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U.S. bankruptcy judge rejects Latam Airlines proposed $2.4 billion financing deal

LATAM filed for bankruptcy protection in May, hammered by the world travel crisis generated by the coronavirus pandemic

Passenger planes parked on a runway are seen during a general quarantine amid the spread of the coronavirus disease (COVID-19), at the Arturo Merino Benitez International Airport, in Santiago, Chile May 26, 2020. Photo: Reuters/Ivan Alvarado/File Photo
  • Latam filed for bankruptcy protection in May, hammered by the world travel crisis generated by the coronavirus pandemic;
  • At the time, it was the world’s largest airline to file for bankruptcy due to COVID-19.

A U.S. bankruptcy judge on Thursday rejected a $2.4 billion financing plan for struggling Latam Airlines on the grounds that a convertible loan included as part of the package would amount to “improper” treatment of other shareholders.

The move is a setback for Latam, which needs short-term liquidity. But in a lengthy court decision, the judge left the door open for the Chilean carrier to introduce a similar financing plan in the future, this time without the possibility of converting part of the loan into equity.

READ ALSO: Without government aid, Latin American airlines will take longer to recover

The airline had no immediate comment on the decision.

The proposal supported by Latam was composed of a $1.3 billion loan from asset management firm Oaktree Capital Management and a $900 million convertible loan from several key Latam shareholders, including the Cueto family that controls the airline and Qatar Airways.

Latam presented the bankruptcy financing proposal in July, which prompted a challenge from other creditors, who even assembled a separate funding plan with investment bank Jefferies Group. The key dispute was over the propriety of the convertible loan.

READ ALSO: Brazilian airlines are gradually recovering and operating at 40% of pre-pandemic levels

Latam filed for bankruptcy protection in May, hammered by the world travel crisis generated by the coronavirus pandemic. At the time, it was the world’s largest airline to file for bankruptcy due to COVID-19. In July, Latam Brasil, the Brazilian arm of the largest airline group in Latin America, also filed for bankruptcy protection in the U.S.

One of the aspects that made airlines in the region more vulnerable was the lack of financial aid from governments. Iata points out that Latin America was the continent that received less government support. At least 13 of the 20 largest airlines in the world received direct aid from governments, which irrigated coffers at companies such as Germany’s LufthansaAir France, Dutch KLM, Portuguese TAP, and Britain’s Easyjet. At least $123 billion was allocated to these and other carriers.

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