LATAM Airlines Group S.A. — 2020 Form 20-F summary
Reporting period: Fiscal year ended December 31, 2020; filed March 9, 2021. This is an annual report, not a standalone fourth-quarter filing, so the figures below are full-year unless stated otherwise. Financial statements are prepared under IFRS and presented in U.S. dollars.
Business context
LATAM operates passenger and cargo airlines across South America and international markets. COVID-19 travel restrictions sharply curtailed passenger operations. LATAM and many affiliates filed for U.S. Chapter 11 protection beginning May 26, 2020, with related proceedings in other jurisdictions. LATAM Airlines Argentina indefinitely ceased passenger and cargo operations in June 2020. The ADSs were delisted from the NYSE in June 2020 and traded over the counter under LTMAQ at the report date.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $3.924 billion | $10.070 billion |
| Passenger revenue | $2.714 billion | $9.006 billion |
| Cargo revenue | $1.210 billion | $1.064 billion |
| Gross margin | $(589.6) million; approximately (15.0%) of revenue | $2.119 billion; approximately 21.1% |
| Operating loss | $(4.530) billion | Operating income of $753.1 million |
| Net loss | $(4.556) billion | Net income of $195.6 million |
| Net cash from operating activities | $(494.7) million | $2.827 billion |
| Cash and cash equivalents at year-end | $1.696 billion | $1.073 billion |
- Revenue fell 61.0% year over year. Passenger revenue declined 69.9%; cargo revenue rose 13.7%. Cargo became a much larger revenue contributor as passenger flying contracted.
- Passenger capacity (ASKs) declined 62.7%, passenger traffic (RPKs) declined 65.8%, and passenger load factor fell 7.0 percentage points to 76.5%. LATAM carried approximately 28.3 million passengers, versus 74.2 million in 2019.
- Cargo capacity fell 25.9% and traffic fell 12.7%; cargo load factor increased 9.9 percentage points to 65.4%, while cargo yield increased about 30%.
- Operating expenses were about $6.0 billion, against $3.924 billion of operating revenue. Cost per ASK rose to 10.77 cents from 6.50 cents, reflecting the steep capacity reduction and the burden of costs that could not adjust at the same pace.
- Year-end total assets were $15.650 billion and total liabilities $18.092 billion. Total equity was negative $2.442 billion. Current assets were $3.144 billion and current liabilities $7.492 billion; management reported negative working capital of $4.348 billion.
- Interest-bearing financial debt was reported at approximately $7.6 billion, with $2.207 billion of current debt liabilities. Aircraft lease obligations were separately reported at $3.564 billion. The report gives an average debt interest rate of 4.89%; 44.6% of debt was fixed-rate or capped, excluding certain related-party DIP financing.
Material changes and unusual items
- Operating cash flow swung from positive $2.827 billion in 2019 to negative $494.7 million in 2020. Investing activities provided $33.6 million, largely reflecting reduced capital spending and asset sales; financing activities provided $1.121 billion.
- Cash and cash equivalents increased by $623.3 million during 2020. The increase was supported by financing, including DIP and revolving-credit draws, despite negative operating cash flow. The company also reported $0.3 million of short-term marketable securities at year-end.
- The company recorded a $1.729 billion goodwill impairment, $990.0 million of restructuring expenses, and a $331.5 million fair-value adjustment to aircraft held for sale. Restructuring expenses also included aircraft lease rejections, employee reductions, and professional fees.
- LATAM rejected aircraft leases and other contracts through Chapter 11 and negotiated revised lease terms. No aircraft were added to the fleet during 2020; the report states 31 aircraft leases had been rejected by the filing date, including additional rejections in January 2021.
- Fuel costs fell 64.3% to $1.045 billion, primarily because of lower consumption and prices. Aircraft maintenance costs increased 6.3%, including aircraft-preservation costs. Wages and benefits and distribution costs fell as operations and staffing contracted.
Liquidity, debt, risks and outlook
- The bankruptcy court approved up to $2.45 billion of debtor-in-possession financing. LATAM drew $1.15 billion in October 2020 and reported $1.3 billion of committed undrawn capacity at year-end. It also fully drew a $600 million revolving credit facility. The DIP financing carries a minimum consolidated liquidity requirement of $400 million and other milestones and conditions.
- The auditor highlighted substantial doubt about LATAM’s ability to continue as a going concern. The financial statements assume continuation as a going concern and do not include adjustments that might be required if that assumption fails. No reorganization plan had been filed as of year-end; confirmation, exit financing, and emergence were not assured.
- LATAM suspended its 2020 guidance in March 2020 and had not reinstated guidance by the filing date. Management said demand recovery, the pandemic’s duration, and the resulting financial effects could not be reliably estimated. It focused on cost reduction, capacity adjustments, liquidity preservation, and resizing debt and operations.
- Major risks include further pandemic-related restrictions or weak travel demand, ability to obtain financing and meet liquidity needs, Chapter 11 outcomes and claims, potential changes to debt and equity rights, refund and credit-card reserve demands, fuel and foreign-exchange volatility, and floating-rate debt. The company stated that 55% of consolidated debt bore floating interest, excluding certain related-party DIP financing.
- Material contingent matters include consumer class actions related to pandemic cancellations, tax disputes, and cargo-competition investigations and claims. The ultimate allowed claims in Chapter 11 were uncertain; approximately 6,000 proofs of claim had been filed by February 2021, and reconciliation was ongoing.
- The company did not pay the dividend approved for 2020 because of Chapter 11 restrictions. Existing common shares and ADSs faced significant risk of dilution or cancellation under a reorganization plan.
Most important facts for investors to verify
- Current Chapter 11 status: plan terms and confirmation, exit financing, creditor-claim reconciliation, and treatment of existing equity and debt.
- Available liquidity and compliance with DIP terms, including the $400 million minimum liquidity requirement; also verify the amount and conditions of remaining committed financing.
- Passenger-demand recovery, capacity, load factors, and cash burn after year-end; the filing provides no reinstated guidance.
- Debt and lease obligations after contract rejections and renegotiations, including maturity schedules, collateral, and floating-rate exposure.
- Potential exposure from ticket refunds, customer claims, tax and competition proceedings, and other liabilities that remain unquantified or disputed.
- Reconcile reported figures against the audited statements and notes where narrative tables differ or use different classifications; in particular, distinguish financial debt from lease liabilities and avoid treating annual results as fourth-quarter results.