The Next Few Days Are Critical For Mexican Aviation

This week, two Mexican airlines are fighting for their future. Grupo Aeromexico is reaching a deadline regarding its Chapter 11 reorganization in the US and is on the brink of potentially losing its US$1 billion DIP Funding. Meanwhile, Interjet keeps on struggling and is facing a possible strike from its workers.

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Aeromexico is in last hour negotiations with its Unions. Photo: Getty Images.

What’s going on at Aeromexico?

Grupo Aeromexico is currently under its Chapter 11 reorganization in the US. Last year, the Court approved a DIP Financing worth US$1 billion, delivered by Apollo Global Management.

For Aeromexico to receive this amount, it had to fulfill some cost-saving requirements. So far, the Mexican airline has withdrawn US$375 million. This amount has fueled Aeromexico’s operations in the last few weeks, as it continues to struggle from the COVID-19 pandemic.

One of the requirements to receive the remaining funding was to reach permanent new agreements with its four labor unions. The original deadline was on December 31, 2020, with seven days to cure the potential event of default. Today’s the final deadline, and Aeromexico is yet to reach an agreement with three of its unions.

So far, the ground employees, affiliated with Independencia Union, are the only ones to have reached an agreement with Aeromexico.

If Aeromexico fails to secure new agreements with its labor unions, the consequences could jeopardize the Mexican airline’s future. Apollo could ask the Court permission to discontinue honoring any pending obligations, plus it could demand payment and exercise the liens it has on Aeromexico’s assets. According to some documents, Aeromexico put 17 related companies, some aircraft, and assets as collaterals.

If today goes by and there is no new agreement, Apollo would be in the driver’s seat. Apollo would call the shots, and Aeromexico could be at its mercy.

So far today, one of Aeromexico’s flight attendants Union has rejected the changes proposed by the airline. The Pilot syndicate said in a statement that it has not reached an agreement with Aeromexico. The remaining Union, also of flight attendants, is still to produce a statement.

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Interjet is not flying until, at least, February 1. Photo: Getty

What’s going on at Interjet?

Aeromexico is not the only troubled Mexican airline at the moment. Interjet, the low-cost carrier, is also in the news.

Having been grounded since December 11, 2020, Interjet is still to inform when it will resume operations officially. So far, it is known that the airline won’t operate any commercial flights in January. On its website, it is only selling tickets from February 1 onwards.

Currently, the employees of Interjet are voting to launch a strike against the airline. The general feeling is that the employees don’t want to go on a strike. This is to avoid shifting the public perception that they caused the possible cessation of operations of the airline.

Interjet owes three months of wages and other legal incentives. In the last few months, the administration of Interjet has pointed out that the tax authority in Mexico has put the airline in an impasse by freezing Interjet’s accounts and not having flexibility when it comes to the payment of over US$147 million in owed taxes.

The tax authority in Mexico has issued a statement regarding this. It said that it doesn’t have any responsibility regarding Interjet’s troubles and that it is not putting an impasse of any kind. Interjet is free to pay their workers, it claimed.

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The future of Aeromexico and Interjet is a question mark. Photo: Getty Images

What will happen?

Mexico became the first Latin American country to deliver a COVID-19 vaccine at the end of last month. The rollout of the vaccine could help the airline industry face a significant shift in the coming weeks.

Between Aeromexico and Interjet, both carriers transported over 35 million passengers in 2019. They had the most extensive international market shares among the Mexican airlines. Both had a sizeable fleet of nearly 200 aircraft between them.

Interjet seem to be in a direr situation than Aeromexico. Between December and January, it has only flown eight days. The public perception of the Interjet brand is on the ground, and the airline’s debt is massive.

Meanwhile, Aeromexico’s issue is that it is not getting a deal done with its unions. Both parties seem to be at a dead-end regarding their needs. And the clock is ticking fast.

What do you expect will happen with Aeromexico and Interjet? Let us know in the comments.