Analyzing Aeromexico’s Plan of Reorganization

On Friday, October 1, Aeromexico presented its Chapter 11 Plan of Reorganization, where it projects the economic and operational recovery for the next few years. The Mexican carrier also sheds light on its future alliances, fleet, and how it will better compete against the local low-cost competition. Join us in analyzing Aeromexico’s Plan of Reorganization. Economic and operational recovery Even before the COVID-19 pandemic, Aeromexico was struggling to compete against low-cost domestic operators Volaris and Viva Aerobus. The airline had a few net losses going back to 2018. The COVID-19 pandemic put extra pressure on the carrier, which led to Aeromexico filing for a Chapter 11 bankruptcy in the US on June 30, 2020. Since then, the airline has been reducing its cost base, renegotiating contracts with its workforce and unions, and adapting its business to the new reality. Aeromexico expects to have a $474 million net loss in 2021, due to the continued impact of the COVID pandemic. In the first half, the airline lost $340 million. Nevertheless, the carrier expects to return to the black, and post a net profit as soon as 2022. According to the airline’s disclosure statement, Aeromexico will have a $26 net income in 2022, followed by $139 million in 2023; $335 million in 2024, and $379 million in 2025. The operating revenue of Aeromexico will also grow to $5.174 billion by 2025, while total operating expenses will be around $4.276 billion. Aeromexico’s fleet future Last Friday, we discussed Aeromexico’s fleet plans. Since filing for Chapter 11, the Mexican carrier has signed deals to acquire 46 aircraft. Of this total, 28 will come from Boeing, 12 from Dubai Aerospace Enterprise (DAE), and six from Air Lease Corporation. Currently, Aeromexico has 118 aircraft. Aeromexico expects to end the year with a fleet of 125 planes, according to its recently filed Reorganization Plan. That would keep Aeromexico as the largest company in Mexico, by fleet size. Moreover, the Mexican operator expects to add new aircraft in the future. Aeromexico believes it will finish 2025 with 154 planes, composed of 133 narrowbodies and 21 widebodies. During the last year and a half, Aeromexico has streamlined its fleet to improve its performance. The Company has simplified its fleet from six aircraft sub-fleets to four. Aeromexico added, “Moreover, as demand continues to rebound toward pre-pandemic levels, the Company intends to increase its use of modern and highly efficient 737 MAX aircraft, which will help close the price gap between Aeromexico and certain low-cost Mexican carriers. The Company also intends to limit its use of regional aircraft and move towards more cost-efficient aircraft. Similarly, the Company intends to upgauge its long-haul fleet over time to include a greater proportion of larger capacity 787-9 widebody aircraft as demand for longer distance business and leisure travel rebounds to pre-pandemic levels.” Future alliances As a member of SkyTeam, Aeromexico believes this alliance will be very important in the years to come. The airline “will reestablish its routes to major cities in Europe, South America, and Asia to pre-crisis levels by, among other things, leveraging and expanding partnerships with other SkyTeam Alliance members (for example Air France-KLM and Korean Air) for transcontinental flights and with Latin American carriers like LATAM for flights throughout Latin America.” Finally, the alliance with Delta Air Lines will keep on being extremely important to the carrier. Aeromexico defined the partnership as strategic as it bolsters its competitiveness and supports its mission to serve its passengers in the best manner possible.

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