Aeromexico is growing its orderbook with a new deal for 12 new Boeing 737 Max aircraft as it positions itself to take a larger slice of Mexican travel market recovery.
The Mexico City-based carrier has signed a letter of intent with Dubai Aerospace Enterprise (DAE) to lease 12 more 737 Maxes, a filing with the U.S. bankruptcy court late on Monday shows. The deal would increase Aeromexico’s commitments for the jet to 36 from 24 in April, not including the at least seven deliveries it took in May and June. In addition, DAE would take over the lease of one 737-800 in the airline’s fleet. Financial terms of the leases were not disclosed.
DAE had outstanding orders for 14 737 Maxes at the end of June, according to Boeing’s orders and deliveries data. While the data does not specify whether those are 737-8s or the larger 737-9 — both of which Aeromexico operates — the lessor ordered 15 737-8s in April. DAE has previously closed 737 Max sale-and-leaseback deals with American Airlines and Gol.
The aircraft deal comes as the Mexican air travel market has come roaring back. The latest Skift Recovery Index shows the county is the first to surpass pre-pandemic travel levels driven primarily by the lodging sector. But airlines are not sitting idly by: domestic capacity is expected to be up 0.5 percent compared to 2019 in August, and flat year-over-two-years in the third quarter, according to Cirium schedule data. The country’s three main carriers — Aeromexico, Viva Aerobus and Volaris — all reported domestic passenger traffic increases 2.1 percent, 33 percent and nearly 19 percent, respectively, in June compared to 2019.
Aeromexico was hobbled by the Covid-19 pandemic and its subsequent Chapter 11 bankruptcy filing in May 2020. That restructuring, plus the effective closure of Interjet in December 2020, allowed budget competitors Viva Aerobus and Volaris to accelerate their own growth in an effort to grab more market share. Earlier in July, Volaris posted a rare crisis profit and outlined plans to expand its fleet by 25 aircraft by the end of 2022 with many of those planes going to new Mexico City flights and other domestic services.
If approved by the bankruptcy court, Aeromexico would begin taking delivery of the additional 737 Maxes from October. This would allow some of the planes to enter service in time for the busy end-of-year holiday travel season.
The planned growth at Volaris, as well as at Aeromexico if the DAE deal is approved, comes as neither carrier can expand to Mexico’s largest international market: the U.S. Cross-border flights are capped at May levels when the Federal Aviation Administration downgraded Mexico’s safety rating. Mexican carriers are barred from expanding to the U.S. until the country’s rating returns to Category 1 status, which could take as little as six months or as long as several years.
“The leasing of these state- of-the-art aircraft provides greater fuel- and cost-efficiency thereby permitting [Aeromexico] to offer comprehensive and competitive services to their customers,” said Matt Landess, a partner at SkyWorks Capital that advised the airline on the deal, in the filing on Monday. He added that the deal was another step in Aeromexico’s “fleet simplification and modernization effort.”
Aeromexico has removed at least 18 aircraft from its fleet through its restructuring. This includes all nine of its Embraer E170s as well as nine older 737s. Aeromexico had 119 aircraft at the outset of the crisis. The airline also cut 24 Maxes from its Boeing orderbook earlier this year.
The Mexican carrier stands apart from other airlines reorganizing during the pandemic. In Latin America, it is the only carrier adding aircraft commitments to its orderbook while Avianca and Latam Airlines Group — both of which are also reorganizing under Chapter 11 bankruptcy protection in the U.S. — continue to either renegotiate existing deals or reject aircraft. Latam also faces a conflict with its unsecured creditors over the cancellation of separate deals with Delta Air Lines and Qatar Airways, as well as a potential hostile bid by Azul for its Brazilian assets.
Delta owns a minority stake in Aeromexico and the two carriers have a joint venture on flights between Mexico and the U.S. At the beginning of July, Delta purchased a further $185 million in its partner’s debtor-in-possession — or DIP — financing as part of its support of Aeromexico’s restructuring.
The bankruptcy court is scheduled to hear Aeromexico and DAE’s lease deal on August 12.