Yesterday, the US Bankruptcy Court approved Aeromexico’s Chapter 11 plan. The airline is now set to exit Chapter 11 proceedings after more than a year and a half under financial reorganization. Moreover, if Aeromexico’s business plan is executed correctly, the carrier’s financial performance will be among the top tier relative to competitors. Aeromexico’s Chapter 11 plan approved On Friday, January 28, the US Bankruptcy Judge Shelley Chapman confirmed Aeromexico’s Plan of Reorganization, following a two-day hearing. Before the approval, Aeromexico signed deals with the most vocal opponents to its Chapter 11 plan. On Thursday, the airline reached an agreement with a group of unsecured creditors, offering them potential distributions from a four-year, US$40 million “contingent value right” note. Then, on Friday, Aeromexico agreed to pay US$1.1 million in cash to Invictus Global Management and said it would provide a group of junior creditors up to US$800,000 to cover legal fees. The plan will provide new infusions of capital (approximately US$1.4 billion) into Aeromexico and change the airline’s shareholder panorama. Following the exit of the bankruptcy proceedings, Apollo Global Management, a frequent investor in distressed companies, will be the largest shareholder, with about 26%. Delta Air Lines will dilute from 49% to 20%. Andrés Conesa, Aeromexico’s CEO, issued a statement that said, “I feel very proud to announce we reached one of the most important milestones in our Chapter 11 process. Now, we have a clear runway to take off as a more efficient and modern new company.” Aeromexico’s business plan Aeromexico’s business plan has set ambitious goals over the projection period. The airline expects to exit stronger from Chapter 11 proceedings and have, in the short term, the highest EBITDAR of its history, as well as sustainable double-digit EBIT margins. The business plan forecasts a passenger growth of 58% by 2025, compared to pre-pandemic levels. In 2021, Aeromexico had 20% fewer passengers than in 2019, carrying 16.5 million travelers versus 20.6 million two years before. The gap widened between Mexico’s number one carrier, Volaris, and number two, Aeromexico. Meanwhile, the gap between the second and third carriers (Viva Aerobus) closed, as the ULCC carried more than 15 million passengers. Nonetheless, Aeromexico expects its Chapter 11 plan will position it for long-term success. The airline expects its EBITDAR will go from negative in 2020 to over US$1 billion by 2023, which would be the highest ever for Aeromexico. Additionally, the airline forecast profitability by 2022, despite being in the midst of the recovery. Forecasted 2023 revenue and EBITDAR will be over US$4 billion and US$1 billion, respectively. If achieved, it would be the highest ever for the company, with further growth driving EBITDAR over US$1.6 billion by 2025. Between 2022 and 2025, Aeromexico’s average forecasted margin is 27%, in line with top-tier competitors in the region. The development of the business plan Aeromexico’s key goals to develop its business plan are the following: It will strengthen the historical revenue premium while focusing on Mexico City’s International Airport hub. It will upgauge its fleet and have cost reductions, delivering a 22% pro forma ex-fuel unit cost reduction by 2023 while retaining fleet flexibility to navigate through the COVID-19 recovery. Finally, it will continue its partnership with Delta Air Lines through the Joint Venture and Delta’s shareholder participation in Aeromexico.
