Aeromexico Creditors Claim Restructuring Plan Undervalues Airline by $1 Billion

Unsecured creditors in Aeromexico's U.S. bankruptcy reorganization oppose a modified plan that, they claim, unfairly benefits Delta Air Lines and other more senior creditors.

The unsecured creditors committee argue that the plan, which includes nearly $1.5 billion in new equity and debt and estimates an enterprise value of $5.4 billion, understates the value of Aeromexico, according to documents filed with the U.S. Bankruptcy Court for the Southern District of New York late on Thursday. By its estimates, the proposal undervalues the restructured carrier by roughly $1 billion.

“The committee believes that the plan does not reflect the fair market value of [Aeromexico] due to the debtors’ flawed exit financing process," they said. In addition, the committee claims that "insiders" in the restructuring process — including Delta and Mexican institutional investors — had undue sway in the formulation of the plan that will give them payouts in excess of their claims while short-changing less senior creditors.

Aeromexico is not alone in struggling to find a mutually agreed upon restructuring plan. Latam Airlines Group, which is also operating under U.S. Chapter 11 protection, faces similar strife in its own reorganization. After successfully fending off a hostile takeover attempt by Brazil's Azul, Latam faces objections to its restructuring plan from a number of Chilean creditors. They too claim that the plan under values their claims to the benefit of others, including Delta that also owns an equity stake in the Chilean airline group.

All of the strife comes the same week as Avianca, the first major Latin American carrier to file for Chapter 11 in 2020, emerged from its restructuring process. The Bogotá-based carrier's exited bankruptcy on December 1 under a plan that was supported by 99 percent of its creditors. United Airlines, which like Delta at Aeromexico and Latam, held an equity stake in Avianca prior to the reorganization will receive a roughly 16.4 percent stake in the new airline.

Aeromexico released its amended restructuring plan on November 29. Calling it the "best available source of liquidity," the plan includes $720 million in new equity and nearly $763 million in new debt, and would see Aeromexico emerge from Chapter 11 with roughly $1.1 billion less debt than when it filed in 2020. Private equity firm Apollo Global Management and Delta support the plan, with each receiving an at least 22 percent and 20 percent respective equity stake in the post-bankruptcy company. The plan also includes $450 million for unsecured creditor claims.

According to the airline, the plan has the support of many of its creditors, including Delta and Mexican institutional investors.

But the number of objections is rising. The Ad Hoc Group of OpCo Creditors filed an objection to the plan on Thursday. And, earlier this week, The Wall Street Journal reported that several creditors including Invictus Global Management, Hain Capital Group, and Livello Capital Management have also criticized the plan for favoring certain creditors, including Delta, over others. According to the committee, creditors with claims worth more than $750 million object to the plan.

Both the Ad Hoc Group and the unsecured creditors committee pointed to an alternative reorganization plan that was turned down by Aeromexico. That plan, called the "alternative proposal" by the committee, would provide a "significantly greater recovery" to unsecured creditors while "providing substantially identical or improved treatment" to backers of Aeromexico's proposal. However, citing opposition by Apollo, Delta and others, both group's are prepared to push forward with this alternative plan in a manner that excludes any equity stake for the private equity firm or airline.

The unsecured creditors base their undervalued claim on Aeromexico's five-year financial forecast. They argue that the forecast, which assumes four years of recovery from Covid-19 and a permanent 20 percent reduction in business travel, is too conservative, and cite a faster-than-expected rebound this year with rapidly improving financial numbers over the summer. This, plus the share gains Aeromexico is likely to see in Mexico City from the closure of Interjet, boosts the value of the airline by roughly $1 billion.

A hearing on Aeromexico's restructuring plan is scheduled for December 6.

Delta did not respond to a request for comment.