Aeromexico Secures A $100 Million Bailout

Aeromexico has locked in $100 million in additional funding to help it navigate the travel downturn. Canadian investment company Aimia Inc has brokered a deal that will see the airline draw cash from the operator of its Club Premier loyalty program. The deal has been months in the making.

Aeromexico has just picked up US$100 in funding. Photo: Getty Images

Under the freshly-inked deal, Aeromexico will access $50 million via an intercompany loan facility. A further $50 million will be available via the pre-purchases of award tickets.

“We also appreciate the financial support offered by our partners as we implement our strategy to emerge from the challenging situation currently faced by the global airline industry,” said Aeromexico’s CEO, Andres Conesa.

A much needed financial boost for Aeromexico

The funding is a financial lifeline for the airline. In mid-June, reports said Aeromexico was considering filing for Chapter 11 bankruptcy protection. Aeromexico denied this, but that didn’t prevent the airline’s share price tumbling.

The majority of Aeromexico’s 119 strong fleet remains grounded. The airline has a strong international focus and remains heavily impacted by the worldwide travel downturn. Scheduled passenger capacity was down 92.5% in May. In addition, passenger numbers were down 92.4% compared to May 2019.

But the Aeromexico is fighting back. In addition to this funding package, Aeromexico plans to double its domestic capacity in July and quadruple its international capacity. Overall, Aeromexico expects to operate over 6,000 flights in July.

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Aeromexico plans to step up capacity in July. Photo: Mark Harkin via Flickr

Funding comes from airline loyalty partner

Aimia Inc, formerly Groupe Aeroplan, calls itself a loyalty and travel consolidator. The Montreal-based business brokers investments. Its specialty is harnessing cash tied up in loyalty programs. According to Aimia Inc, such deals can boost earnings and drive growth.

“We are very pleased to be in a position to utilize the robust cash flow and financial attributes of PLM to support our airline partner during this challenging time,” said Aimia Inc. CEO Phil Mittleman on Monday.

This funding deal strengthens the relationship between Aeromexico and PLM Premier. The funding comes via changes to the Shareholders Agreement between the two companies. In a statement, Aeromexico said the deal not only benefits the airline. It would also allow PLM to grow their Club Premier program while improving its profitability and value.

“We are looking forward to implementing the newly agreed terms to drive additional customer loyalty and benefit both companies,” said Aeromexico’s Andres Conesa following the announcement.

The deal deepens the relationship between Aeromexico and PLM Premier. Photo: Alf van Beem via Wikimedia Commons

Some future certainty but the overall outlook remains grim

The deal also extends the commercial arrangement between Aeromexico and PLM Premier to 2050. That gives the companies some certainty in their forward planning. But it also provides a possible lucrative upside for Aimia Inc. Aeromexico now has a seven-year option to purchase Aimia’s 48.9% stake in PLM with a minimum price of $400 million.

But Aeromexico prefers to concentrate on the present day. The airline is keen to get back on its feet and increase its flying. But whether this funding is enough to help Aeromexico ward off the threat of bankruptcy is debatable.

Aeromexico continues to spend $2 million per day just standing still. By global airline standards, that’s not bad, and the airline is working to reduce this cost. But $100 million won’t stretch too far while Aeromexico continues to bleed cash.