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News Article

Aeroméxico Files for Bankruptcy Protection in US Court

By Alicia Arizpe | Wed, 07/01/2020 - 11:49

After months of low demand and financial trouble caused by the COVID-19 outbreak, Grupo Aeroméxico, which includes Aeroméxico, Aeroméxico Connect, Aeroméxico Cargo and CECAM, filed yesterday for bankruptcy protection in a US court. The airline is now the third major in Latin America to file for bankruptcy in the wake of the pandemic.

Mexico’s flagship airline has been facing trouble since the pandemic arrived in the country as demand dried up thanks to shelter-in-place policies in local and foreign destinations. In its latest traffic report, Aeroméxico reported that it had transported 92.4 percent less travelers year-on-year during May. Also, demand measured in revenue passenger kilometers (RPK) dropped by 94.4 percent, while capacity shrank by 76.6 percent in available seat kilometers (ASK). On June 19, Bloomberg reported that an anonymous source had informed that the airline was analyzing filing for bankruptcy. At the time, Aeroméxico was quick to dismiss these rumors, claiming that it was looking for alternative financing sources. But on June 30, the airline filed for Chapter 11 bankruptcy protection in a US court to undergo a financial restructuration. “We expect to utilize the Chapter 11 process to strengthen our financial position, obtain new financing, increase our liquidity and create a sustainable platform to succeed in an uncertain global economy,” said Andres Conesa, CEO of Aeroméxico.

The airline had previously reported poor financial results due to the COVID-19 outbreak. During 1Q20, Grupo Aeroméxico saw a 14.0 percent year-on-year decrease in revenue for a total MX$14.1 billion (US$620 million). Moreover, Aeroméxico reported a MX$2.5 billion (US$110 million) net loss for that period, which left it with a 17.8 percent negative margin, according to its financial report. These circumstances had already led the airline to look for cost-saving measures, such as salary cuts of up to 65 percent for many of its pilots and flight attendants. “Our industry faces unprecedented challenges due to significant declines in demand for air transportation globally, hence we are committed to taking the necessary measures so we can operate effectively in this new landscape and be well prepared for a successful future, during and when the COVID-19 pandemic is behind us,” said Conesa.

Aeroméxico is now the third major airline in Latin America to file for bankruptcy protection. Back in May, the two largest airlines in the region, LATAM Airlines and Avianca, filed for bankruptcy within weeks of each other. Other airlines have suspended operations or are to be liquidated such as LATAM Argentina and TAME Ecuador. Airlines in Latin American have been hurt badly by border closures of major hubs in the region, some of which are expected to last until September, and the practically inexistent support from local governments, explained the International Air Transport Association (IATA). The association had previously estimated that the region’s aviation industry could lose up to US$98 billion in revenue due to the outbreak. “(Latin America’s) situation becomes increasingly complex by the day. The numbers increased because we have already entered the fourth month and several markets have not yet opened their operations, while others such as Colombia and Argentina are not planning to do so until September,” said Peter Cerdá, Regional Vice President for the Americas at IATA.

Alicia Arizpe Alicia Arizpe Senior Writer