On Tuesday, LATAM announced its bankruptcy and filed their Chapter 11 including its parent company LATAM Airlines Group S.A. and its affiliated organizations in Colombia, Peru, Ecuador, and trade in the U.S. They confirmed that their affiliate groups in Argentina, Brazil and Paraguay were not part of the bankruptcy.

Bankruptcy to reduce debt

The airline company later admitted that the reorganization effort would be to reduce its debt and find new sources of finance. So far, they laid off 1,800 employees from the 40,000 total employee count while they were filing for the bankruptcy. The carrier's Chief Executive Roberto Alvo said in reference to bankruptcy, "This path represents the best option." Alvo said that the company was profitable before the pandemic began. However, due to flight bans across the world, they had to declare being at a "collapse" in terms of global demand.

He said in an infographic where he explained the bankruptcy that LATAM was continually finding ways to ensure safety and security of passengers and employees by "looking ahead" to a future after the pandemic. 

When LATAM filed for bankruptcy, the effort was backed by two of their most prominent shareholders, the Cueto family and the Amaro family. On top of this, Qatar Airways, which owned 10% of the airline group, also presented support. They agreed to provide $900 million to financially sustain LATAM through the process.

Compared to other flight carriers that suspended payouts during the crisis, LATAM would still continue to fly while they reorganized amid the pandemic. The company currently reported $1 billion in the cash reserves.

It was reported on Tuesday that they had over $7 billion in debt, which included loans connected to subsidiaries in Brazil worth $460 million. LATAM was also "downgraded" by S&P and Fitch after they failed to pay interest and principal for their debt on new aircraft.

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Government to bail out

Economy, Development, and Tourism Minister Lucas Palacios said that he might be considering a bailout for LATAM, but he cited that LATAM's international trades might allow the carrier to recover faster than other airlines in Latin America.

In a statement in March, Palacios said that the government should be prioritizing the people, and for LATAM to be asking for a bailout might be wishful thinking at best.

The company assured that essential operations such as reservations, employee pay, vouchers, and cargo would not be affected by the bankruptcy.

LATAM said in a statement that the U.S. Chapter 11 restructuring process had presented guidelines for them to work with creditors and stakeholders in order to reduce company debt. They added that it was not a liquidation proceeding.

Possibly because it was an international airline, and thus shared trade with countries like the United States, LATAM approved a dividend payment. Their unit in Brazil is not part of the bankruptcy, but the company was considering filing for one as LATAM negotiated a bailout from their government worth 2 billion reais, or $367.45 million.