Events in Latin America's strongest economy could influence fleet campaigns elsewhere in the region
Guy Norris/ACAPULCO
Mexico and mañana - the two words have become inextricably linked for the ever-patient Airbus and Boeing sales teams, which have spent several years camped out in Mexico City waiting for long-overdue aircraft orders to be placed.
Yet there is more to the Mexican airline story than the standard "mega-manufacturers-in- pitched-battle-for-regional-fleet" plot. Winning in Mexico is not only important because air transport there is growing at 6% per year - the fastest in Latin America - but because it also represents vital strategic leverage for the manufacturers' broader campaigns for regional dominance in Central and South America.
Boeing and Airbus know that nothing can happen until the complex web surrounding the Cintra holding company, established in 1994 to protect local airlines from bankruptcy following the peso's devaluation, is untangled. This process is finally under way and, according to Julio Cesar Mendez, secretary general of the Mexican Institute of Protection for Bank Savings (IPAB), the tender for Cintra's public sale will be issued in July.
This is expected to be key in freeing-up the Latin log-jam which has built up during the last five years of Cintra's increasingly uncertain reign. The two biggest carriers under Cintra's umbrella, Aeromexico and Mexicana, are to be sold separately. The exact fate of the two airlines' subsidiaries has yet to be determined.
IPAB is expected to decide soon if these operators - Aero Caribe, Aeromexpress and Aero Littoral - are to be sold separately or as part of packages of various combinations. The decision is also likely to affect other national carriers such as Aero California. With a 22-strong fleet of McDonnell Douglas DC-9s, the 12-year-old airline, Mexico's fourth largest, has prospered during the Cintra years on a network that includes several southwestern US cities.
The outcome, in turn, depends on foreign interest from suitors including American Airlines, Delta Air Lines, Lufthansa and United Airlines. All are linked to indigenous carriers through either the Oneworld (American), SkyTeam (Delta) or Star (Lufthansa and United) alliance, and are anxious for new footholds in Latin America - Aeromexico belongs to SkyTeam and Mexicana to Star.
Merrill Lynch is IPAB's consultant for the Cintra divestment plan which, by Mexican law, must be completed by 2003. The airlines and manufacturers both seem keen to get orders rolling sooner, though opinion on Cintra's fate continues to be divided. Some pilot and labour unions oppose the enforced split, while the business and investment community have firmly embraced it.
Most, however, agree that Cintra has done a good job. Both major airlines have become profitable during its stewardship, and have well-developed expansion strategies, which include significant growth of their respective maintenance, repair and overhaul businesses.
But while Cintra has been good for recovery and protection, it has proved too unwieldy for fleet planning. The end of Cintra, whose major shareholders are Banco de Mexico, IPAB and Nacional Financiera, means that long-awaited fleet changes can begin.
These developments have prompted Airbus and Boeing to re-energise their campaigns, while the "big two" Mexican carriers' fleet preferences split down partisan lines. Aeromexico, with its Boeing heritage and McDonnell Douglas fleet is pro-Boeing. Mexicana, which operates both Airbus A320s and Boeing types (including 727s and 757s), is pro-Airbus. The question of which foreign carriers end up with a controlling interest is fundamental to the fleet decisions of both, while cost concerns mean that not all may be brand-new types.
Mixed boeing fleet
Aeromexico's 70-aircraft fleet includes 20 ageing DC-9s: "I think we will be replacing the DC-9s with MD-80s over the next few years," says Daniel Pineda, Aeromexico engineering and maintenance manager. For its 100-seat size requirement, Aeromexico is giving the 717-200 "serious" consideration. For the larger, long-range requirement, it is looking at a mixed 757/767 fleet built on the core of its existing fleet. "We are not thinking of Airbus - only Boeing," says Pineda.
Mexicana, on the other hand, appears to be in the bag for Airbus, although Boeing could still play a big part in its longer haul plans. "We like Airbus, and we like the A320 a lot," says Jesús Flores Coronel, Mexicana contracts and production manager. Current plans call for replacing its 22 ageing 727-200s with A320s.
Mexicana was the A320's first Latin American operator and aims to capitalise on this long-established relationship. For its longer-haul operations, the airline is interested in more 757s, and has even hinted at the stretched -300, as well as more -200s. "This part really depends on who is hoping to buy Mexicana, particularly if it is Lufthansa, which may prefer us to go that route," adds Coronel.
Mexicana's short-haul, regional replacement for its Fokker 100 fleet is turning into more of a traditional competition with the A318, A319, 717-200 and 737-600 all in contention: "Mexicana has many offers at the moment, but, before we do anything, we need to deliver on our commitments to the leasing companies. However, we plan to start our smaller aircraft fleet replacement project next year," says Coronel.
For Airbus, the Mexican campaign marks another chance to bolster its growing Latin American presence. Building on its early Mexicana A320 bridgehead, the company has enjoyed considerable success in the region with big sales to LanChile, TAM of Brazil and the Colombia-based TACA Group: "Over the last 10 years we've sold 75% of the new aircraft in this area," says Airbus Latin America vice president Rafael Alonso. "Of course, it is true that Boeing has most of the market, but they haven't had much competition until recently. When you compare apples with apples you see our numbers are growing. Is that going to continue? Well, I hope so. We want at least 50% of this market and I think we're well on track to get it."
Airbus predicts the total fleet in Latin America will rise to around 1,230 by 2010, of which more than 25% will be in Mexico alone. Mexico accounts for around 194 of the estimated active fleet of 785 aircraft, according to Airbus. Alonso says its existing customer group is already signed up for "around 100 additional orders that are not yet in the order book. On top of that, we see other opportunities."
Airbus predicts that, of the 1,230 aircraft in the fleet by 2010, almost 900 will be new. This is expected to be split roughly 50:50 between aircraft needed for new growth and those replacing older ones.
Different perspective
Boeing's perspective on the market is, as ever, different from its competitor's. It claims an 82% share of the Latin American jet market with more than 820 Boeing and McDonnell Douglas aircraft in the inventory. The balance, it says, is split evenly between Airbus and other types, most of which are Fokker 100s. It also claims to have had better recent success in the region than Airbus' figures suggest: it says direct sales and leases of 209 Boeing aircraft have been logged over the past 12 years, versus 71 for Airbus.
Boeing's 20-year-forecast estimate of the Latin American market approximates closely to that of Airbus, predicting a demand for 1,470 aircraft worth $79 billion by 2019. Of this, two-thirds are expected to be single-aisle types, with the rest split evenly between intermediate twin-aisle and regional jets.
It expects Latin American passenger travel to grow at 5.8% per year, a percentage point above the predicted global average for the next two decades. Despite significant sales of 767-300 freighters to LanChile, fresh 737-700 orders from Argentina's LAPA and the selection of -700s by Brazilian start-up GOL, Boeing is conscious that it needs a new strategy in the region.
As a result, it will open a sales office in Mexico City by July as "part of a long term plan" for increasing involvement in the region, says the company's Latin American sales vice president Dan da Silva. The office is more than a shop-front for Boeing, he adds, saying it may even open the door to Mexican industrial participation in Boeing programmes as a whole: "Boeing is committed to the region and this is the first office to be opened under the new global enterprise plan. It helps you be a part of the local economy and then allows you to jump in at the right moment."
For both Airbus and Boeing, it seems the right moment cannot come fast enough.
Source: Flight International
