Mexicana Files For Bankruptcy

[Eric Diffoot]

Mexicana Files For Bankruptcy Protection


Aug 3, 2010

By Darren Shannon [email protected] WASHINGTON

Mexicana’s parent company has filed for bankruptcy protection for its main operating unit after declaring the carrier’s financial situation is “no longer sustainable.” The filings for court-protected reorganization of Compania Mexicana de Aviacion (CMA) in Mexico and a procedural filing in the U.S. come a day after the carrier drastically reduced its U.S. services without explanation. The company now confirms these reductions were a reaction to possible aircraft repossession by lessors. These filings can be used to stop creditors impounding their assets. As first reported by AVIATION WEEK’s Aviation Daily last month, Mexicana has defaulted on several debts, including aircraft leases. Since then, Air Canada has impounded two Airbus narrowbodies, and a third was repossessed by AerCap during a turnaround at Chicago O’Hare International Airport. It is now emerging that AerCap is attempting to repossess five aircraft, and a Mexicana spokesman confirms the reduction of service in 31 markets was a reaction to the loss of the three aircraft. However, he notes that the cuts are “maybe too strong a reaction” and that some capacity should be returning to its schedule later today. Many of the reductions are seasonal changes already scheduled for Aug. 31, he adds. Details about the bankruptcy are still emerging, but the airline has separated its low-cost unit Click and regional jet operation Link as independent operations. Several comments from the carrier emphasize that neither operation will be affected by the bankruptcy of the mainline division, which operated 64 Airbus narrowbodies before the repossessions. The loss of these three aircraft will affect some routes, and it appears the nonstop services to Sacramento, Calif., from Cabo San Lucas and Guadalajara and its domestic nonstop between Bajio and Zacatecas eliminated on Aug. 1 will not return. Many more routes will be converted to one-stop service through the operator’s Mexico City hub. “Despite investments of over $300 million in credit lines and resources put up by NGA [the airline’s parent company Nuevo Grupo Aeronáutico] and its subsidiaries, MexicanaClick and MexicanaLink, CMA explained today that its current financial situation is no longer tenable. Concerted efforts have been made over the last four and a half years to restructure costs, efforts that have translated into savings of some $800 million as a direct result of investment in IT systems, new routes and more efficient aircraft, but have not been sufficient to offset its crew costs,” the company says in a release issued late Aug. 2. The problem lies with labor costs, according to management. “Although the airline’s operating costs excluding crew labor costs are 30% lower than the average of legacy airlines in the United States, these non-competitive labor costs are the main reason why the company has continued to suffer losses, to the extent that it is now financially non-viable,” it notes. “According to company sources, CMA’s pilots earn 49% more than the average wage paid by legacy airlines in the United States and 185% more than the average pilots flying Airbus A320s for other Mexican low-cost airlines like Volaris or Interjet. Likewise, Mexicana Airlines flight attendants earn 32% more than the U.S. average and 165% more than their Mexican counterparts employed by the same airlines,” the release continues, adding that under revised contract terms, the airline would have produced a $350 million profit since 2007 rather than the $350 million loss it produced. There are two options under the company’s restructuring plan. The primary plan asks for a 40% cut in pilot and flight attendant numbers and pay cuts of 41% and 39%, respectively, in return for increased profit sharing. A second proposes selling the operation to the unions for a nominal one peso and about the assumption of $80 million in debt obligations to Bancomext. In return, NGA says it will assume $120 million in credit lines and allow the company to use the Mexicana brand for six months. But, as Mexicana notes, both these options were rejected prior to the bankruptcy filings. It also notes that, “it is time to acknowledge reality, that the paradigm of commercial aviation has changed worldwide and that only airlines that operate at competitive costs can hope to survive and continue flying.”

http://www.aviationweek.com/aw/generic/story.jsp?id=news/awx/2010/08/03/awx_08_03_2010_p0-245388.xml&headline=Mexicana%20Files%20For%20Bankruptcy%20Protection&channel=comm

Like most airlines that file for bankruptcy is because of the same issue, labor. Hopefully they stay around but the repo of 3 aircrafts sure doesn't depict a good picture for Mexicana's financial position. Feel sorry for whoever expected to fly back on Mexicana from O'Hare once the aircraft got repo there, never heard an aircraft getting repo like that before. Maybe a possible merger between Mexicana and Aeromexico is in the mix, sure doesn't look good for Mexicana right now.

[Curtis Malone]

Like most airlines that file for bankruptcy is because of the same issue, labor.

A number of years back I had the pleasure of meeting Capt Wakefield Gordon who at the time was the Chairman of Pinnacle Airlines' MEC. When I met Capt Gordon, the Pinnacle pilot group had already been in contract negotiations for eighteen months, and they are still negotiating four years later. Capt Gordon made an interesting point, he said (I'm paraphrasing) "If an airline's business model is such that they can't afford to pay their employees a decent wage, then what needs to change is the business model, not the wage. Besides, their business model is not my responsibility. My responsibility is getting people where they're going alive and on time". In other words, it's real easy to blame labor who allegedly is rolling in greenbacks, when more often than not, it's incompetent management (who, incidentally, is usually pretty well-compensated) who runs the airline into the ground.

[Eric Diffoot]

You bring up a great point there Curtis, thanks.

