LATAM Airlines hopes to speed Delta partnership through bankruptcy restructuring

LATAM Airlines became the largest global airline casualty of the coronavirus pandemic with its bankruptcy filing in New York on May 26.

With 320 aircraft and bases in South America's largest countries, Santiago, Chile-based LATAM succumbed to a near "instantaneous" evaporation of travel demand amid the global roll out of travel restrictions since March, the airline said in court filings. The carrier joined the likes of Avianca and Virgin Australia among large airlines forced to restructure because of COVID-19.

“I am confident [reorganization] will allow us to adapt to [the] industry’s current conditions and better prepare LATAM for the future," LATAM CEO Roberto Alvo said in a video message. "During the process, [LATAM’s] operations will follow their usual course and this decision will not affect our efforts to return to regular operations.”

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LATAM's reorganization only includes its business units in Chile, Colombia, Ecuador and Peru. It does not include the airline's operations in Argentina, Brazil and Paraguay, nor will there be any impact on its LATAM Pass mileage program.

The International Air Transport Association (IATA) has warned that, barring government intervention, the coronavirus crisis could wipe out half of the world's airlines.

As if to prove IATA's point, LATAM did not include its Brazilian unit -- a full quarter of its business -- in its bankruptcy because the government there is moving to support airlines through the crisis.

Related: LATAM enters bankruptcy due to coronavirus, says it will keep flying

One potential upside from LATAM's bankruptcy is its partnership with Delta Air Lines. The airline plans to use the court-led process to accelerate approvals of their joint venture that would cover flights between the U.S. and South America. The pact would allow closer coordination between Delta and LATAM, including jointly scheduling flights and marketing tickets.

However, Delta has also cancelled a deal to buy four Airbus A350-900s from LATAM as a result of its bankruptcy. Atlanta-based Delta will pay LATAM a $62 million penalty for the move. The jets were among 14 aircraft -- four that were already built and and 10 orders -- that Delta agreed to acquire from LATAM as part of the strategic partnership.

Delta plans to use the A350 to replace the Boeing 777s that it decided to retire due to the crisis. Without the four LATAM jets, the U.S. carrier has firm orders for 22 A350-900s in addition to the 13 already in its fleet.

"We remain firmly committed to our partnership with LATAM and believe that it will successfully emerge a stronger airline and Delta partner for the long term," Delta CEO Ed Bastian said in a statement. The airline owns a 19.99% stake in LATAM.

Related: Air travel won’t return to pre-coronvirus levels until 2023, IATA predicts

LATAM will emerge a smaller airline from bankruptcy. In its initial court filings, the airline outlined plans to return 19 leased aircraft to their owners. Those planes include: one Airbus A319, one Airbus A320, 11 Airbus A321s, two A350-900s and four Boeing 787-9s.

The carrier operated 320 aircraft prior to the crisis. In addition to A350s and 787s, this includes 244 A320 family jets, 41 Boeing 767s and 10 Boeing 777-300ERs.

Despite long-term plans to shrink, LATAM is beginning to spool up its operations. After flying around just 5% of its schedule in May, it plans to operate roughly 9% in June including reinstating long-haul flights between São Paulo Guarulhos (GRU) and Frankfurt (FRA), London Heathrow (LHR), Madrid (MAD) and Miami (MIA). The airline hopes to operate 19% of its schedule in July.

Qatar Airways, which owns 10% of LATAM, was not immediately available for comment on the bankruptcy. However, the Doha-based carrier, along with the Amaro and Cueto families that own sizable stakes in the airline, will jointly provide LATAM with a $900 million loan to help it emerge from Chapter 11.

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Updated with statement from Delta CEO Ed Bastian.