LATAM Airlines: Strong turbulence in times of Coronavirus (A)

  • Reference: ESE-DF-C-EN-20-345-E

  • Year: 2020

  • Number of pages: 28

  • Geographic Setting: Latin America; Chile; Brazil; Perú; Colombia; Argentina; Ecuador

  • Publication Date: May 20, 2001

  • Source: ESE (Chile)

  • Type of Document: Case

  • Industry Setting: Airlines; Transportation; Turism

Grouped product items
Format Language Reference Use Qty Price Preview
pdf English ESE-DF-C-EN-20-345-E
As low as €8.20
Preview

You already have a subscription

To order please contact the person in charge of academic purchases in your university.
You'll be able to order once your profile has been validated.

Description

LATAM, the leading aeronautical operator in Latin America, transports nearly 70 million passengers and almost 1000 tons of cargo to more than 150 destinations in 29 countries. Its fleet consists of 342 aircraft, and it serves six domestic markets: Argentina, Brazil, Chile, Colombia, Ecuador, and Peru, in addition to having international operations within the region and to the rest of the world. Its shares are traded in Santiago and New York in the form of ADRs. After a period of rapid growth and subsequent consolidation, the company had faced, until now successfully, a series of adverse situations since 2008. However, the impact of the Coronavirus during the first quarter of 2020 was different. In a few words: the operation paralyzed, and within the next three months would have to face operational and financial disbursements of more than 1 billion US$. By April, the situation was already urgent: it was less and less likely that the Coronavirus crisis would end soon, and the cash would not last much longer. Something had to be done quickly.

Learning Objective

The LATAM case presents an opportunity for discussing optimal debt policy. The key takeaway is that the operating and financial policies are not independent. They are rather tightly linked because of the existence of costs of financial distress that can disrupt the relation of the firm with its stakeholders and depress the value of the assets. Furthermore, it introduces agency issues to explain why capital is not always readily available and how they shape financial contracts. Finally, the case introduces financial restructuring.

Related Documents

Keywords

Bankruptcy Business conditions Capital structure coronavirus COVID-19 Financial distress Internationalization Reorganization