LATAM Airlines Group has filed for Chapter 11 bankruptcy protection. Photo: Shutterstock.com

Cleary Gottlieb Steen & Hamilton is representing LATAM Airlines Group and its affiliates in Chile, Colombia, Ecuador, Peru and the United States in a voluntary reorganization and restructuring of debt under Chapter 11 protection in the U.S. that initiated Tuesday.

Airlines around the globe are struggling to stay in business as the COVID-19 pandemic shrinks travel. Cleary said the restructuring of LATAM under Chapter 11 protection will provide the company with the opportunity to "resize" operations to adjust to a new environment and changed demand while reorganizing its balance sheets.

The Cleary team representing LATAM is led by New York-based partners Jeff Lewis, Rich Cooper, Lisa Schweitzer and Luke Barefoot. In Chile, where LATAM is based, five partners at Claro & Cia. are offering counsel.

Already, LATAM has secured up to $900 million in debtor-in-possession financing from two of its largest shareholders: the Cueto family and Qatar Airways. The company reported $8.9 billion in net debt on its balance sheet at the end of the fourth quarter.

The airline group had approximately $1.3 billion of cash on hand as of the Chapter 11 filing May 26 and said it would welcome other shareholders interested in providing additional financing.

Cleary previously advised LATAM on its strategic partnership with Delta Airlines, announced in September 2019. Delta acquired a 20% stake in LATAM for $1.9 billion as part of that agreement.

LATAM is Latin America's leading airline group with one of the largest route networks in the world. The group said it will continue passenger and cargo operations as conditions permit throughout the restructuring process.

LATAM and its affiliates said they are also in discussions with their respective governments in Chile, Brazil, Colombia and Peru to source additional financing, protect jobs where possible and minimize disruption to operations.

Governments across Latin America have recognized that they need passenger jets in the air to ferry crucial goods to remote areas during the pandemic. The longer-term question is how many airlines should service overlapping routes amid an anticipated slide in economic output and demand for seats.

LATAM said its affiliates in Brazil are in discussions with the Brazilian government about the next steps and financial support for their operations in that country. The carrier's affiliates in Argentina, Brazil and Paraguay are not included in the Chapter 11 filing.

Most of LATAM's debt obligations are held in the United States. A Chapter 11 reorganization also affords specific relief not always available under local bankruptcy laws in Latin America. LATAM said that relief will allow the company to pay its employees, meet benefit obligations, pay critical suppliers and conduct other day-to-day business operations.

"As we have adapted to new realities in the past, we are confident that LATAM will be able to succeed in the post-COVID-19 context and continue to serve Latin America, connecting the region with the world," LATAM chairman Ignacio Cueto said in a statement.

LATAM Chief Executive Roberto Alvo described the company as having been "a healthy and profitable airline group" prior to the COVID-19 pandemic. The group launched 26 new routes and transported a record 74 million passengers last year, 5.4 million more than in 2018.

A Chapter 11 restructuring, said Alvo, is the "best option to lay the right foundation for the future of our airline group."