Latam’s judicial recovery (chapter 11), filed in the United States, comes in the wake of data released by the International Air Transport Association (IATA) that point to the lack of support from governments in Latin America to airlines during the coronavirus pandemic.

Across Latin America, airlines obtained financial assistance from governments of US $ 300 million, which represents a total of 0.8% of the revenue recorded by companies in 2019. Globally, airlines obtained a total of US $ 123 billions in aid from governments, equivalent to 14% of the revenue recorded in 2019. The figures were released by Iata on Tuesday.

Because of mobility restrictions, airlines were forced to cut their flight offer by more than 90%, which started to return now, but at a slow pace and at high costs because of health security measures. At airports, demand today is between 5% and 7% of what it was before the pandemic, depending on the region of Brazil. As a result, companies in the sector, which already operate with small margins, plunged into a crisis with a strong cash burn.

As anticipated by the Estadão / Broadcast, the Latam group and its affiliates in Chile, Peru, Colombia, Ecuador and the United States filed for bankruptcy protection (Chapter 11) in the United States on Tuesday. The company followed in the footsteps of Colombian Avianca, who two weeks ago asked for a similar order.

The Brazilian government has promised to help airlines to get through this difficult period. Negotiation, however, has not been so simple. Azul’s president, John Rodgerson, said in conference calls that the Brazilian government is seeking a market solution for airlines at a time when the market does not exist. The criticism follows in the wake of high disbursements in countries like the United States and Germany to bail out their companies in the segment.

Iata’s figures showed that out of a total of $ 123 billion in government financing for airlines, $ 66 billion was in North America alone. The amount is equivalent to 25% of the revenues of companies in the region last year. In Europe, the aid was US $ 30 billion, equivalent to 15% of revenues in the same comparison.

“More than half of the relief granted by governments creates new liabilities. Less than 10% will be added to the airline’s equity. This completely changes the financial picture of the industry,” said Alexandre de Juniac, general director and CEO of Iata, in a note. He added that paying the debt of governments and private creditors means that the crisis “will last much longer than the time required for passenger demand to recover”.

In a report published on Tuesday morning, Citi bank pointed out that the absence of the Brazilian arm of airline Latam in the judicial reorganization process suggests that the company is still negotiating financial aid with the Brazilian government. The bank’s analysts also pointed out that Latam’s judicial reorganization, although not surprising, given the company’s need for resources, arrived faster than they imagined.

In an interview with Estadão / Broadcast, the president of Latam, Jerome Cadier, pointed out that the Brazilian government “got into a trap” by disclosing that the aid would amount to R $ 10 billion to the sector, but grant only R $ 4 billion. The measure felt like a small number. Even so, he acknowledged that the capacity of the Brazilian government is not equivalent to the United States or Germany.

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