AMR investing in Mexicana?

[eolesen]

One day after Aeromexico's IPO, reports are now appearing in the Mexican press that AMR will be part of an investors group that is looking to restart Mexicana. Financials appear to be $45M in cash, and $455M in lines of credit.

No confirmations in the US press yet, but it might make some sense, given that the domestic Mexico market has been left in the hands of Aeromexico and LCC's since last August.

http://www.routesonline.com/news/29/breaking-news/107735/american-airlines-to-save-mexicana/

http://www.eluniversal.com.mx/notas/759545.html

http://www.centreforaviation.com/news/2011/04/15/aeromexico-ipo-raises-usd332-million-for-fleet-and-network-expansion/page1

 

[Hopeful]

One day after Aeromexico's IPO, reports are now appearing in the Mexican press that AMR will be part of an investors group that is looking to restart Mexicana. Financials appear to be $45M in cash, and $455M in lines of credit.

No confirmations in the US press yet, but it might make some sense, given that the domestic Mexico market has been left in the hands of Aeromexico and LCC's since last August.

http://www.routesonline.com/news/29/breaking-news/107735/american-airlines-to-save-mexicana/

http://www.eluniversal.com.mx/notas/759545.html

http://www.centreforaviation.com/news/2011/04/15/aeromexico-ipo-raises-usd332-million-for-fleet-and-network-expansion/page1

That explains everything....AA moving OH to Mexico!

 

[WorldTraveler]

$45M isn't much to gain 25% of a niche airline in in the Mexican domestic market which will certainly help AA but MX is a long ways from becoming a significant player in the market or for AA to be able to control all of MX's revenue.
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The biggest risk to AA is potentially to have to provide nearly $500M in credit to MX at a time when AA's own finances are stretched.
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It is also noteworthy that a division of Citibank (AA's financial partner) is the primary owned of AeroMexico which is using the proceeds from its IPO to grow further as Mexico's only longhaul int'l carrier.

 

[eolesen]

Before their shutdown, MX held a disproportionate share of the domestic business market, but you're right it will be a challenge to get that back after such a prolonged shutdown.

There have been a lot of potential investors in MX since last August, including a few airline executives, but none of the investment groups have included an actual airline in the equation.

If the rumors and reports are true, this might be the only plan that has any chance of success, because there would be a pretty good knowledge of what needs to take place, and there would be a willing partner to funnel much needed sales to them.

That said, I'll believe it when AMR confirms it.

-- history lesson for those who haven't followed this -----------------------------------------------------------

The Mexicana story has lots of parallels to what's happened in the US airline industry, especially with Eastern.

A year ago, MX's pilots and flight attendants were extremely well paid --- >$200,000 for pilots and >$50,000 for flight attendants. You could live pretty well on that in Mexico, no?...

http://eleconomista.com.mx/corporativos/2010/08/02/contrato-pilotos-ancla-mexicana

MX was in negotiations with their pilots, and as I understand it, under Mexican law, the union had the right to petition the court to freeze MX's corporate assets during a strike or lockout. And they were facing that in August. Bankruptcy was the only legal way to avoid that from happening.

The next part is a little fuzzy... an investor, Tenedora K, bought up 95% of the shares, and the pilots bought up the remaining 5%. Because the shares were still valid, the new owners ousted senior management, after which the pilots then agreed to most of the changes the previous management had been seeking. The flight attendants? Not so quickly, but they eventually came around.

http://eleconomista.com.mx/corporativos/2010/08/02/contrato-pilotos-ancla-mexicana

http://www.flightglobal.com/articles/2010/08/27/346759/mexicana-pilots-detail-agreement-with-tenedora-k.html

http://www.flightglobal.com/articles/2010/08/25/346625/mexicanas-new-owners-appoint-administrator-negotiate-with.html

There was only one problem.... Tenedora didn't bring cash to the table. And they didn't provide MX with any after being approved, for reasons unclear.

Within days of Tenedora K taking control, the company ran out of money and ceased operations.

http://www.flightglobal.com/articles/2010/08/28/346765/mexicana-to-cease-all-operations.html

So what was a good airline, wound up with employees who refused to deal, went into bankruptcy, and then lost all control over their future... They've been stuck in bankruptcy ever since, with several different investment groups coming in, doing due dilligence, and then opting out.

