Unlocking Value in LATAM Airlines Post-Lock-Up Expiry on August 1, 2025

The recent secondary offering by LATAM Airlines Group S.A. and the impending lock-up expiry on August 1, 2025, have placed the airline at the center of a critical inflection point for its stock. The $370 million shareholder-driven offering—executed in June 2025 with J.P. Morgan as underwriter—has set the stage for a potential surge in liquidity and, consequently, heightened market volatility. For investors, the challenge lies in balancing the airline's strong fundamentals with the risks of institutional selling and price instability in the wake of this corporate action.

The Secondary Offering: A Double-Edged Sword

LATAM's secondary offering, involving the sale of 10 million American Depositary Shares (ADSs) by major shareholders, was priced at $37 per ADS and closed on June 18, 2025. While the airline did not receive proceeds, the transaction signaled confidence in its post-relisting trajectory. Since its return to the New York Stock Exchange in July 2024, LATAM has delivered a 66% total return, driven by robust second-quarter earnings of $241.8 million and a 37.4% year-over-year increase in adjusted Ebitdar. These metrics reflect a recovery in global travel demand and operational efficiency, particularly in Latin America's largest airline.

However, the lock-up period, which restricted shareholders from selling their shares for 46 days, is now expiring. This means 38% of LATAM's common shares—approximately 229.2 billion shares—will become available for trading. Historically, lock-up expiries often trigger short-term volatility as institutions and large shareholders offload positions, creating a “short-term overhang risk,” as noted by Citi analysts. The airline's stock has already shown signs of sensitivity: in late July, it fluctuated between $41.89 and $43.39, reflecting divergent investor sentiment.

Market Volatility: A Historical Lens

To assess the potential impact of the lock-up expiry, one need look no further than the historical performance of similar airline stocks. For instance, U.S. carriers like Delta Air Lines and American Airlines have seen sharp sell-offs post-lock-up expiries, particularly when macroeconomic conditions are uncertain. In 2025, Delta's shares fell 38%, and American's dropped 45% amid concerns over weakening demand and Trump-era tariffs. These declines were exacerbated by institutional selling, as funds rebalanced portfolios in response to deteriorating fundamentals.

LATAM's situation, while distinct, shares parallels with these cases. The airline's exposure to global trade dynamics—particularly in South America—means it could face similar pressures if international demand softens. Additionally, Citi's recent downgrade of LATAM to Neutral with a price target of $26.50 underscores the firm's caution. While the stock's P/E ratio of 11.73 suggests relative value, the risk of a selloff remains acute if institutional investors perceive the lock-up expiry as a catalyst for profit-taking.

Institutional Selling: A Quantitative Perspective

Institutional ownership patterns provide further insight. Post-lock-up expiries often see a surge in selling by large shareholders, particularly if the stock has appreciated significantly. LATAM's 66% gain since its 2024 relisting makes it a prime candidate for such activity. A would reveal whether key stakeholders are positioning for an exit.

Moreover, options market data suggests mixed signals. While American Airlines (AAL) has outperformed volatility expectations, Southwest (LUV) has underperformed, indicating divergent strategies among hedge funds and asset managers. For LATAM, a could highlight whether investors are hedging against downside risk or betting on further gains.

Strategic Considerations for Investors

For those considering a position in LATAM, the post-lock-up period demands a nuanced approach. The airline's financials—strong Ebitdar growth, a 14% free cash flow yield, and a $43.39 closing price on July 31, 2025—suggest resilience. However, the risk of a short-term selloff cannot be ignored. Here's how to navigate this duality:

1. Hedge Against Volatility: Investors with a bullish view on LATAM's long-term prospects could use options to protect against near-term downside. A collar strategy—buying puts and selling calls—might limit losses while preserving upside potential.
2. Monitor Institutional Activity: A could provide early warnings of large-scale selling.
3. Rebalance Portfolios: If the stock drops to Citi's $26.50 price target, it could represent a compelling entry point for long-term investors, given LATAM's strong balance sheet and capacity growth guidance of 8.5–9.5%.

Conclusion: A Calculated Bet

LATAM's lock-up expiry on August 1, 2025, is a pivotal moment that could either unlock value or trigger a temporary selloff. While the airline's fundamentals remain robust, the potential for institutional selling and market volatility necessitates a cautious, data-driven approach. For investors willing to navigate the short-term turbulence, the long-term story of a Latin American airline rebounding from pandemic-era losses remains compelling.