Aeromexico and Mexicana should come under the oversight of a holding company by the end of the month. The search for potential buyers for the single entity could begin once the slow process of putting the two carriers' finances in order is complete.

The holding company, called the Corporacion International de Aviacion or Cintra, will act as a shell for Aeromexico and Mexicana. Cintra should be established by January, with a full transfer of investor holdings to the holding company completed by the third quarter of 1996.

However, the merger of the two carriers - often cited as a necessity for the assured survival of even one Mexican flag carrier - is excluded. The two companies will still be run as separate entities and an independent manager will oversee the divide. This is a requirement of the Federal Competition Commission - Aeromexico holds a 55 per cent equity stake in Mexicana - on antitrust grounds. Nevertheless, the CFC made one concession in late November and quashed the three-year limit imposed on the financial restructuring at both carriers.

Deadline or not, rehabilitation will not be an easy task, especially for Mexicana. Aeromexico has already restructured its debt by extending repayment of $137 million in Eurobonds by five years and swapping roughly 90 per cent of the company's equity for $530 million in debt held primarily by four banks: Serfin, Bancomer, Banamex and Banco Mexico.

Mexicana, still suffering under a massive $700 million debt load, is following in the footsteps of Aeromexico. The renegotiation of leases on 12 A320 aircraft could produce $10 million in annual savings. More importantly, there are plans for a $500 million debt-for-equity exchange - negotiations could be finished by early 1996.

The carriers are also having to cope with a drop off in passengers since the peso's devaluation a year ago. In the third quarter, Aeromexico's traffic fell 18 per cent but the carrier responded well, reducing capacity by 20 per cent and increasing yields by 11 per cent. The result was a net profit of NP143 million ($21.5 million) from a loss of NP28 million last year.

Though Mexicana's third quarter results had not been released as of early December, the carrier did post operating profits of $24.6 million for the first six months of 1995. Capacity cuts should follow a restructuring of the fleet and distribution system in the coming months.

Speculation over potential bidders for the two airlines is rife but premature. Restructuring is still underway and only a stronger economy will ensure a return to sustained profitability. Equally daunting, analysts believe, is the insistence that both airlines are sold together, as subsidiaries of Cintras.

Mead Jennings

Source: Airline Business