Will Mexico Bail Out Airlines In Crisis?

Mexico’s president, Andrés Manuel López Obrador, said yesterday that the country will not bail out any companies during the worldwide coronavirus crisis. Although the Mexican president didn’t address the air industry in its speech, this message should worry some airlines. Let’s investigate further.

AeroMexico Boeing 787 GettyDreamliner aircraft on final approach
Mexican Government won’t bail out companies due to the coronavirus pandemic. Photo: Getty.

IATA and ALTA have asked for financial help

Yesterday, IATA published a statement asking governments in Latin America and the Caribbean for help. In this statement, IATA asked for the same measures that had previously been requested in other regions. These are direct financial support, loans, loan guarantees, support for the corporate bond market, and tax relief.

Meanwhile, Mexican President López Obrador said that, in this crisis, the only bailouts the government will make will be for struggling citizens. He added,

“We will not have any rescues like banks and big companies received in the old days. You shouldn’t think there will be any tax relief or any other mechanism. If we have to bail out someone, who do you think we will help? The poor people.”

IATA is currently estimating that the airlines in Latin America will see a negative impact of 15 billion USD on passenger revenues in 2020. If this projection is accurate, Latin American carriers will be the second least badly affected by coronavirus after African airlines. Europe and Asia will take the hardest hits.

The Latin American and Caribbean Air Transport Association (ALTA) has also asked for financial help across the region. But, predictably enough, ALTA told us it hasn’t received an answer from the Mexican government.

Lopez Obrador, Mexican president
The Mexican president said he will only help the poor people in the country. Photo: Daniel Martínez Garbuno

Mexico’s carriers could be in deep trouble

As of right now, Mexican carriers continue flying. One way or another, Aeromexico, Volaris, Interjet and Viva Aerobus still maintain more than 50% of their daily operations. This is due to the fact that the country hasn’t closed its airspace.

Interjet even launched a new marketing phrase that says “until the skies have no borders, we’ll continue flying in Mexico. This is not a separation, we are just waiting to be together, again.”

But the Mexican market is essential for Latin America. According to IATA, it generates the biggest contribution to the GDP in the region, valued at over 37.4 billion USD. Brazil is next with over 18.8 billion USD. Also, Mexico generates the biggest amount of aviation jobs with over 1,400,000.

At the same time, even with this, Mexican airlines are barely breaking even. In 2019, Aeromexico and Interjet posted losses, while Volaris and Viva Aerobus had a good year. In order to help their airline, the Aeromexico pilots voluntarily slashed 50% of their wages for the next three months.

While the airspace in the country remains open, the Mexican airlines will continue to operate and will have a better chance of survival. But, if Mexico goes into full quarantine mode, Mexican airspace could be completely reshaped.

Interjet Getty
Could the pandemic be the final blow to Interjet? Photo: Getty Images.

Brazil and Paraguay are good examples: IATA

IATA said that Brazil and Paraguay are taking good measures to protect the industry. These measures are mainly aimed at delaying payments on state fees as well as reducing some taxes.

At the same time, Brazil went a step too far, at least for a day. Yesterday, Brazilian president Jair Bolsonaro announced a decree that allowed companies to not pay wages to workers for up to four months. Fortunately, some good sense prevailed and the measure was taken back later.

Finally, as Alexandre de Juniac, IATA’s CEO, said,

“This shows that states around the globe, recognize the critical role that aviation plays in the modern world. But many others have still to act to preserve the important role of this sector. Airlines are an economic and employment engine.”

What do you think? Let us know in the comments.