Interjet Runs Out of Runway. Six Other Latin-American Carriers Already Liquidated or in Bankruptcy

They didn’t get bailed out by taxpayers. But in a radical experiment these days, investors got to eat the losses, as they should.

Budget airline Interjet, Mexico’s third largest carrier by passenger numbers, canceled its entire roster of flights on Nov. 1 and Nov. 2, leaving some 3,000 passengers stranded, due to its inability to pay for jet fuel.

Flights resumed on Tuesday, by which time the company had apparently scraped together enough money to resume servicing its fuel tab. But many of Interjet’s workers refused to work, choosing instead to picket the company’s Mexico City headquarters over the fact they haven’t been paid their salaries for two months.

And according to one worker who spoke to El Financiero, some benefits, including uniform allowances, housing credits and health insurance payments, haven’t been paid since March.

The strike was halted after the airline agreed to pay one quincena, or fortnightly payment, to workers by the middle of this week. It also said it hoped to pay three quincenas by the end of the week. There’s only one problem: it has no money.

This is despite the fact that a consortium of investors very quietly acquired 90% of the airline for $150 million in July in an operation whose details remain largely secret. According to the newspaper Milenio, the money has not yet materialized, apparently due to concerns that the moment it does, the government will take a large chunk of it to cover tens of millions of dollars of unpaid taxes.

Interjet was founded 15 years ago by the family of former Mexican senator Miguel Alemán Velasco, himself the son of a former president. It has been plagued by financial problems for years. This is partly due to an ill-fated decision, back in 2012, to purchase 22 Sukhoi SSJ100, which were considerably cheaper than other 75-100 seater regional jets on the market but proved to be a nightmare to maintain and source spare parts for. Once they had mechanical problems that could not be easily fixed, planes were simply left in their hangars and ended up being cannibalized for spare parts. By 2019, only five of the 22 aircraft were still operational.

When the virus crisis hit, bringing the global aviation industry to a virtual standstill, Interjet’s problems quickly multiplied. In the past eight months…

  • Mexico’s federal tax agency SAT has imposed an embargo on property belonging to Alemán Velasco due to the airline’s unpaid tax bills.
  • 25 of its leased aircraft were repossessed.
  • Customers have launched a class action suit over its endless cancellation of flights and shady reimbursement practices.
  • The city of Chicago has sued it for failing to pay taxes and fees owed to O’Hare International Airport.
  • The Canadian Transportation Agency withdrew its license to operate in Canada for not having liability insurance coverage.

On Monday, the Mexican government’s consumer protection agency, Profeco, piled on the pressure by warning consumers not to buy tickets from the airline, after receiving 1,500 complaints from customers over cancellations.

“Interjet has been facing a number of problems in its commercial operations for several months, including the suspension of various international routes, the non-payment of salaries, the suspension of its license to operate international air routes to Canada and the embargo of bank accounts, goods and brands,” a notice from Profeco read.

The airline was already on its knees a year and a half ago. In its earnings call for the first half of 2019 — the last time it publicly disclosed its financial accounts — it reported losses of 516 million pesos. Cancellations and delays of Interjet flights became a constant feature of the summer, affecting 21,000 passengers. In August 2019, the airline refused to pay $30 million in unpaid corporate taxes, citing serious cash flow problems.

Continue reading the article on Wolf Street

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