Aeromexico financing plan ready in 4 to 6 weeks, CEO says

Grupo Aeromexico SAB’s financing plan under its Chapter 11 bankruptcy protection filing could be ready in the next four to six weeks, Chief Executive Officer Andres Conesa said.

The voluntary filing for a debtor-in-possession financing plan, known as DIP, was a responsible decision that will allow the company to weather the coronavirus pandemic however long it may last, Conesa said in an interview.

Aeromexico’s bankruptcy protection filing came after the carrier saw the number of passengers it flew plummet more than 90% as governments grounded flights and travelers stayed home. Airlines in Latin America, unlike their counterparts in the U.S. and Europe, have received scant government support.

“We’re solvent, we have assets, but we haven’t been able to tap financial markets over the past three months,” Conesa said. “This will allow us to access better financing that we wouldn’t get otherwise.”

Since the pandemic started, the carrier has had to dole out 1.5 billion pesos ($65.8 million) to repay debt, Conesa said. Aeromexico’s total debt reached $1.9 billion and 7.9 billion pesos, according to the first day petition filed on Wednesday before the court.

DIP Financing

Latam Airlines Group SA, which also filed for creditor protection in May, is seeking as much as $2.15 billion in new debt, according to court filings. Avianca Holdings SA has not specified how much it is seeking, a spokeswoman said.

Conesa says he doesn’t see Aeromexico needing that much, though a final number is still four to six weeks away. Now that the filing has been made, a group of creditors will get together this month and they, alongside the company and a judge, will decide how much needs to be raised and what form the restructuring will take.

“We’ll likely have a mix of plain and convertible debt,” he said. “But the message is clear—we’re focused on keeping Aeromexico flying and acting responsibly. We’re not thinking about the equity side at the moment.”

The carrier received zero support from the government, Conesa said. “The government was very clear on that. The entire region is heading towards a market restructure, and that will allow us to have an even better future.”

Flexible Fleet

Aeromexico owns about 30% of its fleet, Conesa said, which stood at 130 jets before the pandemic started. Those assets could be offered as collateral through sale-and-lease-back operations, he said.

Additional flexibility comes from its leases being staggered. Contracts for about 15% of its fleet expire over the next 15 months, he said.

Another decision to be made in the coming weeks will be what routes to keep and at what frequencies. This month, the airline will fly about half of the domestic flights it had in July last year and about 20% of its international ones.

When, or if, to bring the rest back will largely depend on demand and on governments’ flight restrictions across the globe, he said. The airline, which still has nine Boeing 737 Max aircraft to be delivered, said it is reviewing its contract conditions with the plane maker.

The airline will likely emerge slimmer from the proceedings, Conesa said, but that won’t mean a change to its business model and he doesn’t see aggressive fare cuts necessary to compete with domestic rivals.

“Aeromexico’s essence will continue, it was working so far,” he said. “But not even the strongest airline in the world can withstand this.”

Aeromexico operates routes in Mexico and internationally to destinations including the U.S., Canada, Europe and Asia. Delta Air Lines Inc. is its biggest shareholder.

The airline has been able to avoid lay-offs until now, but Conesa says fewer flights in the future will likely require adjustments, though he declined to give a figure. The carrier’s workforce stands at about 16,000, he said.

Aeromexico is being advised by Davis Polk & Wardwell LLP, Rothschild & Co., Cervantes Sainz S.C., AlixPartners and Skyworks Holdings, LLC.