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Latin American airlines experienced a new day of losses, as the Avianca situation increased pessimism regarding the companies’ financial capacity to resist the impacts of the pandemic. The uncertainty was reflected in the performance of the shares, highlighting the strong punishment that Latam received.
With a 6.9% drop, Latam Airlines ranked first in the list of the highest IPSA losses, in addition to leading the losses among the main airlines in the region. The shares of GOL and Azul fell 4.18% and 3.31%, respectively, in Brazil.
Doubts grew after Avianca Holdings announced its decision to file for Chapter 11 of the United States Bankruptcy Code. While the airline’s weak financial situation is not a mystery, the moment did surprise JP Morgan analysts.
“Since the start of the pandemic, we have mentioned that Avianca is the operator in Latin America more prone to face financial pressures, the legal action occurred earlier than we expected (…) According to the company, operations are expected to continue and the Management would remain unchanged. Avianca also mentioned its focus on preserving jobs across the region and ensuring connectivity. It should be noted that the airline already underwent a Chapter 11 process in 2003 and continued to develop its business, “said JP Morgan.
Although the situation does not imply a pause in its operations, the North American investment bank highlighted that the announcement brings negative sentiment for the Latin American industry.
Along these lines, Germán Guerrero, partner at MBI Inversiones, indicates that the drop suffered by Latam’s shares is explained by the lack of government support for airlines in the region, and he does not rule out that other airlines follow in Avianca’s footsteps. .
“Airlines that do not have relevant support from governments have no other way. The situation opens up great opportunities for those firms that from developed countries that are receiving support from the authorities. How will Latam be able to compete, for example, with American airlines that have received millions in aid? They will have no choice but to disappear and leave a market for the companies that receive support, ”says Guerrero.
Of course, the impact was more limited for the bond in Latam dollars maturing in 2024, as the price marked fell only 0.01%, while the paper with a term of 2026 fell 2.68%.
Regarding Latam’s obligations, series A, B, C and D of the UF bonds must pay their coupons each year on June 1 and December 1, while series E must make payments on the 15th of April and October. On this last date, the paper in dollars to 2024 must also be paid, while the bond in dollars to 2026 must pay interest on March 1 and September 1.
JP Morgan analysts analyzed the impacts of Avianca’s situation on the rest of the region’s competitors, because although the company will continue to operate, “it is fair” to assume that it will lose competitiveness.
“This announcement brings negative sentiment for the entire industry. Although operations should continue, we believe it would be fair to assume that Avianca will lose some competitiveness in the medium term. That said, we believe that LATAM and Copa are the ones that benefit the most from the competitive landscape given the greater overlap with Avianca, mainly on routes in Colombia, Peru and internationally, ”explains JP Morgan.
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