[AVION1]

Mexicana files for Bankcruptcy

Mexicana airlines will stop all their operations tonight, after filing for BK..!!

http://www.msnbc.msn.com/id/38523952/ns/travel-news/

[IberiaMD-87]

MexicanaClick and MexicanaLink will also suspend their operations at the same time...

Regards

[akerosid]

Operations to cease at noon today

A sad end to one of the world's oldest airlines; the carrier originally started operations in 1921.

Operations will cease at noon today, Mexican time.

Let us wish Mexicana employees success in finding alternative employment.

http://www.jetphotos.net/viewphoto.php?id=6867919

[twagenknecht]

Saw the lines today at KLAX...glad I am not one of the unfortunate ones. I mean, really, how do you justify a payment above the cost of the ticket for a rebooking. This only shows how low the 'greed culture' can sink. Horrible.

[AJ]

The full explanation is on their website:

http://mexicanainforma.com/cma-informs/

[Eric Diffoot]

Wow, yet another airline seems to be joining Swissair and Sabena. Hopefully people employed with Mexicana and its other carriers do find work soon. Yet another blow to Oneworld with JAL still in limbo and Mexicana going down. Only months ago Mexicana had this bold plan of expansion and fleet renewal, how the tides have turn dramatically. I wonder what will Aeromexico do.

[HalcyonDays]

As I understand it, it's not completely certain that this is the end for Mexicana, but it certainly looks like it.

Indeed, Mr akerosid, Mexicana is one of those great airline names. One of the very oldest airlines operating under its original name, it goes back to 1921. Pan American bought the airline in 1929 and continued with some ownership right up to the 1960s. It was a fairly pioneering and bold business back in the 1930s and 1940s, opening up routes in central America and up to the US. When Mexico had one of its many financial crises, the one in the early 1980s, the airline was nationalized for a few years.

It has operated a wide variety of aircraft. Among them, notable fleet examples were the DC-2, the Comet and the rare hot-and-high DC-10-15. It was also a very early operator of the 727.

Their safety record was acceptable, not too brilliant but par for the course given their size, I suppose, in Latin America. In the jet era 3 fatal 727 losses over 40-plus years, including the infamous tire fire in 1986.

Life goes on, I guess.

[Eric Diffoot]

There may be still life for Mexicana afterall.....quite a drastic change.

Mexicana Restructuring Plan Trims Routes


Sep 9, 2010

By Darren Shannon

A major overhaul of Mexicana’s route network could see the carrier resume much of its North and Central American services by the end of November under a restructuring plan revealed to The DAILY. The plan, which is only now being formulated, will however drop all domestic mainline services, as well as Mexicana’s European flights, and with it the long-haul Airbus A330s and Boeing 767s operated by the airline prior to its bankruptcy early last month (DAILY, Aug. 4). The carrier is also constrained by the FAA’s recent downgrade of Mexico’s safety rating, which prohibits the transfer of any service rights to another Mexican carrier. This revelation comes a day after a Mexican bankruptcy court formally granted Mexicana court protection similar to the Chapter 11 process used in the U.S. The court and the Mexican government, which now has the authority to oversee the carrier’s reorganization, also appointed the carrier’s senior legal counsel, Javier Christlieb, administrator for the airline’s restructuring. Importantly, Mexicana’s owners are also seeking bankruptcy protection for the airline’s two affiliates, Click and Link. These applications do not intend any immediate return to service for either division, which were grounded Aug. 28 by owners Tenedora K after they failed to gain concessions from the mainline carrier’s flight attendants. These bankruptcies should be formalized in a month. A source with intimate knowledge of Mexicana’s reorganization says the plan will have to be filed with the Mexican bankruptcy court within the next two weeks to offer any chance of survival. Any later, and the court will not have time to approve the plan, and the carrier will be unable to sell a sufficient quantity of tickets before the busy winter season starts in December. In the interim, the company is surviving on a small amount of late paid debt, including tickets already sold to government departments. The plan is contingent on many variables, primarily access to aircraft. According to the source, Mexicana appreciates that it will need a smaller fleet than it operated pre-bankruptcy, and is in talks with lessors, such as International Lease Finance Corp. and GE Capital Aviation Services, to review their contractual obligations. Several of the carrier’s lessors have already been granted the right by a New York bankruptcy court to repossess all their aircraft, but few have been released by the airline, which has cited legal restrictions associated with court orders filed by its unions. In the past few days, though, some of these limitations have been lifted, and ILFC, for one, was able to take possession of five Airbus A319s and one A320. Mexicana’s fleet relies heavily on Airbus narrowbodies, which included 18 A318s, 25 A319s and about 25 A320s prior to its bankruptcy. The vast majority is leased, as are the Boeing 717s operated by low-cost division Click and Link’s Bombardier regional jets.

http://www.aviationweek.com/aw/gener...dline=Mexicana Restructuring Plan Trims Routes&channel=comm

[CathayPacific]

There may be still life for Mexicana afterall.....quite a drastic change.

Is this really drastic... or not? One thing I notice is that Mexicana is still a member of oneworld (see oneworld's web site) despite the fact that it is no longer flying.

It seems to be an indicator that something is brewing underneath, that oneworld knows MX has a good chance of coming back in some shape or form. Just a guess.