4-Aug-2010 1:57 PM

Mexicana files for insolvency petition to ensure operations

Mexicana de Aviacion (Mexicana) filed (03-Aug-2010) a concurso mercantil or insolvency petition with a Mexico City District Court on 02-Aug-2010 to "ensure the continued operation" of the oneworld alliance airline. Likewise, a Chapter 15 petition was filed with a New York Bankruptcy Court in order to obtain bankruptcy protection and injunction relief in both countries. Details include:

  • Concurso Mercantil is a Mexican legal resource that guarantees the operation of companies that are unable to meet their obligations, while protecting those companies they do business with. Similar to Chapter 11 of the US Bankruptcy Code and other similar legislations, this recourse grants companies a reasonable timeframe in which to reorganise themselves in an orderly manner while continuing to operate;
  • Effect on passengers: Passengers will not be affected as part of the proceedings, since the carrier will continue to render normal service while it restructures its liabilities and brings costs into line with market conditions;
  • Click/Link:  Click and Link’s operations will not be affected as these airlines are independent of CMA, and therefore independent to the proceedings;
  • Reasons for filing: The carrier stated its costs, particularly those associated with flight crews are well above industry average, adding: "such costs must be brought into line with market conditions to allow the company to reach a restructuring agreement with its creditors in order to secure its financial viability well into the future". The company stated its cost structure makes it "financially non-viable" and has experienced a "sharp drop" in demand for air services due to the global financial crisis and the AH1N1 flu epidemic of 2009;
  • Talks with unions: The carrier is negotiating new collective labour contracts with its unions, and is "confident they will result in a positive outcome enabling the company to continue offering its customers world-class services at competitive fares";
  • Since changing hands in 2006, CMA has made aggressive efforts to boost productivity by expanding and renewing its fleet, enhancing its route network, as well as introducing state-of-the-art technologies. These measures have translated into improved operating efficiency, savings in excess of USD800 million and has contributed resources superior to USD350 million. [more]

The Chapter 15 petition in New York lists more than USD500 million in assets and USD1 billion in debt (Reuters/Bloomberg/BBC/Dow Jones/AP, 03-Aug-2010). Meanwhile, creditors have seized three of Mexicana's 61 aircraft since 29-Jul-2010, with the carrier, this week, also failing to reach a new labour agreement with pilots and flight attendants. The carrier owns only nine of its 61 aircraft, according to CEO Manuel Borja Chico. The carrier operates to more than 65 destinations in Latin America, US, Canada and Europe.

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