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  • ALTA: Will government intervene in Mexicana rescue?

ALTA: Will government intervene in Mexicana rescue?

Mexico's president-elect, Enrique Peña, is sending out mixed signals about the prospect of his government intervening to rescue Mexicana from its two-year-old bankruptcy.

Before his election in July, Peña promised that his administration would seek a Mexicana bailout. That resonated well with labour unions. But the head of his transition team on infrastructure wants to wait and see what happens, with a new judge now handling the case.

"It is up to the judge to resolve it," says Gerardo Ruiz, head of the transition team. "We will pay attention to the solution; it is an important issue. But it is up to the judge."

Asked if this means the government is no longer considering a bailout, Ruiz says the new administration, which takes office on 1 December, wants to wait for the judge's decision "before anticipating anything".

Interjet chairman Miguel Alemán has already urged the new government to stay out of Mexicana's affairs. At a recent business summit in Mexico City, Alemán called Mexicana's bankruptcy "a matter between private companies" that "has nothing to do with the government". He feels its fate should be decided by "the dictates of the Bankruptcy Act".

What to do about Mexicana, which ceased flying in August 2010, is the latest chapter in a national debate that has lasted 17 years. The specifics have varied, but the underlying issue has always been whether Mexico should have two full-service airlines.

The saga started in 1995 with the peso devaluation that nearly bankrupted Mexico. Mexicana and Aeromexico, also near collapse, were placed in a holding company called Cintra, which was eventually owned by the Mexican government. For the next decade, transportation officials argued with competition officials over whether the two airlines should continue under common ownership and control within Cintra, or be split again. In 2004, Cintra was preparing to merge the two, but a change in leadership reversed that plan. Late in 2005, Cintra's board agreed to sell Mexicana. Aeromexico was sold three years later.

The return of both carriers to separate, private ownership coincided with Mexico's decision to open its skies to a new kind of airline. A swarm of low-cost carriers emerged. Both legacy airlines soon found themselves facing unprecedented competition, and five years after its freedom, Mexicana was broke. When its unions rejected concessions, Mexicana's owners grounded the airline and put it into the court-supervised bankruptcy, where it remains today.

No fewer than 33 different investors have tried to take over the beleaguered airline, but none has been able to convince the court that it has the $300 million needed to satisfy Mexicana's creditors, recapitalise the airline and show aviation authorities it has the financial stability to justify a new air operating certificate. So the debate rumbles on.

Frustrated by delay, in August creditors finally convinced court administrators to replace the judge who had handled Mexicana's case for two years. Judge Edith Alarcón took over, and quickly impressed everyone with her decisive, no-nonsense approach. The case had languished since February when her predecessor picked the Spanish group Medatlantica as the investor to recapitalise Mexicana. But doubts remained over whether Medatlantica really had the funds. Judge Alarcón gave it five days to prove it did, and to show how its ownership structure would satisfy Mexico's foreign ownership cap.

failed on both counts

On 11 October, the judge declared that Medatlantica had failed on both counts, and would no longer be considered a potential investor. The next week, she gave Mexican mining entrepreneur Iván Barona 45 days to prove he had the resources. Barona has repeatedly expressed interest in Mexicana.

Now Fidas, a financial management group in Monterey, wants to compete with Barona for the airline. Whether the judge will allow this, whether either suitor can satisfy the requirements, and what the judge will do if they fail, are the next questions to answer.

How much longer will this drag on? Mexico's other airlines are frustrated. Not only is it hard to plan strategic investments, but Mexicana's return could force them to relinquish slots and 18 international routes formerly flown by Mexicana.

ALTA executive director Alex de Gunten expressed his views at a recent international forum in Mexico, saying: "I am concerned that an airline that has been dead for two years is still not buried.

"This uncertainty is bad for the Mexican market. This is an industry where the cost of investment is high and it must know the rules of the game."

The industry will suffer, de Gunten warns, "if the government does not clarify [the rules]; or, if it decides to subsidise one carrier versus another, the rules have to be the same for all".

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