Aeromexico Files For Chapter 11 Bankruptcy Protection
Aeromexico became the latest Latin American airline to seek Chapter 11 bankruptcy protection in the U.S., as the region’s carriers struggle to remain solvent in the absence of federal government support.
Grupo Aeromexico, the parent company of Aeromexico, Aeromexico Connect and Aeromexico Contigo, on June 30 filed to initiate Chapter 11 proceedings with the U.S. District Court for the Southern District of New York.
The SkyTeam co-founder’s decision follows in the wake of Chile’s LATAM Airlines Group and Colombia’s Avianca Holdings, the largest and second-largest Latin American airline groups, respectively, both of which also filed in New York’s Southern District Court.
Aeromexico said it intends to use the Chapter 11 process “to strengthen its financial position and implement necessary operational changes to address the impact of the ongoing COVID-19 pandemic and create a sustainable platform for the future.”
“We are committed to taking the necessary measures so that we can operate effectively in this new landscape and be well prepared for a successful future when the COVID-19 pandemic is behind us,” said Andres Conesa, CEO of Aeromexico and its parent company.
In the meantime, Aeromexico’s operations will continue, with plans to double the number of domestic flights and quadruple international service in July from June levels. The carrier slashed capacity by 80% year-over-year in the second quarter, and has previously forecast plans to operate between 30% and 50% of last year’s capacity in the third quarter.
Aeromexico does not expect any changes to employees’ day-to-day job functions, and workers will continue to be paid and receive benefits through the restructuring. Prior to the pandemic, more than 16,000 people were employed across its various units.
The group is in talks to obtain debtor-in-possession financing as part of the restructuring process, and is confident the financing, combined with its available cash, will provide sufficient liquidity to satisfy its obligations going forward.
“We expect to utilize the Chapter 11 process to strengthen our financial position, obtain new financing and increase our liquidity, and create a sustainable platform to succeed in an uncertain global economy,” Conesa said.
Aeromexico had lobbied the Mexican government for support, ranging from extending payment terms of jet fuel and airport services to credit lines from Mexican development banks, but so far no government aid has materialized.
IATA has criticized governments in the region for not aiding the airline sector during the COVID-19 pandemic. An analysis from the group showed just $300 million in airline aid across all of Central and South America as of June 15, compared to $66 billion in North America and $30 billion in Europe.
Aeromexico was Mexico’s second-largest airline by domestic market share in 2019, servicing just under a quarter of total air traffic compared to 31% for Mexico City-based LCC Volaris, according to data from Mexico’s civil aviation regulator. Aeromexico was Mexico’s largest airline by international market share last year, however, carrying just over 15% of international traffic to and from the country.
The Mexico City-based airline group operates to 88 destinations in Latin America, North America, Europe and Asia with a mainline fleet of 68 Boeing 737s and 787s, and a regional fleet of 52 Embraer E170s and E190s, according to Aviation Week Intelligence Fleet Data. The Aeromexico Contigo unit also operates nine 737-800s on select routes in the U.S. and Mexico.
The company is 51% owned by Delta Air Lines, and is the third Delta partner to restructure following LATAM and Virgin Australia. The two carriers operate a transborder joint venture that allows them to coordinate on dozens of routes between Mexico and the U.S.