Desperate for cash as global air travel ground to a halt in the early days of the coronavirus pandemic, Latam Airlines Group reached out to two of its largest shareholders, Delta Air Lines and Qatar Airways, in an effort to raise liquidity. The result was the termination of two deals for Airbus A350 jets in exchange for cash in the days leading up to Latam’s U.S. Chapter 11 bankruptcy filing.
At least that’s the narrative presented by Chile-based Latam in a growing disagreement with the unsecured creditors committee in its Chapter 11 proceedings. The committee alleges that, rather than helping Latam, Delta and Qatar deliberately took advantage of the ailing carrier to cut their own costs and exit deals for aircraft they no longer needed amid the grounding of most of the global fleet.
The back-and-forth is the latest high-stakes drama in the restructuring of South America’s largest carrier. Earlier in July, The Air Current reported that Delta has reached a deal with Latam creditor AerCap for several “gently used” A350-900s — potentially the very aircraft that it was due to buy last year. And in May, it emerged that Azul may be preparing to make a bid for Latam’s Brazilian subsidiary — Latam Airlines Brasil — by leveraging its relationships with creditors. All of these moves come as Latam prepares to submit its reorganization plan to the court by September.
Latin America’s second- and third-largest carriers, Avianca and Aeromexico, also are restructuring under Chapter 11 protection in the U.S. However, neither carrier’s proceedings have yet proved as eventful as those at Latam.
At the center of Latam’s dispute with its unsecured creditors are its separate deals with Delta and Qatar. Atlanta-based Delta had agreed to buy four A350-900s from Latam, as well as to assume 10 delivery positions, as part of the strategic alliance the carrier’s unveiled in September 2019. That deal was terminated in exchange for a one-time $62 million payment on May 25, the day before Latam filed for bankruptcy in the U.S.
The creditors allege that Delta did the deal solely to avoid paying pre-crisis prices for the A350s. They estimate that the value of the jets had halved by May 2020 since the deal was finalized in November 2019.
“Delta’s gain was the debtors’ loss, all at the expense of the debtors’ estates,” the creditors said in a June 14 court filing.
The creditors may be overstating the pandemic’s impact on values. The value of a new A350-900 fell by just $10 million to $135 million from the beginning of 2020 to that September, according to Cirium current market value data. A new A350-900 was worth roughly $123 million this March.
Doha-based Qatar was subleasing five A350-900s from Latam when the pandemic hit in March 2020. Latam agreed to end the subleases early in May in exchange for an undisclosed payment, something the creditors allege was “essentially a favor” for one of its largest shareholders.
“Latam flatly rejects any suggestion that it undertook either transaction with the intent of defrauding its creditors,” the airline said in a response to the allegations in a court filing on Wednesday.
The unsecured creditors are seeking authority from the bankruptcy court to pursue a legal suit against Delta and Qatar.
Regardless of the outcome of the dispute, Latam is in the process of exiting its A350 fleet. The airline outlined plans to remove its 10 A350-900s in favor of an all-Boeing widebody fleet in April. Latam flies Boeing 767s, 777s and 787s.
A Delta spokesperson declined to comment on the dispute. A representative of Qatar was not immediately available for comment.
UPDATED: Added Delta Air Lines comment.
