LATAM Airbus A320. Photo: Rafael Luiz Canossa.

MIAMI – Despite LATAM Airlines Group’s (LA) restructuring efforts, a US bankruptcy judge has rejected the airline’s proposed US$2.4bn financing plan.

According to Reuters, the court’s explanation was that a convertible loan would amount to the “improper” treatment of other shareholders.

Precisely, LA’s proposal included a US$900m convertible loan from the carrier’s shareholders besides a US$1.3bn loan from the Oaktree Capital Management firm. The aforementioned investors include the Cueto family, who controls LA and Qatar Airways (QR), and the Amaro family.

Already, LATAM business in Argentina ceased its operations due to the pandemic economic hit. LATAM Airbus A319. Photo: Rafael Luiz Canossa.

A Setback for LATAM

In May, the carrier filed for Chapter 11 due to the impact of COVID-19 on its operations. LATAM presented the bankruptcy financing proposal in July to start its restructuring process.

By that time, LATAM CEO Roberto Alvo said that the support of principal investors was essential. Therefore, the airline secured all the resources to continue operating and to successfully complete its Chapter 11 process.

However, the picture is different now. Following the court decision, LATAM could make another proposal, this time without the convertible loan part. In the meantime, the carrier still needs to gain liquidity for its recovery amid the pandemic and subsequent crisis within the commercial aviation industry.

LATAM Airbus A320. Photo: Rafael Luiz Canossa.