Aeromexico Shrinks Through Bankruptcy With Deal to Slash Boeing Orderbook

Photo credit: Aeromexico has slashed its fleet commitments with Boeing in bankruptcy. Flickr / Tomás Del Coro

Aeromexico is doing the work in Chapter 11 bankruptcy protection. The Mexican carrier has renegotiated labor agreements, secured up to $1 billion in new debtor-in-possession funding, and pruned its fleet to 106 aircraft.

But that’s not all for the Mexico City-based carrier. The airline and Boeing have reached a deal to slash its orderbook and in the process saving Aeromexico almost $2 billion in future capital expenditures. All of this while continuing its shift towards new, more efficient aircraft, namely the Boeing 737 Max.

Before the U.S. bankruptcy court judge in New York is a plan to replace the 54 737 Max commitments Aeromexico had before the crisis with an order for just 20 737-8s and -9s, court filings show. All of the Maxes from Boeing will be financed with sale-and-leaseback transactions that have yet to be finalized. In addition, the airline has a deal with Air Lease Corp. to add another four 737 Maxes and four Boeing 787-9s. If approved, all of the jets will be delivered by the end of 2022.

In addition, the judge will review separate rejigged agreements with AerCap and other lessors that together will save Aeromexico another $800 million in lease-related expenses.

“This continues [Aeromexico’s] process of realigning the composition of their fleet with expected operations and adding more fuel- and cost-efficient Boeing 737 Max aircraft that will offer an upgraded customer experience and improved profitability,” the airline said in the court filing on April 24.

In a statement, Aeromexico CEO Andres Conesa said that, if approved, the aircraft transaction will put the airline on a “strong path” to exit Chapter 11 this year.

Aeromexico’s orderbook cuts come as domestic competitors Viva Aerobus and Volaris circle. Both budget carriers see the restructuring of country’s sole full-service carrier, plus the de facto closure of Interjet, as an opportunity to grow unseen since the collapse of Mexicana de Aviacion in 2010.

Earlier in April, Volaris unveiled a lease deal for eight new incremental Airbus A320neo deliveries this year. This brings the discounter’s scheduled deliveries to 11 for the year.

“The process of Interjet disappearing from the market and Aeromexico restructuring, we’ve seen more than 33 percent, 34 percent of the fleet leaving the market,” Volaris CEO Enrique Beltranena said on April 23. This structural contraction prompted the search for the new A320neos, which he said the airline secured at low lease-rate factors.

The first quarter was rough for Mexican carriers. Rising Covid-19 infections pushed industry capacity steadily lower during the period, from down 7 percent compared to 2019 in January to down 14.5 percent in March, according to Cirium schedules. Aeromexico’s domestic capacity ranged from down 7.7 percent to down 19 percent, whereas Volaris see-sawed from up 18 percent to down nearly 2 percent.

Operating losses total $171 million (3.4 billion pesos) at Aeromexico, and $37 million at Volaris.

But things are looking up as demand rises with vaccination rates. Aeromexico is pushing for the court to approve its restructured orderbook rapidly in order to have planes ready for the summer travel season.

Aeromexico “urgently need[s] to integrate these additional aircraft into their operating fleet schedule as soon as practicable to service steadily increasing demand over the upcoming summer vacation season,” the airline said in the filing.

That summer schedule includes expanded service to Texas with partner Delta Air Lines. Aeromexico plans to resume daily service to both Austin and Dallas-Fort Worth from Mexico City on July 1, as well as add frequency to Houston Bush Intercontinental. Austin is a focus city for Delta, which also owns 51 percent of Grupo Aeromexico.

Whether the judge approves the fleet deal or not, one thing is clear: Aeromexico will emerge a smaller airline from Chapter 11. The carrier has already said goodbye to 19 aircraft, including all of its Embraer E170s and many of its 737-700s. And it will use some of the new Maxes to replace more 737-700s and -800s in what every airline executive touts as efficient growth — adding seats at a lower operating cost without physically growing the fleet.