The AMLO government, which has refused to bail out shareholders and bondholders of large companies, could be on to something: A form of capitalism where investors, not taxpayers, carry the risks.
Mexico’s main airline, Aeromexico, on Friday felt compelled to issue a denial that it “has not initiated, nor has it made the decision to initiate, a restructuring procedure under Chapter 11 of the Unites States Bankruptcy Code,” following allegations to that effect in Mexico’s most widely read financial daily El Financiero. A few lines further down in the press release, the company said it is exploring ways to restructure, in an orderly fashion, its short- and medium-term financial commitments.
If the statement was meant to put investors’ nerves at ease, it didn’t quite work that way. Aeromexico’s shares ended the day 4.5% lower and are now down 60% year to date.
Investors are spooked for good reason. In May, the number of passengers on its domestic flights plunged by 89% from a year ago, and for international flights by 98%. Like all airlines, it desperately needs financial support to navigate the unprecedented turbulence hitting the aviation industry. And for the moment, it’s not getting it.
Like many airlines, Aeromexico was already in trouble before the virus crisis brought air travel to a near-standstill. In 2019, its CEO, Javier Arrigunaga, went cap in hand to Mexican President Andres Manuel Lopez Obrador’s right hand man, Alfonso Romo, to request a $125 million emergency credit line from Mexico’s state-owned development bank. The answer was a resounding no.
According to the article in El Financiero that forced Aeromexico’s bankruptcy enial, the airline is currently being advised by U.S. law firm White & Case and Citigroup.
Two of South America’s largest airlines, Santiago-based LATAM (a Chilean-Brazilian airline) and Colombia’s Avianca, have already filed for bankruptcy protection in a New York court. In May, LATAM became the world’s largest airline to date to seek an emergency reorganization due to the coronavirus pandemic. It seeks to restructure $18 billion in debt. Latam’s filing for Chapter 11 is likely to delay a proposed bailout of the company by Brazil’s state development bank as well as push back aid to its domestic rivals.
Avianca was already desperately weak before Covid struck, having emerged from a debt restructuring process in Dec. 2019. Like LATAM, Avianca’s revenues and earnings were decimated by the near-total collapse of passenger operations in April, as all countries in Latin America sealed their borders and barred all non-essential travel. Passenger traffic on Latin American and Caribbean airlines plunged by a staggering 96% in April, according to the International Air Travel Association (IATA).
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Nick Corbishley 