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Aeromexico Receives Approval For Bankruptcy Exit

Edward Russell
January 28th, 2022 at 4:23 PM EST

A U.S. bankruptcy court judge has approved Aeromexico’s reorganization plan and paved the way for the airline to exit Chapter 11 bankruptcy protection before the end of the first quarter.

Judge Shelley Chapman of the U.S. Bankruptcy Court for the Southern District of New York approved the plan from the bench late on Friday after a two-day confirmation hearing. Her approval followed 11th-hour settlements to objections from the unsecured creditors committee, Invictus Global Management, and the ad hoc group of OpCo Creditors, the last of which came down minutes before the judge issued her decision.

“I wanted this airline out of Chapter 11 … and have the folks in Mexico know that their flagship carrier had safely made its was through Chapter 11,” Chapman said. “We’re all going to keep our fingers crossed that Covid isn’t going to throw us any more curveballs and that people can get back on those planes and go to Mexico and enjoy some sunshine.”

Aeromexico is the second big Latin American carrier to restructure in Chapter 11. Bogotá-based Avianca exited bankruptcy in December after its reorganization plan was approved by another judge the month before. South American giant Latam Airlines Group continues to work building support for its plan despite a hostile takeover bid by Brazilian competitor Azul. However, Latam management has indicated that they hope to exit bankruptcy this year.

Aeromexico will emerge from Chapter 11 a leaner and more nimble carrier. The carrier cut roughly $1.1 billion in debt and achieved roughly $605 million in annual cost savings through the process. Its plan calls for growth, particularly with new and efficient Boeing 737 Max aircraft that it committed to 41 of from both Boeing and lessors during its restructuring, and leveraging a strengthened position at its key Mexico City hub. The airline also plans to build on its joint venture with Delta Air Lines and partnerships with other SkyTeam Alliance carriers, as well as expand a partnership with Latam in South America.

The airline expects passenger numbers to recover and surpass 2019 levels to roughly 25.8 million this year. And revenues are forecast to recover in 2023 to $4.2 billion, or potentially their “highest level” ever for Aeromexico. It estimates 22 percent lower unit costs excluding fuel helping propel it to more than $1 billion in adjusted earnings before interest, taxes, depreciation, amortization, and restructuring (EBITDAR) in 2023.

Delta, which owned 51 percent of Grupo Aeromexico before its bankruptcy, will retain a 20 percent stake in the reorganized carrier. Apollo Global Management, which led the airline’s debtor-in-possession financing package, will emerge with a 22.4 percent stake and a group of Mexican investors that previously sat on the Aeromexico board will have a 4.1 percent stake. The remaining shareholdings will be split among creditors and new investors.

Aeromexico CEO Andres Conesa thanked the airline’s staff, plus all those who worked on its restructuring, and the judge in a statement Friday. He described confirmation of the airline’s plan as “giving us wings to fly even higher through the skies of Mexico and the world.”

The recovery has been good to Aeromexico. Mexican demand has rebounded quickly and domestic passenger traffic up 17 percent in December compared to 2019, airline data show. However, systemwide traffic remained down 18 percent due to steep declines in long-haul international numbers. For the full year, Aeromexico carried 38 percent less traffic than two years earlier.

And while Mexican discounters Volaris and Viva Aerobus have gained domestic share during the crisis, most — including some creditors — expect Aeromexico to benefit from the closure of Interjet in December 2020.

Aeromexico still faces challenges, not least the uncertain trajectory of the pandemic. The airline remains unable to add new flights to the U.S. following the Federal Aviation Administration’s downgrade Mexico’s safety rating to Category 2 in May. The safety rating also blocks partner Delta from selling tickets on Aeromexico-operated flights. In addition, Viva and Volaris are both stronger competitors today than they were when Aeromexico filed for Chapter 11 in June 2020.

Story updated with comment from Aeromexico CEO Andres Conesa, and financial forecasts through 2023.

Edward Russell
January 28th, 2022 at 4:23 PM EST

Photo credit: An Aeromexico Boeing 737 Max takes off. Boeing

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