-- end of history lesson ----------------------------------------------------------

I'd like to see them emerge and resume operations, and think with the right cost structure, they'd eat Aeromexico's lunch, because from what I understand, AM has the same pilot and flight attendants union, and pretty much the same labor agreements that took down MX.

I haven't kept up with whether or not AM has restructured their agreements, or if it is just a matter of time before they go thru the same exercise that MX did. Maybe the experience of the MX pilots was enough of a warning that AM will avoid the same issues. And maybe not.

 

[WorldTraveler]

Why in your book does someone have to fail in order for someone else to succeed?
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Is it not possible for MX to return AND for AM to prosper?
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I don't know the labor situations but AM was obviously worth an investment from int'l banks and met the standard for an IPO while MX couldn't even stay in business while AM is growing.
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Obviously there is more to the story than is presented here...
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It is also doubtful that MX could ever regain its share of the premium Mexican domestic market.
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Varig is a similar example in Latin America to MX... and even though Gol invested in them, there is virtually nothing to show for RG's former network.... only a few token planes are still painted in RG's colors but the Brazilian industry moved on after RG failed... just as it did with EA and PA and.... which were also good airlines in their day.

 

[TWU informer]

Maybe all Americans should go down and invest and buy up Mexico and while they take over our Country using US Government assistance, we'll take over theirs. Or just take over Mexico using U.S. military invasion and move our border to the south. Make it all One Nation and the only division left will be Republican vs Democrat, and of course what language we are going to speak.

 

[eolesen]

Why in your book does someone have to fail in order for someone else to succeed?

They don't have to. But you have pointed out time and time again that airlines usually grow at other airlines' expense, especially when you have an economy like Mexico which isn't exactly full of affluence...

And, while AM is now the largest airline in Mexico, they're also the highest cost airline in Mexico. Guys like Volaris, Interjet, and VivaAerobus are already eating their lunch, which is another part of why MX saw the need to finally go after pilot and flight attendant salaries. Ground workers (including mechanics) only saw minor cuts of around 10%...

Maybe all Americans should go down and invest and buy up Mexico and while they take over our Country using US Government assistance, we'll take over theirs.

American corporations have already been doing that. If you can't make money with our pro-business regulatory culture, it's really easy to go where you can.... Maybe AMR will actually make money off this type of deal. It didn't work with Canadian, but that's because it's Canada, and they don't have nearly as much migration within the country or to the US....

 

[Hopeful]

I think the day has come to give capitalism a new definition.
Capitalism will now mean ship jobs overseas while keeping a few suits in the US. Outsource to countries where $1-$3 an hour is the norm. Put every remaining US citizens out of work (except the elitists) forcing them on unemployment. welfare and food assitance. Then when the greedy rich and corporate suits get tired of paying taxes, force all those poor people into shelters and throw them off any public assistance. All while claiming that ANY tax and regulation is hurting their profit margins. Then when theyre republican asswipe buddies pass every anti-worker, anti-union, anti-safety, anti environmental bill......put all those workers in cages and turn on the showers!

I truly hope that all of you elitists capitalists who are pro outsourcing either lose your life or the life of a loved one to any person place or thing that was outsourced.

But don't worry, your republican asswipe buddies will have passed legislation protecting any person place or thing from lawsuits!

This all about your profits and investments..you could give a rat's ass about the human toll which has plagued for the past thirty years.
tell you what, why don't you elitists capitalists go seek medical help in thiose countries that youadmitre so much!

 

[TWU informer]

As a United States Citizen and an American, if not a Capitalist living within the Republic then what are you.

You claim you want democracy in your union, but appear to hate freedom and capitalism.

What the hell are you really then? A Selfish Pig?

Would you prefer to work for a Tyrant that tells you and your offspring what your work for cause will be?
Capitalism has its faults, but I am afraid you would hate the alternative much worse and most likely you would not be posting your opinion on this bulletin board without retribution.

Why piss and moan because you and your fellow workers don't have the balls to use your freedom to correct the wrongs?
But you damn sure don't want to live the alternative.

