Last Friday, the Judge Shelley C. Chapman of the United States Bankruptcy Court for the Southern District of New York approved, on a final basis, the Debtor-In-Possession Financing of Grupo Aeromexico for up to US$1 billion. What does this mean for the airline? Let’s investigate further.
Aeromexico got approval for its DIP Financing for US$1 billion. Photo: Getty Images.
Aeromexico’s cash reserves were running low
Aeromexico has been one of the most damaged airlines by the COVID-19 crisis in Mexico. The legacy carrier traditionally depended on its international routes but only lately has it been able to resume operations to many of its destinations, due to ongoing Government restrictions.
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Domestically, the airline hasn’t been able to compete with the low-cost carriers Volaris and Viva Aerobus. Between the three, Aeromexico has the lowest load factor, the deepest fall in passengers transported, and the slowest recovery.
In September, Aeromexico transported 708 thousand passengers with a load factor of 64.5%. Meanwhile, Volaris had 1.261 million passengers with a load factor of 74.4%. Finally, Viva Aerobus transported 730 thousand passengers with the highest load factor among the three: 80.0%.
Aeromexico also had the largest fleet, which adds to its ongoing expenses. According to the airline’s filings, when it started its Chapter 11 reorganization, it had a cash balance of US$163 million. By 31 August, its cash balance had reduced to US$106 million. That’s a loss of US$57 million in two months. Aeromexico badly needed the DIP funding. And it finally got it.
Aeromexico has had the toughest recovery among the three top airlines in Mexico. Photo: Aeromexico
How will Aeromexico receive the new money?
The New York Court approved the funding of US$1 billion in two tranches. The first tranche was composed of US$200 million, of which Aeromexico has already received half. Meanwhile, the second tranche is comprised of US$800 million. Apollo Global Management, an investment management firm, supports the full funding.
Andrés Conesa, Aeromexico’s CEO, said,
“The final approval of the DIP Facility by the Chapter 11 Court is a key milestone in the ongoing restructuring process for Aeromexico.” He added that it would provide them with certainty accessing liquidity.
Aeromexico still has to complete a few remaining conditions to ensure the DIP Financing. Then, the Mexican carrier will be able to receive the final US$100 million of Tranche A and an initial draw of US$175 million of Tranche B. Subsequently, Aeromexico can have additional draws in minimum amounts of US$100 million.
Aeromexico, LATAM, and Avianca received their DIP Financing approvals in the last month. Photo: Daniel Martínez Garbuno/Simple Flying.
Latin America’s big three have secured their fundings
In less than a month, the three Latin American carriers under Chapter 11 reorganizations got their DIP Financing. The approvals are big news for the Latin American region, as these three airlines are pivotal to the connectivity.
Between LATAM, Avianca, and Aeromexico, they will receive US$5.45 billion in DIP Financing.
LATAM will have the most extensive funding. It is logical, as the airline is the largest in South America with more than 300 planes. The Court approved the modified US$2.45 billion financing proposal in September.
Avianca’s DIP Financing is worth US$2 billion in investments. Despite the approval, the Colombian airline is still trying to access a section of its funding. The airline is trying to obtain a loan from the Colombian State.
Finally, now Aeromexico has US$1 billion in DIP Financing. The Mexican carrier has the smallest fleet of the three and also operates solely from Mexico. Additionally, it may continue reducing its fleet in the following months.
Do you think it is excellent news to see the three Latin American airlines receive their DIP Fundings? Let us know in the comments.