seat-kilometer cost (CASK) excluding fuel will be 3.9 cents, which is an improvement of 0.6 cents from 2019 CASK.

LATAM expects its revenue to grow 13% to $ 11.8 billion in 2026 and its EBIT margin to reach 25% in the same year. Passenger revenues are expected to increase by 8% and freight revenues by 59% compared to 2019.

LATAM’s freight subsidiaries would incorporate at least eight new freighters into their fleets and some of these aircraft conversions had already started. The slower recovery in international activity provides a unique opportunity for this business unit as there was less storage capacity available.

On the passenger side, the Group anticipated a competitive environment during the first years of projections. “We expect the group’s capacity to exceed demand and unbundling our tariffs and improving the cost structure will play a key role. In the final years of the projections, we expect a more balanced supply and demand. . ” LATAM unbundled its tariffs in 2017, implementing an ancillary products strategy, which it believes would be a pillar of future growth.

Operating cash flow was forecast to be $ 1 billion in 2022, rising to $ 2.8 billion in 2026. Free cash flow, including fleet CAPEX, would be positive in 2023 and ramp up to $ 1 billion in 2026. “All additional planes are modeled. as operating leases and will therefore not involve disbursement, ”he noted.

In addition to fleet and freight conversions, LATAM would invest in improving its performance and products, including digitization, cabins and Wi-Fi connectivity.

The group said it had leveraged the Chapter 11 process and would come out with an improved operating cost structure that would position it competitively. “The reorganization has enabled LATAM to introduce structural transformations: a renegotiated fleet, an already improved cost position and a strengthened network. We are convinced that the LATAM group will emerge from this crisis stronger than ever,” he added. he declares.


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