By Juan Pedro Sanchez Zamudio
LATAM Projects Pre-Pandemic Levels of Profitability in 2024, Receives Offers for $5 Billion in Financing
LATAM Airlines Group and some of its debtor subsidiaries in Brazil, Chile, Colombia, Ecuador, the U.S. and Peru released their five-year business plan along with various advances related to their exit financing process.
LATAM projects, by 2024, a recovery of profitability to the levels of 2019 and an increase in operating income of 78% by 2026 compared to the pre-pandemic period.
According to a press release, the Chilean carrier announced that it has received several offers from its main creditors and majority shareholders to contribute more than $5 billion of new funds, reaffirming the market’s confidence in LATAM.
The business plan includes a vision of the recovery of demand, the fleet plan and financial and operational projections until 2026, among other factors.
Regarding the projected capacity in available set kilometers, LATAM expects to return to pre-pandemic levels in 2024 and a growth of 7% by 2026 compared to 2019. These results would be explained by a total recovery of the domestic and international markets by 2022 and 2024, respectively, in line with what was announced by the industry.
This recovery is led by LATAM Airlines Brazil, where the domestic market reached operational capacity — measured in ASK — of 77% of 2019 levels in August and is expected to exceed 2019 levels to early 2022.
The domestic markets in Colombia, Ecuador, Peru and Chile already reached 72% of 2019 capacity in August, while the international recovery of the group — both regional and long-range — continues to be affected by restrictions ordered by the governments of the region.
LATAM projects an operating margin of 11.2% in 2026, its highest since 2010. This will come as it substantially cuts expenditures.
Costs reduction initiatives during the Chapter 11 process have included improving efficiency using digital investment, contract renegotiation with suppliers and restructuring of the fleet. These cost reduction strategies are expected save the group over $900 million and allow LATAM to structurally modify its cost base.
Total revenue would increase 13% by 2026. Revenue from passengers would grow 8% while that from of cargo would increase 59% compared to 2019.
Currently, LATAM is negotiating with various stakeholders to agree on a reorganization and exit plan to successfully emerge from Chapter 11 in compliance with all applicable laws.
During the last few months, as part of the Chapter 11 process, LATAM has developed and made available certain material non-public information to interested parties that are under confidentiality agreements.
This information includes five-year projections and an initial estimate — with high and low scenarios — of the total claims.
This initial estimate amounts to approximately $8 billion in the low scenario — $14.2 billion including intercompany claims — and $9.9 billion in the high scenario — $16 billion including intercompany claims.