LATAM Airlines Starts Reducing Fleet, Including A350 And 787 Aircraft Under Chapter 11 Bankruptcy

LATAM wants to return 19 aircraft to lessors in its first bankruptcy restructuring of its 340 aircraft. Lessors will have 15 days to claim the jets.

The group is still analyzing its future strategy but has “reached certain preliminary conclusions regarding excess aircraft that are no longer accretive to their business,” LATAM said in a motion awaiting court approval.

The 19 aircraft comprise six A350 and 787 widebodies and 13 A320 family aircraft. Two A350-900s are registered in Brazil, four 787-9s in Chile, seven A320 family aircraft in Brazil, and six A321s in Chile.

Rejecting these specific leases may reflect finances more than strategy.

“Bankruptcy courts have often authorized airline debtors to abandon aircraft subject to burdensome outstanding debt,” LATAM said.

Of the 19 aircraft, 17 ­­– including all widebodies – are held by Wilmington Trust but ultimately owned by various lessors. Wilmington Trust is LATAM’s largest secured creditor with $778 million due as of April 30.

Besides rejecting leases, LATAM said it could restructure others in the court process, known in its home markets as recuperação judicial and quiebra.

LATAM pays $44m monthly for 98 aircraft under operating lease and is due to pay $3.3 billion through 2028 for aircraft financed through special purpose vehicles. It also has $590m outstanding related to JOLCO leases.

LATAM will also explore options for the 44 aircraft it is due to receive from Airbus between 2020-2026, as well as seven aircraft from Boeing
BA
: six 787-9s in 2020-2026 and one 777 freighter in 2024.

Its pre-delivery payments total $297m. The $175m for 20 unspecified Airbus aircraft was financed by Santander, and $139m is outstanding. The $122m to Boeing is not subject to financing arrangements.

LATAM requests the 19 lease rejections be applied retroactively to the date of filing. That will give lessors 15 days from May 26 to retrieve their aircraft, except the four 787s that will be available from June 3, LATAM said.

After 15 days, lessors will have to pay for the insurance and storage maintenance that LATAM will initially cover.

Rejecting the two A350s leaves LATAM with 11 A350s, as of its year-end 2019 fleet. The four 787-9s departing reduce LATAM to having 12 787-9s and 10 787-8s. LATAM also has 10 777-300ERs and 31 passenger 767s that are not yet affected.

An aircraft return list on Brazilian social media has four additional jets – two A350s and two 787s – leaving the fleet imminently, but these aircraft were not in LATAM’s formal court request. They are separate to the Wilmington Trust tranche.

COVID-19 justifies LATAM’s motion to reject the 19 aircraft, the airline argues.

“The economic burden of these leases is more pronounced where a significant portion of the [group’s] aircraft are grounded due to the current lack of demand for passenger travel and clear visibility as to when the demand for air travel will resume at pre-pandemic levels,” LATAM says.

Two of the 19 aircraft are not affiliated with Wilmington Trust. They are an A319 and A320 with DVB as a lender. The A320’s security agent is Natixis, which is LATAM’s fifth-largest secured creditor, as of April 30. But its $243m is related to nine A321s.

LATAM’s second-largest secured creditor is Citibank with $603m for 26 unspecified aircraft.