Mexicana Says Goodbye With Its Future Up In The Air

Mexicana, formally known as Compañía Mexicana de Aviación, has a storied history. The airline founded in 1921 is not only the oldest operating airline in Mexico, but also the oldest airline in The Americas, one of the oldest airlines in the world to continue flying under its original name … and the oldest airline in the world to have continuously operated it inaugural route, Mexico City – Tampico.

On the 28th of August at Midnight Central Standard Time (CST), Mexicana shut down its operations and at Noon CST Mexicana ceased to operate flights after 89 years of continuous service.

The grounding of Mexicana is a considerable blow to air travel in Mexico as the airline was the largest airline by passenger traffic, including its subsidiary airlines Mexicana Click and Mexicana Link.

Mexicana has been battling excessively high operating costs and with its Unions for a long time and the beginning of the end started on the 29th of July when a number of leased Airbus aircraft were seized in Canada. At the time of the aircraft being seized in Canada the International Lease Finance Corporation (ILFC) reported they were seeking 12 of its aircraft leased to Mexicana back. At the same time the aircraft lessors began seeking their aircraft back, the airline found itself falling nearly a month behind in paying for its fuel, with the Mexican government keeping its fuel flowing.

While labour costs at Mexicana were soaring well above the airline’s revenue, the airline faced the same harsh global decline in other airlines around the world experienced. While many airlines were able to renegotiate with labour to survive, merge, or simply fold … Mexicana has continued on as ‘business as normal’ while hemorrhaging cash.

One week ago 95% of Mexicana was purchased by Tenedora K, a consortium controlled by Advent International, was created to purchase Mexicana. The remaining 5% of the airline is now owned by the Pilots Union, with the pilots agreeing to reduce their wages to 20,000 Pesos per month (US$1,500)  for 100 days as the airline restructures and the and the Union negotiates for both a seat on the Board of Directors and a larger stake in the airline.

With Mexicana having filed for Bankruptcy Protection in Mexico and under Chapter 15 in the United States the company still has control of its aircraft, its landing slots, its gates and its contracts remain intact … despite the company holding US$500-million in assets and being US$1-billion in debt.  The key to any airline’s ability to reorganize and restart are access to its fleet, its gates, terminal space and its landing slots.  The protection of these assets are critical to the potential future of Mexicana.

So now Mexicana’s future is largely controlled behind closed doors at the mercy of politics in Mexico.   Does the Mexican government want to see its largest flag carrier airline fail while the country is works to boost its economic growth, which is forecast to grow by 4.1% this year … or does it want to see the airline lay off its 8,000+ employees while impacting the jobs and economics of those who’ll be laid off indirectly by the closure of Mexicana.

Mexicana has valuable assets that work to its advantage, including significant brand recognition, a fleet that is intact due to bankruptcy protection, gates and infrastructure and slots at highly sought after airports … as well as standing in a global alliance. While Mexicana has traditionally been a weaker airline within the OneWorld Alliance, its membership in the alliance allows it more flexibility to marketing and access to more markets.

On the other hand Mexicana has some significant disadvantages, union labour costs that are significant out of line with current economics of both the company and the airline industry, the financial hardship of having had its ticket sales suspended nearly a month ago and the fact that in order to restart they’d be starting from a position of having just ceased operations.

Mexican may have the ability to raise liquid capital for the company as Mexicana,  Mexican Click and Mexicana Link all operate with independent Air Operators Certificates (AOC). The company has the potential to maintain a core airline while selling off one or more affiliate companies and their AOCs and allow the company to operate in a more streamlined manner.

If the politics surrounding Mexicana can all come together we may see the airline take to the skies again and reach its 90th birthday next year.

If Mexicana fails to get its house in order while it restructures in this brief period where they still have their fleet, gates and airport slots intact those flying in Mexico lose a valuable travel option and Mexicana’s primary competitor Aeromexico will have the opportunity to grow rapidly and massively.

Happy Flying!