Latam Airlines Plans Cuts to A350/787 Orders as Brazilian Traffic Slumpsby
Passenger demand in region’s No. 1 economy down 10% this year
Airline likely to cancel or delay some of 53 wide-body jets
Latam Airlines Group SA, the biggest carrier in South America, said a slump in Brazilian traffic means it’s likely to cancel or delay some of the 53 wide-body jet orders placed by constituent units before a 2012 merger.
Latam is reviewing some of the 27 Airbus Group SE A350s going to Sao Paulo-based TAM and 26 Boeing Co. 787 Dreamliners for Chilean arm Lan, which created the group through a takeover of its Brazilian rival. The lease of a further six 787s from Aercap Holdings NV could also be at risk.
“Tam bought the A350 10 years ago and we bought the 787 seven years ago,” Latam Chief Executive Officer Enrique Cueto said in an interview, adding that Latam had expected Brazil’s economy to grow about 4 percent a year, when it’s actually shrinking by that degree.
With approximately 150 aircraft currently deployed in Latin America’s most populous nation, Latam needs to shrink the fleet there about 10 percent this year to match capacity to demand, with a 2 percent cut due in 2017, he said.
The airline’s American depositary receipts dropped 3.6 percent to $6.35 at 1:33 p.m. in New York after tumbling as much as 4 percent for the biggest intraday decline in a month.
Gol, Azul Cuts
The company isn’t alone in paring its exposure to Brazil after two years of recession. The country’s other main carriers, Gol Linhas Aereas Inteligentes SA and Azul Linhas Aereas Brasileiras SA, are planning to get rid of 53 aircraft this year. While most will be narrow-bodies, that’s still more than the total fleet of fourth-ranked Avianca Brasil.
Lan has so far taken 10 of 14 ordered 787-8s and five of 12 larger 787-9s, according to Boeing. TAM received the first of three delivered A350-900s out of 15 on order in December and is due to take 12 -1000 variants from 2019.
Latam said separately that the remaining 787-8s have been upgraded to the bigger variant, while the Aercap lease deal covers six 787-9s, also at Lan.
It’s not clear whether the remaining Airbus planes are more vulnerable to cancellation, or if surplus A350s could be deployed away from Brazil and the 787 order cut. Boeing and Airbus referred calls regarding the jets to Latam.
$3 Billion Target
TAM’s passenger tally in the Brazilian domestic market fell 10.3 percent in the first five months of 2016 to 12.5 million, Latam said Wednesday, while Lan’s total in Chile, Peru, Argentina, Ecuador and Colombia rose 7 percent to 8.6 million and international traffic advanced 6.8 percent to 5.8 million.
Latam has said it will trim its aircraft assets by as much as $3 billion by 2018 by renegotiating orders, selling planes and letting leases lapse.
Cueto, speaking in Dublin, said planned joint ventures with American Airlines Group Inc. and British Airways parent IAG SA will help level the playing field with richer rivals including the three top Persian Gulf carriers. Gaining approval for the closest possible level of cooperation between airlines from jurisdictions that cap outside holdings will take another year, he said.
“When you get British Airways and American Airlines and Iberia you get the connections that they have and we can offer something to our passengers that alone would be impossible,” the CEO said.