The government has received two offers for the flag carrier and a deal could be completed as early as October

After a slow start, the bidding for Aeromexico has heated up with a bid from a bank-led group and the prospect of a bid from rival Mexicana.

Aeromexico's sale has been planned since 2005 when the Posadas group bought Mexicana for $154 million. After repeated delays, the government earlier this year announced that it would sell its 62% stake in Aeromexico's holding company through a public offer unless a buyer emerged. September was its target, although that has slipped. The government has not set a new deadline, but it hopes to complete a deal in October.

The Aeromexico group consists of Aeromexico, Mexico's largest airline its regional subsidiary, Aerolitoral, which is due to be renamed Aeromexico Connect and a half-interest in a ground handling firm.

Father and son team Alberto and Moisés Saba, both prominent Mexican businessmen who had bid unsuccessfully for Aeromexico back in 2005, made the first bid in August. They offered a share price that valued Aeromexico at $100 million.

The owners of Avolar, one of Mexico's low-cost startups, were also interested, but decided not to match the Saba offer. They thought it was too high.

The Saba bid has now been trumped by a bid assembled by Banamex, a division of Citicorp. The bidders include a group that reads like a Who's Who in Mexican business. This group would hold 51% and Banamex 49% under the proposal, which values Aeromexico at $150 million.

Both the Saba and Banamex bids are for a majority, if not all, of Aeromexico's shares. Both bids offer the airline's pilots a stake in the airline, and both propose injections of much-needed capital after acquisition.

If the Saba family tries to top the Banamex bid, it will have to retreat from earlier remarks in which it claimed its $100 million offer was "more than adequate" given the company's distressed finances. "The numbers are horrible," says Alberto Saba, who claims Aeromexico is "technically bankrupt".

The prospect of Mexicana also becoming a bidder raises competition issues. So far, Mexicana has only notified the competition commission (CFC) of its intent to submit a bid, and it may be waiting for a CFC response before it makes any offer.

When Aeromexico and Mexicana were both owned by the Mexican government, the CFC in 1998 accused them of monopolistic practices. To restore competition, it later ordered their sale to separate owners.

The key issue now is whether the recent market entry of many low-cost carriers in the country has reduced concentration enough for the CFC to reach a different conclusion.

Source: Airline Business