Adios Mexicana; North America's oldest airline ceases operations


After struggling against the odds for over three weeks, Mexicana de Aviacion, on 27-Aug-2010 announced that all operations, including those of the group’s regional subsidiaries, MexicanaClick and MexicanaLink, would cease on 28-aug-2010. The not-unexpected outcome was attributed by Mexicana’s new owners, Tenedora K to “the group’s delicate financial situation when it changed owners a week ago, compounded by failure to reach agreements that would allow for the capitalisation of its three airlines.”

Overwhelming debt – and perhaps mishandling of the crisis – made further operations impossible

The new management, under the potential rescue consortium, Tenedora K, set out the resasons for its failure to revive the fortunes of Mexicana in the following terms:

  1. “Grupo Mexicana’s fragile financial situation, which has deteriorated further over the last four weeks due to the previous management’s decision to suspend ticket sales, forcing the company to continue operating in the interests of passengers without receiving any revenue.
  2. No substantial agreements were reached to give companies in the Group long-term viability.
  3. Lack of effectiveness in the insolvency (Concurso Mercantil) process intended to protect additional financial resources available to the company so it could to continue operating.
  4. Given the uncertainty of the situation, certain suppliers have begun demanding advanced payment of services that are essential to the airlines’ operations.”

Mexicana’s website tells the story

Adios to a venerable, if not very efficient airline

It was always going to be an uphill battle to recover, once the word spread about the carrier’s near collapse and bankruptcy applications, and the usual credit squeeze problems eventually appear to have killed any opportunity of a new life for the airline group, North America’s longest surviving.

 As always, there is a very human side to this sort of collapse. To use management’s own words, “Today’s decision is a painful one for the 8,000-strong Grupo Mexicana family, but we will continue seeking out ways of securing the company’s long-term financial viability, so our passengers can once again enjoy the quality services they are accustomed to. We hope to be back in the air soon……”

Sadly that hope appears to be little more than forlorn at this stage.

MexicanaClick and MexicanaLink – an asset sale?

The service suspension has also grounded the two, reportedly profit making, regional subsidiaries - a factor that will be painful for the country’s smaller cities. However, given the local importance of these services, there would appear to be a reasonable expectation that these will be reconstituted in some form or other.

Whether this will be in the process of bankruptcy protection or in an asset sale is another issue. From what little information is available, it would appear that the first course of action may no longer be available. If an asset sale becomes the solution of choice, the Tendora K investors may even sniff the possibility of a profit (as they appear to have paid a very small amount to acquire the rights to Mexicana – perhaps not unreasonable where they would also inherit the carrier’s debt mountain), although this becomes legally complex.

oneworld to move to fill the gaps?

When Japan Airlines went into bankruptcy protection in Jan-2010, the one world partners rallied around to provide a range of supportive measures to help the Japanese flag carrier to survive. This was apparently not the case with Mexicana. The oneworld website today, 30-Aug-2010, still offers Mexicana as a member, still without qualification – “Mexicana, the leading airline in Mexico and Central America, became part of oneworld on 10 November 2009. Its subsidiaries MexicanaClick and MexicanaLink joined the alliance at the same time, as affiliate members. Between them, these three airlines serve more than 65 destinations in some 15 countries.”

As we have noted previously, Mexicana’s woes are however passed on to its oneworld partners, particularly those which have grown to rely on connections and feed traffic that Mexican have delivered and which now become unreliable or disappear altogether. But oneworld, as well as its competitors, have the possibility to make corrections in order to fill the void.

In a review on 17-Aug-2010, “Mexicana bankruptcy protection stalls; decline opens opportunities for others”, CAPA reviewed some of the immediate potential ramifications of the airline’s collapse and withdrawal from markets.

We shall provide a final assessment of the post-collapse status in a later report.

Mexicana’s last wave?

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