Remind Me: What’s The Situation At Aeromexico?

Grupo Aeromexico has been under a Chapter 11 reorganization since 30 June. Tomorrow, the airline will have a hearing with the Southern District of New York judge, Shelley C. Chapman. Both parties will analyze several aspects of the process like the US$1 billion DIP Financing or the future of Aeromexico’s fleet. Let’s take a look at what the latest developments with the Mexican airline have been.

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Aeromexico plans to lease 82 aircraft with Power by the Hour agreements. Photo: Daniel Martínez Garbuno/Simple Flying

The leasing agreements are on the spot

During the weekend, Aeromexico filed a document to the Court concerning the leasing agreements of 82 aircraft. The Mexican airline is trying to shift its contracts from monthly leasing payments to “Power by the hour” (PBH) arrangements.

Aeromexico said,

“The Stipulations generally provide that, if the Equipment is not used or operated, the Debtors shall not pay rent.” Nevertheless, it shall maintain, store, and ensure the aircraft. It also must provide the leasing companies “reasonable inspection rights.”

Aeromexico is planning to lower its operating expenses as it is trying to preserve as much cash as possible. Between July and August, the cash balance of the Mexican company fell from US$163 million to US$106 million.

The airline currently has a fleet of 105 aircraft, including 22 that belong to Aeromexico. It leases the remainder of its fleet. Now, Aeromexico is waiting for the Court’s approval to change the contracts of 22 Boeing 737-800, six Boeing 737 MAX-8, seven Boeing 787-8 Dreamliner, ten Boeing 787-9 Dreamliner, and 37 Embraer E190.

Nevertheless, the airline left open the possibility of rejecting more leasing aircraft in the future. As of 21 September, Aeromexico has already denied 19 planes (ten Boeing 737 NG and nine Embraer E170).

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Aeromexico left open the possibility of rejecting more airplanes in the future. Photo: Getty Images.

Aeromexico is furloughing crews

Like many other airlines across the world, Aeromexico has had to furlough employees. Before the pandemic, the airline had 16,700 employees. Since March, the carrier pushed salary reductions with its workforce, but that has not been enough.

Now, the company plans to furlough up to 1,000 cabin crew members in Aeromexico and 300 in its regional branch, Aeromexico Connect. The unions of both carriers are working to reduce the number of layoffs, but they seem unavoidable. Even before the pandemic, Aeromexico had a larger workforce than it needed.

Meanwhile, the pilot union of Aeromexico, ASPA, has said that they don’t have risks of layoffs until the end of the year. Early on in the pandemic, the union and the airline temporarily suspended 266 pilots, while keeping safe everyone else.

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Aeromexico is laying off cabin crew members. The pilots are safe until 31 December, according to their union. Photo: Getty Images.

What about the recovery?

Aeromexico is recovering its pre-pandemic number of passengers. Since June, the airline has recovered, month on month, 20% of the travelers it had before COVID-19. Nevertheless, there is a long way to go, and, maybe, Aeromexico will never be the same. For instance, in August (for the first time in history), Viva Aerobus surpassed Aeromexico in passengers’ total number.

While Volaris and Viva Aerobus’ recoveries look more like a V-shaped turnaround, Aeromexico’s graphic is dragging behind. It is understandable as Aeromexico had the most extensive international market share, while the low-cost airlines mostly operated on the domestic side.

Despite that, Aeromexico is planning to increase by 30% of its international connectivity in October. It will restart its flights to South American cities like San José, Guatemala, Lima, Medellín, Bogotá, and Buenos Aires. Aeromexico expects to cover 70 destinations, both domestic and international, and operate over 9,300 scheduled flights. Of those, over 1,100 will be international flights.

What do you think of Aeromexico’s strategy? Let us know in the comments.