 

[WorldTraveler]

They don't have to. But you have pointed out time and time again that airlines usually grow at other airlines' expense, especially when you have an economy like Mexico which isn't exactly full of affluence...

And, while AM is now the largest airline in Mexico, they're also the highest cost airline in Mexico. Guys like Volaris, Interjet, and VivaAerobus are already eating their lunch, which is another part of why MX saw the need to finally go after pilot and flight attendant salaries. Ground workers (including mechanics) only saw minor cuts of around 10%...

AM is a LEGACY airline, not unlike AA, DL, and US... they do have high costs but they also have advantages because of being a legacy.
Just as in the US, there are high cost carriers in other parts of the world can stand up to even low cost competition.
I am no expert on Mexican aviation but I fully understand that AM can very much succeed as can other airlines.
As for MX coming back and AA potentially investing in them, they will have to earn back every customer they lost, in the very same way that AA had to earn the customers that PA left in the wake of their shutdown on routes that AA served - and just as AA did after UA closed its MIA hub.
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I think it is quite likely that AM will keep growing and that is their intent with international AND domestic AND transborder growth plans and new aircraft deliveries.
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I think the burden is on MX to figure out how to come back and survive far more than it is AM who needs to be worried about competition which MX might provide... by your own statements, there are plenty of low cost competitors in Mexico already.

As a United States Citizen and an American, if not a Capitalist living within the Republic then what are you.

You claim you want democracy in your union, but appear to hate freedom and capitalism.

What the hell are you really then? A Selfish Pig?

Would you prefer to work for a Tyrant that tells you and your offspring what your work for cause will be?
Capitalism has its faults, but I am afraid you would hate the alternative much worse and most likely you would not be posting your opinion on this bulletin board without retribution.

Why piss and moan because you and your fellow workers don't have the balls to use your freedom to correct the wrongs?
But you damn sure don't want to live the alternative.

very well said.

 

[eolesen]

WT, the fact that AM is the last legacy standing in Mexico is probably seen as an accomplishment by you, but I'm sure it's of great concern to their management.... If it's true that they have the same labor agreements, they need to get the same types of concessions from their unions that MX did -- paycuts of 30-50% and significant layoffs as a result of productivity gains. Hopefully their unions got the message with MX's shutdown.

Back to MX, without question they're going to have to earn customers back one at a time. They do have a few things in their favor, though.

The brand name still has recognition. A connection who used to work for them in a senior management role up until a few months ago said they were still seeing 1000-1500 hits a day to their website as recently as January, even though the airline had been shut down for four months by that point.

The other factor they've got is their membership in oneworld. They weren't kicked out as part of the shutdown. I know you believe that it is the third-rated alliance, but with regard to Mexico, having Iberia, LAN and AA as partners stands to bring them a lot more flow than what AF will from France or DL's east coast and upper midwest hubs can offer to AM.

I'd guess AA gets their money back fairly quickly in terms of revenue. And if AA or MX do something crazy like make AAdvantage the FF program of choice for MX, vs. resurrecting MexicanaGo or Frecuenta, mileage buys would pay back that loan even quicker.

 

[Frank Szabo]

... cheap labor probably plays a large part ...

 

[chris perry]

... cheap labor probably plays a large part ...

I've been in Aeromexico's shop in Leon a few years back.It was a line maint operation , next to GM's own personal terminal.
They had no Maint Manuals ,a case of oil,several light bulbs,a 727 tire wheel and a jack with no handle or air chuck. We used a metal fence post to Jack up a F100 el manual. Zero tools....no nitrogen they just laughed when I ask....

 

[Hopeful]

I've been in Aeromexico's shop in Leon a few years back.It was a line maint operation , next to GM's own personal terminal.
They had no Maint Manuals ,a case of oil,several light bulbs,a 727 tire wheel and a jack with no handle or air chuck. We used a metal fence post to Jack up a F100 el manual. Zero tools....no nitrogen they just laughed when I ask....

That's exactly what the airlines want....no questions asked....They all preach how safety is number one,,but we all know better with their "wink, wink, nudge, nudge" policies.

This is all about not only low wages, but little or no regulation.

 

[eolesen]

Did they speak English, or did you have to speak Spanglish? And were they licensed?