Mexico & Nafta - September 2010 (ISSN 1741-444X)

Throughout August, Mexicana, Mexico's biggest carrier, has been in deep financial trouble. On 28 August, the new owners grounded all the company's flights in an effort to force change on the company. The gamble appears to have failed and raises further questions about the quality of President Felipe Calderón's ministerial team. 

Compania Mexicana de Aviacion (Mexicana) is unlikely to resume operations after grounding all its flights on 29 August weeks after filing for bankruptcy protection in Mexico and the US. The airline, originally a state-owned flag carrier with an 89 year history, was privatised in 2005 when it was acquired by a group led by the hotel company, Grupo Posadas, for US$165m.

Even as a private operator Mexicana was hobbled by lush labour contracts. These prevented it from being able to compete on price (and sometimes service) with leaner and younger competitors. The company employed 3,000 people, which saddled it with a monthly salary bill of US$5.8m. The company's final owner, Tenedora K, paid just M$1,000 (US$95) for Mexicana. It immediately tried to sack all the pilots and cabin crew in a desperate effort to start with a viable cost structure. It said that the company was 20% overstaffed. This gamble failed so now the government will have to find another investor, while the airline effectively ceases operations.

The indefinite grounding of Mexicana will curb air traffic and hurt airport operators, including Grupo Aeroportuario del Sureste SAB, Grupo Aeroportuario del Pacifico SAB and Grupo Aeroportuario del Centro Norte SAB, which all operate privatised airports.

Mexicana and low-cost MexicanaLink and MexicanaClick halted operations “indefinitely" on 28 August, said Nuevo Grupo Aeronautico SA, the holding company for the airline. On 3 August, the company filed for bankruptcy protection in Mexico and under Chapter 15 of the US Bankruptcy Code.

The Chapter 15 petition, which bars US creditors from seizing planes or cancelling contracts, listed Mexicana with more than US$500m in assets and US$1bn in debt. The airline operated 69 planes under the Mexicana brand and 35 under MexicanaClick, which it started in 2005. MexicanaLink, a separate unit unveiled last year, has 15 planes, according to the website. Mexicana also has 165 sales locations.

The collapse of Mexicana is another embarrassment for the government and may have serious knock-on implications for the transport system. Mexicana accounted for about 40% of Mexico's airline capacity. Already, three important tourist destinations (Puerto Escondido, Chetumal and Minantitlán) no longer have air connections. Furthermore, 10 of Mexicana's international routes (to unpopular places such as Calgary and Caracas) no longer have an operator.

The newish transport minister, Juan Molinar Horcasitas, previously the head of the social security agency, the IMSS, is in denial about the bleak prospects for Mexicana. Molinar is a politician rather than a technocrat and was heavily criticised, though eventually exonerated, by the supreme court for IMSS failings in regulating a nursery in Hermosillo, after a fire in the nursery killed 49 children in 2009. Molinar argues that Mexico is a market best suited to have one domestically owned international airline, with several competing for routes within the country.

• Debts

Molinar admitted that Mexicana had run up US$160m in unpaid operating debts (for airport services and fuel) with airports this year.