LATAM’s Airbus A350s have perhaps some of the most interesting fleet histories. LATAM, it turned out, did not need all of its Airbus A350 capacity, so it ended up leasing some out to Qatar Airways and then selling four to Delta Air Lines. The Qatar Airways leases have ended, and Delta canceled its purchase agreement for the jets. Now, the saga continues as LATAM’s creditors have raised concerns over Delta and Qatar’s actions regarding the Airbus A350s.
LATAM’s Airbus A350s with Qatar Airways
Qatar Airways and LATAM have had a long history together surrounding the Airbus A350s, so it makes sense to start there. In 2017, LATAM and Qatar Airways entered into agreements for Qatar Airways to lease two Airbus A350-900s. In 2019, Qatar Airways subleased another three additional Airbus A350s.
The rationale at the time was that Qatar Airways, which holds a roughly 10% stake in LATAM, needed additional widebody capacity to support the airline’s expansion plans as delays in deliveries of widebody jets crunched the airline’s growth trajectory. LATAM also had spare capacity amid some changing economic factors in Latin America during the time.
The airline was also trying to figure out what it actually wanted to do with its Airbus A350 order. The carrier had messed with the order, converting it to the Airbus A350-1000s, then turning back to the A350-900s, before filing for bankruptcy and turning instead to an all-Boeing widebody fleet.
However, in 2020, the crisis hit, and airlines worldwide faced the most extreme downturn in travel demand in recent memory. In March 2020, Qatar Airways and LATAM started to look into options for the Airbus A350s leased to the Middle Eastern carrier. The two parties agreed to early redelivery of the leased jets, and Qatar Airways would pay an unreleased sum to LATAM.
Delta and LATAM’s Airbus A350s
Turning to the partnership with Delta, the Airbus A350s started in September 2019. The two carriers announced plans to form a comprehensive partnership covering travel between the Americas. This would include extensive codesharing, and Delta would invest $1.9 billion for a 20% stake in LATAM.
Also part of the partnership, Delta announced it would acquire four Airbus A350s from LATAM and would assume LATAM’s commitment to purchase 10 additional Airbus A350-900 aircraft. This would, essentially, expand Delta’s A350 fleet by 14 aircraft when all was said and done.
When the crisis hit, Delta looked at the LATAM deal and worked with the airline to terminate the purchase of four Airbus A350-900s but retaining the purchase commitments for 10 A350s. Delta would pay the airline $62 million for terminating the agreement to take on four A350s.
LATAM’s creditors have issues
The Official Committee of Unsecured Creditors (the Committee) of LATAM Airlines filed some concerns relating to the Qatar and Delta A350 deals on June 16th.
In relation to Delta, the Committee alleges that Delta wanted to get out of the aircraft deal to avoid having to pay for aircraft whose value had dropped as a result of the crisis. The Committee alleges that the aircraft have lost half of their value compared to pre-pandemic appraised values.
When it comes to Qatar Airways, the Committee alleges that LATAM allowed Qatar Airways, which it claims was “extraordinarily solvent,” value “as essentially a favor,” to get out of the obligation to pay the aircraft rent.
The airlines hit back
LATAM hit back at the creditors, alleging that the Committee is seeking to “create a false narrative regarding LATAM and its interactions with its shareholders.” LATAM indicates that the transactions provided the airline with additional liquidity and flexibility in the middle of the worst crisis the industry had seen in recent memory. LATAM also states that it had done a comprehensive and above-the-board review.
LATAM made both transactions before filing for bankruptcy. Even though the airline filed for bankruptcy shortly after the agreements with both airlines, it states that the transactions were “arms’-length, good-faith negotiations.”
Both Qatar Airways and Delta Air Lines reaffirmed that the transactions were above board and that they were done with proper negotiations. LATAM, ultimately, needed liquidity in the early days of the crisis. The agreements with Qatar and Delta helped in that factor instead of hurting LATAM, as the Committee alleges.
The Airbus A350s
LATAM has decided that it will not continue to operate the Airbus A350 anymore. Somewhat ironically, it appears that some of those Airbus A350s may end up with Delta Air Lines.
Hindsight is 20/20, as the saying goes. Thinking about the world in May 2020, it seemed crazy that Delta or Qatar Airways would want more Airbus A350s with travel restrictions up, planes parked, and not-so-great financials. Now, with the world coming back, it may appear that those decisions were short-sighted and may have been an excellent play by Delta to later scoop up widebodies for cheap.
The world has changed significantly over the past year. While the Airbus A350s LATAM once flew may be heading to a new home in the United States now, that does not necessarily mean that there was any impropriety in the actions made.
Ultimately, the courts will decide what needs to happen in this matter. LATAM, Delta, and Qatar Airways believe that they acted appropriately. The Committee has filed their concerns with those deals.
Nevertheless, the LATAM Airbus A350 saga continues. Perhaps the only clear thing now for those planes is that the South American giant wants to consolidate its flying with Boeing widebodies.
What do you make of the Committee’s concerns regarding the LATAM Airbus A350 transactions with Qatar Airways and Delta Air Lines, respectively? Let us know in the comments!