After $9 Billion Writedown, Mexicans Fume Over Airport Chaos

(Bloomberg) -- On a jet circling Benito Juarez International Airport, where the floors are sinking and the toilets stink, you can catch a glimpse of what might have been in an abandoned construction site a few miles away. It’s the carcass of a plan to end the hell of flying in and out of Mexico City.

President Andres Manuel Lopez Obrador scuttled it a year ago in a move that disappointed airlines, dismayed frequent fliers and shocked investors. After all, some $5 billion had been poured into the New International Airport in Texcoco. The estimate to finish it was another $8.3 billion or so -- and scrapping it will end up costing more than $9 billion.

Now Lopez Obrador is fending off legal challenges, digging in as a coalition of business leaders and activists fights to revive the jettisoned project. They are by most accounts unlikely to win. Presidents have sweeping power in the Mexican system, and the current president is very determined.

“This is a perfect reflection of how, when he decides something is a priority, it’s almost impossible for him to change his mind,” said Carlos Petersen, an analyst at Eurasia Group. “The airport cancellation was the first time investors got a look at how he’d operate, and we’re seeing the same with Santa Lucia.”

Santa Lucia is the name of the air force base where Lopez Obrador has ordered two commercial runways to be built, for around $4 billion. The Defense Ministry is in charge and has deemed the project classified, keeping details about contracts and viability and environmental-impact studies under wraps. This is reminiscent of another project the president is pursuing -- a Yucatan Peninsula tourist train -- without revealing how the government came up with the $7.4 billion estimate and dismissing criticism that the endeavor is foolhardy.

Lopez Obrador, a leftist elected last year, has promised all information about Santa Lucia will one day be made public: “We have nothing to hide. We’re not like the conservatives.”

His critics don’t necessarily believe him and in any event contend transparency will come too late. A judge recently allowed construction at Santa Lucia to proceed while courts consider more than 100 lawsuits against it.

If the base does operate as a commercial airport -- which the president insists will happen in 2022 -- it won’t replace Benito Juarez though should take some pressure off.

The only certainty in the debate is Benito Juarez is a congested mess people wish they could avoid. Aborted landings because of runway traffic jams shot up 84% in the first five months of the year; passengers can sit for hours in planes on the tarmac that can’t find gates. Parts of the terminals are slowly sliding into a lake bed.

Surrounding urban development puts significant expansion out of the question. There’s probably not much money to upgrade the place anyway, considering that revenue generated at the almost 90-year-old facility is being siphoned off to pay some Texcoco cancellation costs.

It was Lopez Obrador’s predecessor, Enrique Pena Nieto, who launched Benito Juarez’s replacement: a futuristic, X-shaped mega-airport designed by the firms of British architect Norman Foster and Mexico’s Fernando Romero, Carlos Slim’s son-in-law.

Funding came from bonds, a credit line and the sale of shares in something called Fibra E, a hybrid of a master-limited partnership and a real estate investment trust.

To cancel it -- with financing 70% complete and construction about one-third done -- the Lopez Obrador administration had to buy debt back from bondholders and pay to settle hundreds of abrogated contracts. (Airport bonds sank as low as 73.7 cents but are back at par.) Slim, Mexico’s richest person, was a major investor, and his construction company had a main contract. His spokesman, Arturo Elias Ayub, declined to comment.

The cost of ending Texcoco is worth it, according to the president. The New International Airport was riddled with too-generous deals for developers and investors, he said recently. “It was a very expensive and pharaonic project with particular interests behind it.”

As a man-of-the-people leader who flies commercial -- in economy -- he knows how unpopular his Texcoco decision is with many of his constituents. He heard about it two days ago when an Aeromexico pilot welcomed him aboard over the loudspeaker and added, “We wish we could convince him to build the Texcoco airport. If it’s not possible, well, what are you gonna do.” Passengers responded with laughter and applause. Lopez Obrador shook the pilot’s hand as he exited and said, simply, “Santa Lucia!”

Texcoco was definitely not without controversy. It was going up in a marshy area in an earthquake-prone region. It was running behind schedule.

But its supporters see it as the best bet. The main group fighting to restore it and stop Santa Lucia is #NoMasDerroches -- “No More Splurges” -- whose members include Coparmex, which represents 36,000 companies, and more than a dozen nonprofits, among them the activist organization Mexicans Against Corruption. The coalition’s leader is Claudio X. Gonzalez, the son of the former chairman of Kimberly-Clark de Mexico.

“We’re not moved by politics. We simply believe the president’s decision to cancel Texcoco and build Santa Lucia is legally and financially unjustified,” said Gerardo Carrasco, a spokesman. “It’s a waste of public resources.”

There are more pressing concerns, according to Mitre Corp., which did consulting work on Texcoco. Adding commercial runways at the base while keeping the old airport open would put jets dangerously close as they fly in the same in-air gateway, Mitre’s Center for Advanced Aviation System Development concluded. The president said his own consultants disagree.

Meanwhile, back at Benito Juarez, conditions are as bleak as ever. Senator Martha Micher, a member of Lopez Obrador’s party, posted on Twitter about it last month, saying, “we’ve landed but we’ve been stopped because we can’t get a gate, we’ve been waiting for over 15 minutes. Incredible, isn’t it?”

That sparked a flood of responses. “‘Incredible!” one person said. “Maybe we need the airport you canceled.”

To contact the reporter on this story: Andrea Navarro in Mexico City at anavarro30@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Anne Reifenberg, Melinda Grenier

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