Yesterday, Grupo Aeromexico requested the Mexican labor authority’s permission to terminate the Collective Bargaining Agreements (CBAs) with two of its four unions. The airline claims the end of the CBAs is necessary for its sustainable future, as it hasn’t been able to conclude satisfactorily the negotiations needed for its Chapter 11 bankruptcy. Let’s investigate further.
As we reported last week, Grupo Aeromexico is in the midst of difficult negotiations with its Unions. The airline has to achieve economic cuts throughout its workforce to access the remaining Debtor in Possession (DIP) Financing, provided by Apollo Global Management. The airline still has to withdraw US$625 million.
Aeromexico had until December 31, 2020, to finalize a deal with its Unions. When it couldn’t, it entered an extra time that was set to end on January 7. Both parties didn’t come to an agreement on that date either. So, Aeromexico had to ask Apollo for a new extension, which was set for January 27.
Nevertheless, five days into the second extra time, the airline seems to be on a dead-end with two of its four Unions. These syndicates are of pilots (ASPA) and cabin crew (ASSA).
This led to Aeromexico’s latest decision. The airline said,
“Aeromexico requires ongoing access in a fast and timely manner to the DIP Financing funds to meet its payments and commitments in the ordinary course of business with key suppliers, authorities, and contributors. Consequently, the Company has decided to request termination, due to the fact of force majeure that undoubtedly affects the Company, the current CBA with the ASPA and ASSA unions.”
Additionally, the airline also requested termination of contracts with “a certain number of pilots and flight attendants.” So far, Aeromexico has furloughed more than 700 cabin crew members, and more than 260 pilots are on temporary leaves without payment.
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How did the Unions react?
Shortly after Aeromexico published its petition on the Mexican Stock Market, the two Unions reacted.
Both said that they haven’t received an official notification from the Mexican labor authorities. ASPA said that Aeromexico has no legal ground for this kind of petition. Meanwhile, the cabin crew syndicate said they first have to receive the notification before designing a legal strategy.
Aeromexico, ASPA, and ASSA reiterated their willingness to continue conversations and find schemes that allow the airline to reduce costs. Nevertheless, the clock is ticking, and it is unlikely that Aeromexico could have a third round of extra time if it has no agreement by January 27.
What’s going to happen?
Due to the nature of a COVID-19 bankruptcy process, Aeromexico has some tight requirements to achieve. If the Mexican airline fails to secure new agreements with its labor unions, it could jeopardize its future.
Apollo could ask the US Court permission to discontinue honoring any pending obligations. It could also demand payment and exercise the liens it has on Aeromexico’s assets.
The COVID-19 crisis has hit Aeromexico really hard. The airline went from transporting 20.68 million passengers in 2019 to 9.48 million in 2020; it was a 54.2% decrease on a year-to-year basis.
Moreover, the airline’s international traffic (Aeromexico’s forte, due to the lack of presence of other Mexican carriers in this market) fell by 70.1%. We still have to see Aeromexico’s final quarter financial results, but we don’t expect them to be nice.
What do you think of Aeromexico’s latest issues? Let us know in the comments.