(Bloomberg) -- The finance chief of Grupo Aeromexico SAB, Mexico’s largest airline by market , says the company will weather a pandemic that dried up passenger demand and drove the firm’s bonds to distressed levels, even without the safety net of a potential government aid package.
Aeromexico bonds due in 2025 now fetch just 31 cents on the dollar after the coronavirus pandemic and subsequent travel restrictions all but erased global demand for passenger flights. As Mexican President Andres Manuel Lopez Obrador insists he won’t bail out large companies, the $400 million of notes, sold just as the virus erupted in January, are Latin America’s worst performing after bonds from Colombian airline Avianca Holdings SA -- which just emerged from its own restructuring.
Nevertheless, Chief Financial Officer Ricardo Sanchez Baker says he remains confident Aeromexico can keep current on its obligations. Negotiations with suppliers and workers have slashed monthly fixed costs, including debt payments, by half to about $50 million, and the company has $560 million of cash on hand, he said.
“For us right now, the bond itself doesn’t represent any kind of pressure,” he said in an telephone interview on Monday. “We have no intention to seek any kind of restructuring or anything.”
Analysts say that with AMLO, as Mexico’s president is known, still adamantly anti-bailout, junk-rated Aeromexico’s prospects are bleak. Its biggest shareholder, Delta Air Lines, was cut to junk last week by Fitch after reducing capacity by 70% and is among U.S. airlines that struck a preliminary pact with the Treasury Department to access billions of dollars in aid. A Delta spokesman declined to comment on Aeromexico.
“The major airlines are going to need government support, which the U.S. has already done,” said Roger Horn, a senior strategist at SMBC Nikko Securities America in New York. “But AMLO seems averse to helping businesses at all.”
A spokesperson for the Mexican government didn’t respond to a request for comment about a possible aid package for Aeromexico.
Local Competition
Revenue at global airlines could shrink by $250 billion this year, according to the International Air Transport Association. Without support, most carriers will go bankrupt by the end of May, CAPA Centre for Aviation, an industry data provider, said.
Aeromexico reduced its forecast for capacity growth last year because of a weakening domestic economy. It also grounded six Boeing 737 Max planes in March 2019 after the Lion Air and Ethiopian Airlines crashes. The airline traces its history to 1934, when Julio Zinser, the first Mexican to hold a pilot’s license, flew to Acapulco from Mexico City.
It also face a crowded local market. Aeromexico’s main rival, Controladora Vuela Cia de Aviacion SAB, known as Volaris, flew more passengers in 2019 for the first time. Aeromexico’s passenger traffic slumped more than 40% in March. It parked 80 jets, two-thirds of its fleet, and set up a voluntary, unpaid leave program for its more than 16,000 workers. Its executive committee donated 50% of its salaries to the company.
Moody’s Investors Service cut its Aeromexico credit rating deeper into junk on March 17, saying revenue will probably slide by a fifth this year. That would be the biggest annual drop since at least when Bloomberg started tracking the data in 2008.
Aeromexico may have bought itself some time from its decision last month to use passenger jets for cargo flights. Working under a charter model, its planes have been used to transport medical supplies and technology to fight the virus.
Back in Mexico City, CFO Baker says the company is focused on shoring up the business to withstand the pandemic. At the same time, he said, it’s also in touch with the government.
“Of course, any support would be welcome,” he said.
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