Yesterday, Aeromexico filed a DIP Financing Motion in the US to obtain up to US$1 billion. The financing will allow Aeromexico to maintain adequate liquidity to complete the Chapter 11 restructuring process, the airline said.
How does the DIP Financing work?
Aeromexico is in Chapter 11 since 30 June. The carrier filed for the financial restructuring process in the Southern District of New York. It was the third airline in Latin America to do so after Avianca and LATAM Airlines Group.
Chapter 11 is a long process that many airlines in the past have sought to survive a crisis. One of the most critical parts of the restructuring process is the Debtor-In-Possession (DIP) Financing.
DIP Financing is a form of lending to finance the credit needs of a company protected under the Bankruptcy Code. Currently, LATAM is looking for more than US$2 billion in DIP Financing, while Avianca is trying to obtain US$1.2 billion.
Now, Aeromexico is obtaining commitments for US$1billion in two tranches that are still subject to court approval. The Mexican airline said,
“The DIP Facility consists of a senior secured Tranche one facility of US$200 million and a senior secured Tranche two facility of US$800 million.”
When will Aeromexico receive the money?
If Aeromexico receives this money, it can only use it for certain permitted expenses as working capital, general corporate purposes, and restructuring costs. Judge Shelley C. Chapman has the ball in her court. She’s currently analyzing the filings of Grupo Aeromexico.
If she grants an interim approval of the DIP Facility, Aeromexico will get US$100 million of the Tranche one. Once this happens, Aeromexico would have raised US$300 million in the last three months.
Then, when the Judge grants her final approval of the DIP Financing, Aeromexico will have access to the rest of the Tranche one and US$175 million of the Tranche two. After that, subject to the fulfillment of certain conditions, the airline can have subsequent draws in minimum amounts of US$100 million.
Another important aspect is that the Tranche two may be converted into shares of reorganized Aeromexico.
What else is Aeromexico doing at the moment?
In the first half of 2020, Aeromexico lost US$1.3 billion while seeing a 50% drop in its number of passengers. The carrier said that US$908 million of the net loss was due to one-off non-cash items, including the return of 19 aircraft.
Aeromexico is returning five Boeing 737-800s, five Boeing 737-700s, and nine Embraer E170LR. It will also return four General Electric CF34-8E5 engines.
Nevertheless, Aeromexico could return more airplanes in the future. According to local media, the airline is announcing SkyWorks as its fleet advisor for a restructuring process with Boeing regarding Aeromexico’s B737 MAX fleet. Aeromexico has six MAX grounded, and more than 80 on order or ready to deliver.
In July 2020, the airline transported 513,000 passengers, a 73.2% year-on-year decrease, and an increase of 110.7% versus June 2020. International passengers decreased by 89.2%, and domestic passengers fell by 62.3%.
This month, Aeromexico is restarting international services to Quito (Ecuador), Las Vegas, Denver, and San Francisco. It increased its frequencies from Mexico City to Cancun, Merida, Durango, Los Mochis, Chihuahua, Culiacan, Miami, Paris, and Sao Paulo.
What do you think of Aeromexico’s DIP Financing? Let us know in the comments.