Aeromexico’s Chapter 11 has had a battle with unsecured creditors in the last few weeks. The Mexican carrier, Delta Air Lines, and Apollo Global Management have faced pressure and accusations from creditors urging the court to reject Aeromexico’s Reorganization Plan and exit financing. How did it come to this? 

Aeromexico has been in a Chapter 11 bankruptcy process since June 30, 2020. Throughout the process, the airline received DIP Funding for US$1 billion from Apollo Global Management. The funding was divided into two tranches, one for US$200 million and another for US$800 million. 

In the meantime, Aeromexico has continued to operate commercial flights in Mexico and has had a good recovery from the COVID-19 pandemic. Aeromexico closed in 2021, carrying almost the same number of passengers it had in 2019. This feat is something not all airlines worldwide can say. Nevertheless, Aeromexico still had a 9.2 billion pesos net loss in 2021’s first three quarters (versus a 32.8 billion loss in 2020 and a 2.3 loss in 2019). The airline expects to go back to profitability in 2022.

Aeromexico’s Chapter 11 restructuring will allow the company to raise approximately US$720 million of new capital and US$762.5 million of new debt, in addition to the equitization of a large portion of the airline’s recognized debt. These movements will put the airline in a robust financial position and enough liquidity to emerge in the best conditions. Nonetheless, creditors will suffer dilution once the Plan is approved

The backlash

The Official Committee of Unsecured Creditors stated that Aeromexico’s Plan of Reorganization favors insiders. It also understates value to the significant detriment of unsecured creditors, it claimed. This Committee includes representatives of the pilots union, equipment lessors, and the unsecured notes trustee. It believes that the plan of reorganization is inherently flawed, and general unsecured creditors should vote to reject the plan. 

The Committee added:  “The plan as currently proposed favors company insiders, including Delta Air Lines and certain Mexican shareholders and directors, by inappropriately providing these insiders $255 million of value in the reorganized company.”

Similarly, the Ad Hoc Group of OpCo Creditors and the Invictus Global Management Team have raised concerns against Aeromexico’s Plan. Invictus asked the United States Trustee to look into the matter. 

The OpCo Creditors said: “To induce certain favored operating and financing partners to support the Debtors, the Exit Financing is structured as an impermissible private placement of assets among an exclusive club.” 

The Exit Financing is built on a structure that must be rejected, they added. 

Why the unsecured creditors are unhappy?

The creditors believe the exit financing does not benefit the debtors’ estates. For instance, the business plan does not reflect the strong performance of Aeromexico in the last quarters. But Aeromexico has failed to update its business plan to reflect the reality. 

Additionally, the exit financing motion is linked to an allocation of US$268 million in value to insider shareholders. Particularly, Delta will receive approximately US$182.3 million “merely for performing services that the Committee believes Delta is already contractually obligated to provide.” 

Meanwhile, Aeromexico, Apollo, and Delta have issued letters against what they say are “blatant attempts,” to subvert the Chapter 11 process. 

In the meantime, Judge Chapman approved Aeromexico’s exit financing motion and has set a schedule for plan confirmation. Aeromexico is set to have the plan confirmation hearing between January 18 and 21. The creditors have until January 7 to vote in favor or against the Plan. 

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