Fitch Ratings downgraded the risk rating of the Latam Group due to a review and analysis of operational continuity that reflects the weakness of the air transport sector. According to the risk agency, Latam continues to seek different ways to preserve cash in the midst of this very turbulent period for the airline industry, which leaves creditors in a more vulnerable position.
Latam had cash of $ 1.5 billion as of December 31, 2019, compared to short-term debt of $ 1.8 billion and total debt of $ 10.4 billion. During 2020, the company contracted a $ 600 million revolving credit facility (RCF), which was secured by a combination of aircraft, replacement engines, and replacement parts.
According to Fitch’s criteria and estimates, cash readily available at the end of April was $ 1.4 billion. Fitch’s main coronavirus scenario predicts a drop of more than 55% in RPKs for 2020, when compared to 2019, and a drop of 22% in 2021 (versus 2019), with yield trends pressured in different markets. Since mid-March, Latam has announced deferrals in rent payments, renegotiations with suppliers, and a significant reduction in personnel expenses.
“Latam’s current financial flexibility to raise new lines of credit is quite limited, given market conditions. Financial support from the Brazilian government would provide only limited relief, as any financing would have to be used to support operations in the Brazilian market, ”explained the agency.