LATAM Airlines Group S.A. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; filed March 29, 2022. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS in U.S. dollars.
Business context
LATAM is a South American passenger and cargo airline group operating in five domestic markets: Brazil, Chile, Peru, Colombia and Ecuador. Its passenger and cargo operations remained materially affected by COVID-19 and travel restrictions, while the company continued its Chapter 11 restructuring, begun in May 2020. In December 2021, capacity was 70.1% of December 2019 levels. The company carried approximately 40.2 million passengers in 2021, versus 28.3 million in 2020 and 74.2 million in 2019.
Key financial and operating metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Operating revenue | US$4.884 billion | US$3.924 billion |
| Passenger revenue | US$3.342 billion | US$2.714 billion |
| Cargo revenue | US$1.542 billion | US$1.210 billion |
| Gross margin | Loss of US$79.5 million | Loss of US$589.6 million |
| Operating loss | US$3.426 billion | US$4.530 billion |
| Net loss | US$4.653 billion | US$4.556 billion |
| Operating cash flow | Use of US$184.1 million | Use of US$494.7 million |
| Cash and cash equivalents, year-end | US$1.047 billion | US$1.696 billion |
| Capital expenditures | US$587.2 million | US$324.3 million |
| Total assets / total liabilities | US$13.312 billion / US$20.379 billion | US$15.650 billion / US$18.092 billion |
| Total equity | Negative US$7.067 billion | Negative US$2.442 billion |
Passenger revenue was 68.4% and cargo revenue 31.6% of operating revenue. Separately, management reports passenger, cargo and other revenues as 65.4%, 30.2% and 4.4% of total revenues, respectively, using a denominator that includes other operating income.
Passenger capacity (ASKs) rose 21.5% and traffic (RPKs) rose 18.0% year over year; the combined passenger load factor declined 2.1 percentage points to 74.4%. Cargo revenue increased 27.4%, largely reflecting a 29.2% increase in yield, despite cargo traffic declining 1.4% and load factor falling 2.0 percentage points to 63.4%.
Fuel costs rose 42.3% to US$1.488 billion as operations recovered and fuel prices increased. Fuel represented 23.9% of total operating expenses. Financial costs increased 37.2% to US$805.5 million, primarily reflecting DIP borrowing and continuing interest on debt. The company reported US$7.112 billion of interest-bearing loans; this excludes US$662.3 million of related-party DIP financing in the market-risk disclosure. A separate filing disclosure reports US$7.8 billion in current debt liabilities. These measures have different scopes and should not be treated as interchangeable.
At year-end, the company had US$1.25 billion of undrawn commitments under its US$3.2 billion DIP facility; US$1.95 billion had been drawn. The US$600 million revolving credit facility was fully drawn. Cash and short-term marketable securities totaled approximately US$1.047 billion. The audited statements report negative working capital of US$9.701 billion.
Material changes versus comparable periods
- Revenue increased 24.5% from 2020, reflecting partial recovery in passenger operations and stronger cargo yields, but remained well below 2019 revenue of US$10.070 billion.
- Gross loss narrowed from US$589.6 million to US$79.5 million, but the net loss widened slightly to US$4.653 billion.
- Restructuring expense more than doubled to US$2.337 billion, including fleet contract renegotiations, lease rejections and advisory costs. The company also derecognized US$1.252 billion of deferred tax assets it did not expect to use; the filing reports total 2021 tax expense of US$568.9 million.
- Cash and cash equivalents fell US$649.0 million. Operating cash use improved, but investing activities used US$542.7 million and the company continued to rely on DIP financing.
- Year-end liabilities exceeded assets by US$7.067 billion. The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern, notwithstanding its unmodified audit opinion.
Restructuring, outlook, risks and unusual items
The proposed Chapter 11 plan contemplated approximately US$8.19 billion of new funding through equity, convertible notes and debt. It also contemplated a US$800 million rights offering, a new US$500 million revolving facility and approximately US$2.25 billion of new-money debt financing. The plan projected approximately US$7.26 billion of debt and US$2.67 billion of liquidity at emergence. These were proposals, not completed financing or guaranteed outcomes, and remained subject to court and stakeholder approval.
Backstop agreements were approved by the Bankruptcy Court in March 2022, but the Unsecured Creditors Committee and certain creditors appealed the approval. The proposed new shares and convertible notes were expected to substantially dilute existing shareholders. Management anticipated emergence in the second half of 2022, while emphasizing that timing and success were uncertain. The filing warns that existing equity could be extinguished or become worthless in restructuring.
LATAM had not reinstated standard financial guidance because demand, travel restrictions and the pace of recovery remained uncertain. Management’s stated priorities included reducing costs, making costs more variable, increasing ancillary revenue and rebuilding operations. The company estimated 2022 capital expenditures of approximately US$1.574 billion, including fleet commitments and other expenditures, subject to change.
Principal risks include the outcome and financing of Chapter 11, going-concern liquidity, pandemic-related demand and restrictions, fuel price increases, currency movements, floating interest rates and the transition from LIBOR to SOFR, aircraft and airport access, labor matters, competition, and litigation and tax contingencies. The filing also identifies a concentration of some cargo demand in a limited range of export products. ADSs were delisted from the NYSE in 2020 and traded over the counter under LTMAQ; the OTC market may be less liquid.
Important facts for investors to verify
- Current status and final terms of the Chapter 11 plan, backstop agreements, appeals, exit financing and emergence timetable.
- Liquidity available for operations, DIP facility draws and repayment terms, and the maturity or refinancing of other debt and the fully drawn revolving facility.
- Whether the proposed capital raise and convertible notes are completed, and the resulting dilution or treatment of current shareholders and ADS holders.
- Underlying cash generation and the pace of passenger recovery, particularly international capacity and load factors, alongside cargo yields and volumes.
- Amounts and likely outcomes of unresolved bankruptcy claims, tax assessments and legal proceedings; the filing states some claim amounts remain uncertain.
- Assumptions supporting deferred tax asset recoverability, liquidity forecasts and the auditor’s going-concern assessment.